Document:

Blueprint

 

Exhibit 10.1

IMAGEWARE SYSTEMS, INC.

 

SECURITIES PURCHASE AGREEMENT

 

 

This
SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of
September 10, 2018, is made by and among ImageWare Systems, Inc., a
corporation organized under the laws of the State of Delaware (the
“Company”), and
each of the purchasers (individually, a “Purchaser” and collectively the
“Purchasers”)
set forth on the signature pages hereto (each, a
“Signature
Page” and collectively the “Signature Pages”).

 

RECITALS

 

WHEREAS, the Company and the Purchasers
are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the provisions
of Regulation D (“Regulation
D”), as promulgated by the United States Securities
and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended (including the rules and regulations promulgated
thereunder, the “Securities
Act”);

 

WHEREAS, upon satisfaction of certain
conditions, the Purchasers, severally and not jointly, desire to
purchase, and the Company desires to issue and sell to the
Purchasers, upon the terms and subject to the conditions set forth
in this Agreement, an aggregate of One Thousand, (1,000) shares of
the Company’s Series C Convertible Preferred Stock, par value
$0.01 per share (the “Preferred Stock”), for $10,000
per share, which Preferred Stock shall have the rights, preferences
and privileges set forth in the Company’s Certificate of
Designations, Preferences and Rights of Series C Convertible
Preferred Stock (the “Certificate of Designation”)
filed with the Secretary of State for the State of Delaware on
September 10, 2018, in the form of Exhibit A attached
hereto;

 

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

 

WHEREAS, in connection with the
execution of this Agreement, the parties hereto will execute and
deliver a Registration Rights Agreement, in the form attached
hereto as Exhibit B
(the “Registration Rights
Agreement”), pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and
the rules and regulations promulgated thereunder, and applicable
state securities laws; and

 

WHEREAS, in connection with the
execution of this Agreement, the Company has entered into an Escrow
Agreement, dated as of August 29, 2018 (an executed copy of which
is attached hereto as Exhibit C, the
“Escrow
Agreement”), with Northland Securities, Inc., a
Minnesota corporation, and Midwest Bank, a Minnesota banking
corporation (the “Escrow
Agent”), pursuant to which the Escrow Agent will act
as Escrow Agent with respect to the transactions contemplated by
this Agreement. This Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Escrow Agreement are
collectively referred to herein as the “Transaction
Documents.”

 

NOW, THEREFORE, in consideration of the
premises and mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers hereby agree as
follows:

 

 

 
-1-

 

 

1. PURCHASE AND SALE OF
SECURITIES.

 

(a) Purchase and Sale of
Securities. Subject to the terms and conditions hereof, at
the Closing (as defined in Section 1(b) below), the Company shall
issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, shall purchase from the Company, such number of shares
of Preferred Stock as is set forth on such Purchaser’s
Signature Page, for a purchase price (as to each Purchaser, the
“Purchase
Price”) equal to $10,000 per share of Preferred
Stock.

 

(b) The Closing. Closing of the
transactions contemplated hereby (the “Closing”) shall occur on the date
on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto in connection with the
Closing, and all conditions precedent to (i) the Purchasers’
obligation to deliver the Purchase Price of the Preferred Stock to
the Escrow Agent, as set forth in Section 7, and (ii) the
Company’s obligations to deliver the Preferred Stock set
forth in Section 6, in each case, have been satisfied or waived.
The day on which the Closing occurs shall be the
“Closing
Date”.

 

2. PURCHASER’S REPRESENTATIONS AND
WARRANTIES.

 

Each
Purchaser, severally, but not jointly, represents and warrants to
the Company as follows:

 

(a) Purchase for Own Account, Etc.
Such Purchaser is purchasing the Securities for such
Purchaser’s own account for investment purposes only and not
with a view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under
the Securities Act. Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company, and is capable of
evaluating the merits and risks of its investment in the Company.
Such Purchaser understands that it must bear the economic risk of
this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities
or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of
registering the resale of any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the
representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act.

 

(b) Accredited Investor Status.
Such Purchaser is an “Accredited Investor”, as that
term is defined in Rule 501(a) of Regulation D.

 

(c) Reliance on Exemptions. Such
Purchaser understands that the Securities are being offered and
sold to such Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws, and that the Company is relying upon the truth and
accuracy of, and such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility
of such Purchaser to acquire the Securities.

 

(d) Information. All materials
relating to the business, finances and operations of the Company
(including the Company’s most recent Annual Report on Form
10-K and most recent Quarterly Report on Form 10-Q) and materials
relating to the offer and sale of the Securities which have been
specifically requested by such Purchaser or its counsel have been
made available to such Purchaser and its counsel, if any. Neither
such inquiries nor any other investigation conducted by such
Purchaser or its counsel or any of such Purchaser’s
representatives shall modify, amend or affect such
Purchaser’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Such
Purchaser understands that its investment in the Securities
involves a high degree of risk, including the risk of loss of its
entire investment in the Securities.

 

 

 

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(e) Governmental Review. Such
Purchaser understands that no United States federal or state agency
or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the
Securities.

 

(f) Transfer or Resale. Such
Purchaser understands that (i) except as provided in the
Registration Rights Agreement, the sale or resale of the Securities
have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be
transferred unless (A) the transfer is made pursuant to and as set
forth in an effective registration statement under the Securities
Act covering the Securities; or (B) such Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall
be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (C) sold under and in
compliance with Rule 144 promulgated under the Securities Act
(including any successor rule, “Rule 144”); or (D) sold or
transferred to an affiliate of such Purchaser that agrees to sell
or otherwise transfer the Securities only in accordance with the
provisions of this Section 2(f) and that is an Accredited Investor;
and (ii) neither the Company nor any other person is under any
obligation to register the Securities under the Securities Act or
any state securities laws (other than pursuant to the terms of the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin
account or other lending arrangement, provided such pledge is
consistent with applicable laws, rules and
regulations.

 

(g) [Reserved].

 

(h) Authorization; Enforcement.
This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered on behalf of such
Purchaser and are valid and binding agreements of such Purchaser
enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors’ rights and
remedies.

 

(i) Residency. Such Purchaser is a
resident of the jurisdiction set forth under such Purchaser’s
name on the Signature Page hereto executed by such
Purchaser.

 

3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.

 

Except
as set forth on the Disclosure Schedule attached to this Agreement
(the “Disclosure
Schedule”), the Company represents and warrants to
each Purchaser as follows:

 

(a) Organization and Qualification;
Subsidiaries. The Company and each of its subsidiaries
(collectively, the “Subsidiaries”) is a corporation
duly organized and validly existing in good standing under the laws
of the jurisdiction in which it is incorporated or organized, and
has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company and each
of its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have, or would
reasonably be expected to result in, a Material Adverse Effect. For
purposes of this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the Securities or the Dividend
Shares, (ii) the ability of the Company to perform its obligations
under this Agreement or the other Transaction Documents or (iii)
the business, operations, properties, prospects, condition
(financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole. Other than the Subsidiaries
set forth on the Disclosure Schedule, the Company has no
subsidiaries.

 

 

 

-3-

 

 

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

 

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

 

 

 

-4-

 

 

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

 

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

 

(f) Compliance. Neither the Company
nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred that with notice or lapse of time or both
would put the Company or any of its Subsidiaries in default) under,
nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party. The businesses of the Company and its Subsidiaries are not
being conducted, and shall not be conducted so long as any
Purchaser (or any of its respective affiliates) owns any of the
Securities or Dividend Shares, in violation of any law, ordinance
or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the
aggregate have not had and would not materially affect the Company
or any of its Subsidiaries. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any Subsidiary has, in
the course of his actions for, or on behalf of, the Company, used
any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee. The
Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state,

 

 

 

-5-

 

 

provincial or
foreign governmental or regulatory authorities that are material to
the conduct to their business, and neither the Company nor any of
its Subsidiaries has received any notice of proceeding relating to
the revocation or modification of any such certificate,
authorization or permit. The Company has complied in all material
respects with and is not in default or violation in any material
respect of, and is not, to the Company’s knowledge, under
investigation with respect to or has not been, to the knowledge of
the Company, threatened to be charged with or given notice of any
violation of, any applicable federal, state, local or foreign law,
statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any federal,
state, local or foreign governmental or regulatory authority.
Except for statutory or regulatory restrictions of general
application, no federal, state, local or foreign governmental or
regulatory authority has placed any material restriction on the
business or properties of the Company or any of its
Subsidiaries.

 

(g) SEC Documents, Financial
Statements. The Company has timely filed (within applicable
extension periods) all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to
the Securities Act and/or the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated
thereunder, the “Exchange
Act”) (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference
therein, the “SEC
Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date
hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto.
Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”), consistently applied,
during the periods involved (except as may be otherwise indicated
in such financial statements or the notes thereto or, in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end audit adjustments).
Except as set forth in the financial statements of the Company
included in the Select SEC Documents (as defined below), the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent
to the date of such financial statements and (ii) obligations under
contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such
financial statements, which liabilities and obligations referred to
in clauses (i) and (ii), individually or in the aggregate, are not
material to the financial condition or operating results of the
Company. For purposes of this Agreement, “Select SEC Documents” means the
Company’s (A) Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, (B) Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2018, and (C) all Current Reports on
Form 8-K filed since August 9, 2018.

 

(h) Absence of Certain Changes.
Since June 30, 2018, (i) there has not been any change in the
capital stock (other than pursuant to the Company’s stock
plans pursuant to the Company’s Approved Share Plan (as
defined below), pursuant to the conversion or exercise of
outstanding securities that are convertible into or exercisable for
Common Stock, or pursuant to publicly disclosed equity or debt
financings) or long-term debt of the Company, or any dividend or
distribution of any kind declared, set aside for payment, paid or
made by the Company on any class of capital stock; (ii) neither the
Company nor any of its Subsidiaries has entered into any
transaction or agreement that is material to the Company or any of
its Subsidiaries taken as a whole or incurred any liability or
obligation, direct or contingent, that is material to the Company
or any of its Subsidiaries and, except as contemplated by this
Agreement, has made any material change or amendment to a material
contract or arrangement by which the Company or any of its
Subsidiaries or any of their respective assets or properties is
bound or subject; (iii) neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor disturbance or
dispute or any action, order or decree of any court or arbitrator
or governmental or regulatory authority; and (iv)

 

 

 

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there
has been no material adverse change and no material adverse
development in the business, properties, operations, prospects,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole. Neither the Company
nor any of its Subsidiaries has taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to
any bankruptcy or receivership law, nor does the Company or any of
its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings
with respect to the Company or any of its Subsidiaries. For
purposes of this Section 3(h), “Approved Share Plan” shall mean
the Company’s Amended and Restated 1999 Stock Award
Plan.

 

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

 

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

 

(k) Intellectual Property. Each of
the Company and its Subsidiaries owns or is duly licensed (and, in
such event, has the unfettered right to grant sublicenses) to use
all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries,
processes, scientific, technical, engineering and marketing data,
object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, “Intellectual Property”) used in
or necessary for the conduct of its business as now being conducted
and as presently contemplated to be conducted in the future
(collectively, the “Company
Intellectual Property”). Section 3(k) of the
Disclosure Schedule sets forth a list of all material Company
Intellectual Property owned and/or used by the Company or any of
its Subsidiaries in its business. Except as set forth on the
Disclosure Schedule, there are no rights of third parties to any of
the Company Intellectual Property except through licensing
agreements. Except as set forth on the Disclosure Schedule, there
are no outstanding options, licenses or agreements of any kind
relating to the Company Intellectual Property, nor is the Company
or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual
Property of any other Person (collectively, the “Third Party License Agreements”) other than
such licenses or agreements arising from the purchase of generally
available products, as to which the aggregate consideration paid by
or due from the Company or any of its Subsidiaries does not exceed
$25,000 in value, or “off the shelf” products. All of
the Third Party License Agreements are valid, binding and in full
force and effect in all material respects and to the
Company’s knowledge enforceable by the Company or its
applicable Subsidiary in accordance with their respective terms in
all material respects, subject to general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors’ rights and remedies. Neither
the Company nor any of its Subsidiaries is in material breach of
any such Third Party License Agreements. To the Company’s
knowledge, no other party to any of the Third Party License
Agreements is in material default thereunder. Neither the Company
nor any Subsidiary of the Company infringes or is in conflict with
any right of any other Person with respect to any third party
Intellectual Property. Neither the Company nor any of its
Subsidiaries has received written notice of any
pending

 

 

 

-7-

 

 

conflict with or
infringement upon any third party Intellectual Property. There is
no pending or, to the Company’s knowledge, threatened action,
suit, proceeding or claim by others challenging the Company’s
or any of its Subsidiaries’ ownership of or licensing rights
in or to any Company Intellectual Property. Neither the Company nor
any of its Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or
its Subsidiaries’ ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such
claim to be successful. The rights of the Company and its
Subsidiaries in the Company Intellectual Property are valid and
enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its
Subsidiaries have taken all reasonable steps required to perfect
their ownership of and interest in the Company Intellectual
Property and has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of the Company
Intellectual Property. The Company and its Subsidiaries have
complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company
Intellectual Property used pursuant to licenses. No Person is
infringing on or violating the Company Intellectual Property owned
or used by the Company or its Subsidiaries. The Company and its
Subsidiaries have used Company IP Counsel (as defined below) for
all Intellectual Property matters since December 31, 2011 and,
since such date, neither the Company nor any of its Subsidiaries
has consulted any other counsel with respect to any Intellectual
Property matters.

 

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

 

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

 

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

 

 

 

-8-

 

 

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

 

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

 

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

 

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

 

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

 

 

 

-9-

 

 

(t) No Brokers. Other than the fees
and expenses of Northland Securities, Inc., no brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other third party with respect to the transactions contemplated by
the Transaction Documents. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or
on behalf of other third parties for fees of a type contemplated in
this Section 3(t) that may be due in connection with the
transactions contemplated by the Transaction
Documents.

 

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

 

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

 

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

 

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

 

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

 

 

 

-10-

 

 

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

 

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

 

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

 

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

 

4. COVENANTS.

 

(a) Form D: Blue Sky Laws. The
Company shall timely file with the SEC a Form D with respect to the
Securities as required under Regulation D and provide a copy
thereof to any Purchaser promptly upon request of such Purchaser.
The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify
the Securities for sale to each Purchaser pursuant to this
Agreement under applicable securities or “blue sky”
laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken
to each Purchaser on or prior to the Closing Date. Within four
business days after the Closing Date, the Company shall file a Form
8-K with the SEC concerning this Agreement and the transactions
contemplated hereby, which Form 8-K shall attach this Agreement and
its Exhibits as exhibits to such Form 8-K (the “8-K Filing”). The Company shall
provide the Purchasers with a copy of the 8-K Filing at least two
(2) business days prior to the filing of the 8-K Filing for the
Purchasers’ review and comment, it being understood that
nothing contained herein shall prevent the Company from filing such
8-K Filing within four (4) business days after the Closing Date.
The Company shall consider in good faith the comments received
by

 

 

 

-11-

 

 

the
Purchasers or their counsel to the 8-K Filing and shall incorporate
the same into the 8-K Filing unless the Company, acting in good
faith, has a reasonable basis for not incorporating any such
comments, in which case the Company shall consult with the
Purchasers or their counsel with respect to such comments.
Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the SEC or any regulatory agency or
trading market (including, without limitation, on any signature
page to any Transaction Document), without the prior written
consent of such Purchaser, except (i) as required by federal
securities law in connection with any registration statement
contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law, in which case the
Company shall provide the applicable Purchaser(s) with prior notice
of such disclosure permitted under this clause (ii). From and after
the 8-K Filing, the Company hereby represents and acknowledges to
the Purchasers that no Purchaser shall be in possession of any
material nonpublic information received from the Company, any of
its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. In
addition, effective upon the 8-K Filing, the Company acknowledges
and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, agents, employees or affiliates on the one hand, and any
of the Purchasers or any of their affiliates on the other hand,
shall terminate. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers,
directors, employees and agents not to, provide any Purchaser with
any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the 8-K Filing without the express
written consent of such Purchaser. The Company understands and
confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company. To
the extent that the Company delivers any material non-public
information to a Purchaser without such Purchaser’s express
written consent, the Company hereby covenants and agrees that such
Purchaser shall not have any duty of confidentiality to the
Company, any of its Subsidiaries or affiliates, or any of their
respective officers, directors, agents or employees or affiliates,
or a duty to the Company, any of its Subsidiaries or affiliates or
any of their respective officers, directors, agents or employees
not to trade on the basis of, such material non-public information,
provided that the Purchaser
shall remain subject to applicable law. To the extent that any
notice provided pursuant to any Transaction Document constitutes,
or contains, material non-public information regarding the Company
or any of its Subsidiaries or affiliates, the Company shall
simultaneously file such notice with the SEC pursuant to a Current
Report on Form 8-K. The Company understands and confirms that each
Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company or its
affiliates.

 

(b) Reporting Status. So long as
any Purchaser (or any of its affiliates) beneficially owns any of
the Securities or Dividend Shares, the Company covenants to
maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act even
if the Company is not then subject to the reporting requirements of
the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all
actions necessary to meet the “registrant eligibility”
requirements set forth in the general instructions to Form S-1 or
any successor form thereto, to continue to be eligible to register
the resale of its Common Stock on a registration statement on Form
S-1 under the Securities Act.

 

(c) Use of Proceeds. The Company
shall use the proceeds from the sale and issuance of the Preferred
Stock for general corporate purposes and working capital;
provided that such proceeds
shall not be used to (i) pay dividends, except for dividends paid
or payable to holders of the Company’s Series B Convertible
Redeemable Preferred Stock; (ii) purchase debt or equity securities
of any entity (including redeeming the Company’s own
securities), except for (A) evidences of indebtedness issued or
fully guaranteed by the United States of America and having a
maturity of not more than one year from the date of acquisition,
(B) certificates of deposit, notes, acceptances and repurchase
agreements having a maturity of not more than one year from the
date of acquisition issued by a bank organized in the United
States, (C) the highest-rated commercial paper having a maturity of
not more than one year from the date of acquisition, and (D)
“Money Market” fund shares, or money market accounts
fully insured by the Federal Deposit Insurance Corporation and
sponsored by banks and other financial institutions, provided that
the investments consist principally of the types of investments
described in clauses (A), (B), or (C) above; or (iii) make any
investment not directly related to the current business of the
Company.

 

 

 

-12-

 

 

(d) Listing. The Company shall
maintain, so long as any Purchaser (or any of its affiliates)
beneficially owns any Securities or Dividend Shares, the listing of
all Dividend Shares, if any, and Conversion Shares from time to
time issuable upon conversion of the Preferred Stock on each
national securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are
currently listed. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the OTCQB, the
NASDAQ Capital Market (“NASDAQ”) or the NYSE MKT Exchange
(“NYSE MKT”),
as applicable.

 

(e) Corporate Existence. So long as
any Purchaser (or any of its affiliates) beneficially owns any
Securities or Dividend Shares, the Company shall maintain its
corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company’s assets, the
Company shall ensure that the surviving or successor entity in such
transaction and, if an entity different from the successor or
acquiring entity, the entity whose securities into which the Common
Stock shall become convertible or exchangeable in such transaction
(i) expressly assumes in writing, for the benefit of the
Purchasers, the Company’s obligations under this Agreement
and the other Transaction Documents and the agreements and
instruments entered into in connection herewith and therewith
regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the conversion of all the
Preferred Stock outstanding as of the date of such transaction and
(ii) except in the event of a merger, consolidation of the Company
into any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor
entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Common Stock
shall become convertible or exchangeable in such transaction, is a
publicly traded corporation whose common stock is listed for
quotation or trading on the OTCQB, NASDAQ or NYSE MKT.

 

(f) No Integrated Offerings. The
Company shall not make any offers or sales of any security (other
than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of the Securities
to be integrated with any other offering of securities by the
Company for purposes of any stockholder approval provision
applicable to the Company or its securities.

 

(g) Legal Compliance. The Company
shall conduct its business and the business of its Subsidiaries in
compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to
do so would not be material to the Securities, the Dividend Shares
or the business, operations, properties, prospects, condition
(financial or otherwise) or results of operations of the Company
and its Subsidiaries.

 

(h) Press
Release. Neither the Purchasers
nor the Company may issue any press release (whether or not
included in the 8-K Filing) relating to the transactions
contemplated by this Agreement or any other Transaction Document
without the prior written approval of the Purchasers, in the case
of a press release issued by the Company, or the Company, in the
case of a press release issued by any Purchaser, in each case, such
approval not to be withheld, conditioned or delayed by any such
Person.

 

(i) Legends. Each Purchaser agrees
to the imprinting, so long as is required by this Section 4(i), of a legend on
any of the Securities or Dividend Shares in the following
form:

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE
SECURITIES REPRESENTED HEREBY MAY BE PLEDGED IN ACCORDANCE WITH THE
TERMS OF THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER
10, 2018, IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LENDING ARRANGEMENT WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

 

 

 

-13-

 

 

The
Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities and/or Dividend Shares to a financial
institution that is an “accredited investor” as defined
in Rule 501(a) under the Securities Act and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or
secured Securities and/or Dividend Shares to the pledgees or
secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. The Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities and/or
Dividend Shares may reasonably request in connection with a pledge
or transfer of the Securities and/or Dividend Shares, including, if
the Securities and/or Dividend Shares are subject to registration
pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3)
under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling
stockholders thereunder.

 

Instruments
(including statements related to book-entry accounts), whether
certificated or uncertificated, evidencing the Securities and/or
Dividend Shares shall not contain any legend (including the legend
set forth above in this Section 4(i)), and the Company
shall take all actions that are necessary to remove any such
legend, (i) while a registration statement (including, without
limitation, the registration statement contemplated by the
Registration Rights Agreement) covering the resale of such
Securities and/or Dividend Shares is effective under the Securities
Act, (ii) following any sale of such Securities and/or Dividend
Shares pursuant to Rule 144, (iii) if such Securities and/or
Dividend Shares are eligible for sale under Rule 144 (whether or
not such Securities and/or Dividend Shares are being sold under
Rule 144 at the applicable time), without the requirement for the
Company to be in compliance with the current public information
required under Rule 144 as to such Securities and/or Dividend
Shares and without volume or manner-of-sale restrictions, (iv) the
holder of any such Securities and/or Dividend Shares provides the
Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to
the effect that a public sale or transfer of such Security and/or
Dividend Share may be made without registration under the
Securities Act; or (v) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC).
Promptly after such time as such legend is no longer required, the
Company shall cause its counsel to issue a legal opinion to its
transfer agent if required by the transfer agent to effect the
removal of the legend hereunder, or to a Purchaser upon request.
The Company agrees that following such time as such legend is no
longer required, it will, no later two (2) business days following
the delivery by a Purchaser to the Company or its transfer agent of
an instrument (including statements related to book-entry
accounts), whether certificated or uncertificated, representing
Securities and/or Dividend Shares, as the case may be, issued with
(or subject to) a restrictive legend, deliver or cause to be
delivered to such Purchaser an instrument (including statements
related to book-entry accounts), whether certificated or
uncertificated, representing such Securities and/or Dividend Shares
that is free from all restrictive and other legends.

 

(j) Shareholder Rights Plan. No
claim will be made or enforced by the Company or, with the consent
of the Company, any other Person, that any Purchaser is an
“acquiring person” under any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities and/or Dividend
Shares under the Transaction Documents or under any other agreement
between the Company and the Purchasers.

 

 

 

-14-

 

 

5. TRANSFER AGENT
INSTRUCTIONS.

 

(a) Upon conversion of
the Preferred Stock by any Person or the issuance of any Dividend
Shares, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to
electronically transmit all Conversion Shares and/or Dividend
Shares, as applicable, by crediting the account of such Person or
its nominee with the Depository Trust Company (“DTC”) through its Deposit
Withdrawal Agent Commission system; or (ii) if the DTC Transfer
Conditions are not satisfied, the Company shall issue and deliver,
or instruct its transfer agent to issue and deliver, certificates
or statements related to book-entry accounts (subject to the legend
and other applicable provisions hereof and the Certificate of
Designation), registered in the name of such Person or its nominee,
representing the Conversion Shares and/or the Dividend Shares, as
applicable. Even if the DTC Transfer Conditions are satisfied, any
Person effecting a conversion of Preferred Stock or receiving
Dividend Shares may instruct the Company to deliver to such Person
or its nominee physical certificates representing the Conversion
Shares and/or Dividend Shares, as applicable, in lieu of delivering
such shares by way of DTC transfer. For purposes of this Agreement,
“DTC Transfer
Conditions” means that (A) the Company’s
transfer agent is participating in the DTC Fast Automated
Securities Transfer program and (B) the certificates for the
Conversion Shares and/or Dividend Shares, as applicable, required
to be delivered are not required to bear a legend pursuant to
Section 4(i) and the Person effecting such conversion or exercise
is not then required to return such certificate for the placement
of a legend thereon.

 

(b) The Company
warrants that no instruction other than such instructions referred
to in this Section 5, and stop transfer instructions to give effect
to Section 2(f) hereof in the case of the transfer of the
Conversion Shares and/or Dividend Shares prior to registration of
the Conversion Shares and/or Dividend Shares under the Securities
Act or without an exemption therefrom, shall be given by the
Company to its transfer agent and that the Conversion Shares and/or
Dividend Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section shall affect in any way the
Purchasers’ obligations and agreement set forth in Section
4(i) hereof to resell the Securities and/or Dividend Shares
pursuant to an effective registration statement or under an
exemption from the registration requirements of applicable
securities law.

 

(c) If any Purchaser
provides the Company and the transfer agent with an opinion of
counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions,
to the effect that the Securities and/or Dividend Shares to be sold
or transferred may be sold or transferred pursuant to an exemption
from registration, or any Purchaser provides the Company with
reasonable assurances that such Securities and/or Dividend Shares
may be sold under Rule 144 (whether or not such Securities and/or
Dividend Shares are actually being sold at the applicable time),
the Company shall permit the transfer and, in the case of the
Conversion Shares and/or Dividend Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchasers. Nothing in
this Section 5(c) shall alter, modify, reduce, supersede or
otherwise change the obligations of the Company under Section
4(i).

 

6. CONDITIONS TO THE COMPANY’S
OBLIGATION TO SELL.

 

The
obligation of the Company hereunder to issue and sell the Preferred
Stock to each Purchaser is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions,
provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole
discretion:

 

(a) Each Purchaser
shall have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which such
Purchaser is a party and delivered the same to the
Company.

 

(b) Each Purchaser
shall have delivered to Escrow Agent the full amount of such
Purchaser’s applicable Purchase Price on the Closing Date in
accordance with Section 1(b) hereof and the wire transfer
instructions set forth on Exhibit D.

 

 

 

-15-

 

 

(c) The Company and
Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have
delivered a joint written notice to the Escrow Agent notifying the
Escrow Agent that the conditions precedent to the Closing have been
satisfied or waived and instructing the Escrow Agent to release and
disburse the Escrow Funds (as defined in the Escrow Agreement) to
the Company.

 

(d) The representations
and warranties of each Purchaser shall be true and correct as of
the date when made and on the Closing Date as though made at that
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
and correct as of such date), and such Purchaser shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by such Purchaser on or
prior to the Closing Date.

 

(e) No statute, rule,
regulation, executive order, decree, ruling, injunction, action or
proceeding shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.

 

7. CONDITIONS TO THE PURCHASER’S
OBLIGATION TO PURCHASE.

 

The
obligation of each Purchaser hereunder to purchase the Preferred
Stock on the Closing Date is subject to the satisfaction of each of
the following conditions, provided that such conditions are for
each Purchaser’s individual and sole benefit and may be
waived by such Purchaser at any time in such Purchaser’s sole
discretion:

 

(a) The Company shall
have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which the Company
is a party and delivered executed originals of the same to such
Purchaser.

 

(b) All consents,
approvals and waivers required for the consummation of the
transactions contemplated hereby shall have been
obtained.

 

(c) The Company shall
have delivered to such Purchaser (i) duly executed certificates
(or, if the shares of Preferred Stock are not represented by
certificates, duly executed statements related to book-entry
accounts) representing the Preferred Stock for the number of shares
of Preferred Stock being purchased by such Purchaser on the Closing
Date, registered in such Purchaser’s name, and (ii) evidence
of the filing and acceptance of the Certificate of Designation from
the Secretary of State of Delaware.

 

(d) The Common Stock
shall be authorized for quotation and listed on the OTCQB and
trading in the Common Stock (or on the OTCQB generally) shall not
have been suspended by the SEC or the OTCQB.

 

(e) The representations
and warranties of the Company shall be true and correct as of the
date when made and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company on or prior to
the Closing Date. In connection with the issuance of the Preferred
Stock on the Closing Date, such Purchaser shall have received a
certificate, executed by the Chief Executive Officer of the Company
after reasonable investigation, dated as of the Closing Date to the
foregoing effect.

 

(f) No statute, rule,
regulation, executive order, decree, ruling, injunction, action or
proceeding shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which questions the validity
of, challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement.

 

 

 

-16-

 

 

(g) Such Purchaser
shall have received an opinion of the Company’s counsel,
Disclosure Law Group, a professional corporation, dated as of the
Closing Date, addressed to such Purchaser in form and substance
reasonably satisfactory to Stroock & Stroock & Lavan LLP,
as counsel to certain Purchasers.

 

(h) Such Purchaser
shall have received an opinion of the Company’s intellectual
property counsel, San Diego IP Law Group LLP (“Company IP Counsel”), dated as of
the Closing Date, addressed to such Purchaser in form and substance
reasonably satisfactory to Stroock & Stroock & Lavan LLP,
as counsel to certain Purchasers.

 

(i) There shall have
been no material adverse changes and no material adverse
developments in the business, properties, operations, prospects,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, since the date
hereof, and no information that is materially adverse to the
Company and of which such Purchaser is not currently aware shall
come to the attention of such Purchaser.

 

(j) Such Purchaser
shall have received a copy of resolutions, duly adopted by the
Board of Directors of the Company, which shall be in full force and
effect at the time of the Closing, authorizing the execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of
the transactions contemplated hereby and thereby, certified as such
by the Secretary or Assistant Secretary of the Company on or before
the Closing Date, and such other documents they reasonably request
in connection with the issuance of the Preferred Stock on the
Closing Date.

 

(k) The Company shall
have paid (or shall pay concurrently with the Closing) the
reasonable fees and disbursements of Stroock & Stroock &
Lavan LLP, as counsel to certain Purchasers.

 

(l) The aggregate
Purchase Price for all the Preferred Stock purchased by other
Purchasers who are not affiliates of such Purchaser shall have
been, or concurrently with the Closing will be, delivered to the
Escrow Agent by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth in
Exhibit
D.

 

(m) The Company and
Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have
delivered a joint written notice to the Escrow Agent notifying the
Escrow Agent that the conditions precedent to the Closing have been
satisfied or waived and instructing the Escrow Agent to release and
disburse the Escrow Funds to the Company.

 

(n) The transactions
contemplated by (i) that certain Exchange Agreement, dated
September 10, 2018, by and between the Company and Charles Crocker
and (ii) that certain Exchange Agreement, dated September 10, 2018,
by and between the Company and Neal Goldman shall have occurred, or
concurrently with the Closing, will occur.

 

(o) The Amendment No. 1
to the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock in the form of Exhibit E attached hereto shall
have been duly executed by the Company and duly filed with the
Secretary of State of Delaware, and the Purchasers shall have
received evidence of such execution and filing, and no other
amendments, supplements or other modifications to the
Company’s Certificate of Incorporation shall have been made
since February 9, 2018.

 

8. GOVERNING LAW;
MISCELLANEOUS.

 

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

 

 

 

-17-

 

 

(b) Counterparts. This Agreement
may be executed in two or more counterparts, all of which 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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission or
electronic mail of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.

 

(c) Construction. Whenever the
context requires, the gender of any word used in this Agreement
includes the masculine, feminine or neuter, and the number of any
word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to
articles and sections of this Agreement, and all references to
schedules are to schedules attached hereto, each of which is made a
part hereof for all purposes. The descriptive headings of the
several articles and sections of this Agreement are inserted for
purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.

 

(d) Severability. If any provision
of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect
the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other
jurisdiction.

 

(e) Entire Agreement; Amendments.
This Agreement and the other Transaction Documents (including any
schedules and exhibits hereto and thereto) contain the entire
understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived other
than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and
each Purchaser.

 

(f) Notices. Any notices required
or permitted to be given under the terms of this Agreement shall be
sent by certified or registered mail (return receipt requested) or
delivered personally, by responsible overnight carrier or by
confirmed facsimile or by electronic mail (“e-mail”), and shall be
effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by
responsible overnight carrier or confirmed facsimile, or when sent
if sent by e-mail, in each case addressed to a party. The initial
addresses for such communications shall be as follows, and each
party shall provide notice to the other parties of any change in
such party’s address:

 

(i) If to the
Company:

 

ImageWare Systems,
Inc.

10815
Rancho Bernardo Road

Suite
310

San
Diego, California 92127

E-mail:
wgw@iwsinc.com

Attention: Chief
Financial Officer

 

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

 

Disclosure Law
Group, a professional corporation

600
West Broadway, Suite 700

San
Diego, CA 92101

Telephone: (619)
272-7062

Facsimile: (619)
330-2101

E-Mail:
drumsey@disclosurelawgroup.com

Attention: Daniel
W. Rumsey, Esq.

 

(ii) If
to any Purchasers, to the address set forth under such
Purchaser’s name on the Signature Page hereto executed by
such Purchaser.

 

 

 

-18-

 

 

(g) Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. Except as
provided herein, the Company shall not assign this Agreement or any
rights or obligations hereunder. Any Purchaser may assign or
transfer the Securities pursuant to the terms of this Agreement and
of such Securities. Any Purchaser may assign such Purchaser’s
rights and obligations hereunder or thereunder to any Person to
whom such Purchaser assigns or transfers any Securities and/or
Dividend Shares (any such assignee thereafter becoming a
“Purchaser” hereunder). In addition, and
notwithstanding anything to the contrary contained in this
Agreement or the other Transaction Documents, the Securities may be
pledged and all rights of any Purchaser under this Agreement or any
other Transaction Document may be assigned, without further consent
of the Company, to a bona fide pledgee in connection with such
Purchaser’s margin or brokerage account or any other lending
arrangement with a financial institution that is an
“accredited investor” as defined in Rule 501(a) under
the Securities Act.

 

(h) Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any
other Person, except that each Indemnitee that is not a party to
this Agreement shall be a third party beneficiary of Section
8(k).

 

(i) Survival. The representations
and warranties of the Company and the agreements and covenants set
forth in Sections 2, 3, 4, 5 and 8 hereof shall survive the Closing
Date notwithstanding any due diligence investigation conducted by
or on behalf of, or any knowledge of, any Purchaser, and such
representations, warranties, agreements and covenants are part of
the basis of the bargain contemplated by this Agreement. Moreover,
none of the representations and warranties made by the Company
herein shall act as a waiver of any rights or remedies any
Purchaser may have under applicable U.S. federal or state
securities laws.

 

(j) Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.

 

(k) Indemnification. In
consideration of each Purchaser’s execution and delivery of
this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the
other Transaction Documents, from and after the Closing Date, the
Company shall defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and/or Dividend
Shares and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of
the foregoing Persons’ agents or other representatives,
including, without limitation, those retained in connection with
the transactions contemplated by this Agreement (collectively, the
“Indemnitees”),
from and against any and all actions, causes of action, suits,
judgments, claims, losses, costs, penalties, fees, liabilities,
amounts paid in settlements, and damages (including diminution in
value of the Securities and Dividend Shares), and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to any action for which indemnification hereunder is
sought), whether or not involving a third party claim, and
including reasonable attorneys’ fees and disbursements (the
“Indemnified
Liabilities”), incurred by any Indemnitee as a result
of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in
this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, any other Transaction Document
or any other certificate, instrument or document contemplated
hereby or thereby or (iii) any cause of action, suit or claim
brought or made against such Indemnitee by any Person (including
for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (A) the execution,
delivery, performance or enforcement of this Agreement, any other
Transaction Document or any other certificate, instrument or
document contemplated hereby or thereby, (B) any transaction
financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance and sale of the
Securities, or (C) the status of such Purchaser or holder of the
Securities and/or Dividend Shares as an investor in the Company,
and shall reimburse each such Indemnitee for the reasonable costs
and expenses as they are incurred in connection with investigating,
monitoring, responding to or defending any of the foregoing. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable
law.

 

 

 

-19-

 

 

(l) Joint Participation in
Drafting. Each party to this Agreement has participated in
the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this
Agreement.

 

(m) Knowledge. As used in this
Agreement, the term “knowledge” of any Person shall
mean and include (i) with respect to the Company, the actual
knowledge of any of the Company’s officers or directors and
(ii) that knowledge which a reasonably prudent business person
could have obtained in the management of his or her business
affairs after making due inquiry and exercising due diligence which
a prudent business person should have made or exercised, as
applicable, with respect thereto.

 

(n) Exculpation Among Purchasers.
The Company acknowledges that the obligations of each Purchaser
under this Agreement and each of the other Transaction Documents
are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the
Transaction Documents. Each Purchaser acknowledges that it has
independently evaluated the merits of the transactions contemplated
by this Agreement and the other Transaction Documents, that it has
independently determined to enter into the transactions
contemplated hereby and thereby, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is
not acting in concert with any other Purchaser in making its
purchase of securities hereunder or in monitoring its investment in
the Company. The Purchasers and the Company agree that no action
taken by any Purchaser pursuant hereto or the other Transaction
Documents shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Purchasers are in any way
acting in concert or would deem such Purchasers to be members of a
“group” for purposes of Section 13(d) of the Exchange
Act, and the Purchasers have not agreed to act together for the
purpose of acquiring, holding, voting or disposing of equity
securities of the Company. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or
requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way
creates a presumption that the Purchasers are in any way acting in
concert or as a “group” for purposes of Section 13(d)
of the Exchange Act with respect to the Transaction Documents or
the transactions contemplated hereby or thereby. Each Purchaser
acknowledges that it has been represented by its own separate legal
counsel in their review and negotiation of the Transaction
Documents. It is expressly understood and agreed that each
provision contained in this Agreement is between the Company and a
Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.

 

(o) Business Days and Trading Days.
For purposes of this Agreement, the term “business day”
means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close, and the
term “trading day” means any day on which the OTCQB or,
if the Common Stock is not then traded on the OTCQB, the principal
national securities exchange, automated quotation system or other
trading market where the Common Stock is then listed, quoted or
traded, is open for trading.

 

(p) Termination. This Agreement may
be terminated at any time prior to the Closing by the written
notice of the Required Purchasers to the Company if the Closing
shall not have occurred on or before September 11, 2018. Any such
termination shall be effective immediately upon delivery of such
notice to the Company, unless such notice provides for a different
time for termination. If this Agreement is terminated prior to the
Closing, then the Company shall promptly (but in no event later
than one (1) business day after the date of such termination)
deliver written notice to the Escrow Agent that the
“Termination Date” (as defined in the Escrow Agreement)
has occurred and instruct the Escrow Agent to, and otherwise cause
the Escrow Agent to, refund to the Purchasers all amounts deposited
into the Escrow Account (as defined in the Escrow Agreement) by the
Purchasers in accordance with the terms of the Escrow Agreement.
The Company shall not amend or permit any other Person to amend the
Escrow Agreement without the prior written consent of the Required
Purchasers. “Required
Purchasers” shall mean the Purchasers who have agreed
to purchase at least a majority of the Securities to be sold
hereunder.

 

 

 

-20-

 

 

(q) Fees and Expenses. Except as
expressly set forth in the Transaction Documents to the contrary
(including the requirement of the Company to pay the reasonable
fees and disbursements of Stroock & Stroock & Lavan LLP, as
counsel to certain Purchasers as set forth in Section 7(k) above),
each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of
any Securities and/or Dividend Shares to the
Purchasers.

 

(r) Specific Performance. The
Company and each of the Purchasers acknowledge and agree that (a)
irreparable damage would occur in the event that any of the
provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, and (b) remedies at
law would not be adequate to compensate the non-breaching party.
Accordingly, the Company and each of the Purchasers agree that each
of them shall have the right, in addition to any other rights and
remedies existing in its favor, to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
its rights and obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief. The right to
equitable relief, including specific performance or injunctive
relief, shall exist notwithstanding, and shall not be limited by,
any other provision of this Agreement. The Company and each of the
Purchasers hereby waives any defense that a remedy at law is
adequate and any requirement to post bond or other security in
connection with actions instituted for injunctive relief, specific
performance or other equitable remedies.

 

 

[REMAINDER
OF PAGE LEFT BLANK INTENTIONALLY]

 

-21-

 

 

IN
WITNESS WHEREOF, the Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above
written.

 

IMAGEWARE SYSTEMS, INC.

 

 

By:                                                                            

Name:

Title:

 

PURCHASER:

 

 

(Print
or Type Name of Purchaser)

 

 

By:                                                                            

Name:

Title:

 

ADDRESS:                      

 

 

Telephone:                                                      

Facsimile:                                                      

E-Mail:                                                      

Attention:                                                      

 

AGGREGATE
SUBSCRIPTION AMOUNT:

 

Number of shares of
Preferred
Stock:                                                                                                            

Purchase Price
($10,000 per share of Preferred
Stock):                                                                                                                      

 

 

 

 

-22-

 

 

EXHIBIT A

 

Certificate of Designations

 

 

 

-23-

 

 

EXHIBIT B

 

Registration Rights Agreement

 

 

 

 

-24-

 

 

EXHIBIT C

 

Escrow Agreement

 

 

 

 

-25-

 

 

EXHIBIT D

 

Wire Instructions

 

 

 

 

-26-Blueprint

 

Exhibit
10.2

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (the “Agreement”) is made and entered
into as of this 10th day of September, 2018 by and among ImageWare
Systems, Inc., a Delaware corporation (the “Company”), and the
“Purchasers”
named in that certain Securities Purchase Agreement by and among
the Company and the Purchasers (the “Purchase Agreement”). Capitalized
terms used herein have the respective meanings ascribed thereto in
the Purchase Agreement unless otherwise defined
herein.

 

The
parties hereby agree as follows:

 

1.

Certain
Definitions.

 

As used
in this Agreement, the following terms shall have the following
meanings:

 

“Affiliate”
means, with respect to any Person, any other Person that (either
directly or indirectly) controls, is controlled by, or is under
common control with the specified Person, and shall also include
any Related Fund of such Person. The term “control” includes the
possession, directly or indirectly, of the power to direct the
management or policies of a Person, whether through the ownership
of securities, by contract or otherwise.

 

“Common
Stock” means the Company’s common stock, par
value $0.01 per share, and any securities into which such Common
Stock may hereinafter be reclassified.

 

“Conversion
Shares” means the shares of Common Stock issuable upon
conversion of the Preferred Stock issued pursuant to the Purchase
Agreement.

 

“Person”
means an individual, partnership, corporation, unincorporated
organization, joint stock company, limited liability company,
association, trust, joint venture or any other entity, or a
governmental authority.

 

“Prospectus”
means (i) the prospectus included in any Registration Statement, 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 such Registration Statement and by all other
amendments and supplements to the prospectus, including
post-effective amendments and all material incorporated by
reference in such prospectus, and (ii) any “free writing prospectus” as
defined in Rule 405 under the 1933 Act.

 

“Purchasers”
means the Purchasers identified in the Purchase Agreement and any
Affiliate or permitted transferee of any Purchaser who is a
subsequent holder of any Registrable Securities.

 

“Register,”
“registered”
and “registration”
refer to a registration made by preparing and filing a Registration
Statement or similar document in compliance with the 1933 Act (as
defined below), and the declaration or ordering of effectiveness of
such Registration Statement or document.

 

“Registrable
Securities” means the (i) Conversion Shares and any
other securities issued or issuable with respect to or in exchange
for Registrable Securities, whether by merger, charter amendment or
otherwise, and (ii) shares of Common Stock issuable as dividends
payable with respect to the Preferred Stock; provided, that, a security shall cease
to be a Registrable Security upon sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act.

 

 

-1-

 

 

“Registration
Statement” means any registration statement of the
Company filed under the 1933 Act that covers the resale of any of
the Registrable Securities pursuant to the provisions of this
Agreement, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration
Statement.

 

“Related
Fund” means, with respect to any Person, any fund,
account or investment vehicle that is controlled or managed by (i)
such Person, (ii) an Affiliate of such Person or (iii) the same
investment manager, advisor or subadvisor as such Person or an
Affiliate of such investment manager, advisor or
subadvisor.

 

“Required
Purchasers” means, as of any date of determination,
the Purchasers holding a majority of the Registrable Securities as
of such date.

 

“SEC”
means the U.S. Securities and Exchange Commission.

 

 “1933
Act” means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

 

“1934
Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated
thereunder.

 

2.

Registration.

 

(a) Registration
Statements.

 

(i) No
later than 30 days from the date of this Agreement (the
“Filing
Deadline”), the Company
shall prepare and file with the SEC one Registration Statement (the
“Initial Registration
Statement”) covering the
resale of all of the Registrable Securities on a continuous basis
pursuant to Rule 415 of the Securities Act. The Initial
Registration Statement filed hereunder shall be on Form S-3;
provided, that if Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the
Company shall (x) register the resale of the Registrable Securities
on another appropriate form and (y) undertake to register the
resale of Registrable Securities on Form S-3 as soon as such form
is available, provided, that the Company shall maintain the
effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the staff of
the SEC. No Purchaser shall be named as an
“underwriter” in the Initial Registration Statement
without such Purchaser’s prior written consent. Such Initial
Registration Statement also shall cover, to the extent allowable
under the 1933 Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities. Such
Initial Registration Statement shall not include any shares of
Common Stock or other securities for the account of any other
Person (including the Company) without the prior written consent of
the Required Purchasers. The Initial Registration Statement (and
each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided in
accordance with Section 3(c) to the Purchasers and their counsel
prior to its filing or other submission. If (i) the Initial
Registration Statement covering the Registrable Securities is not
filed with the SEC on or prior to the Filing Deadline, or (ii)
prior to the effective date of the Initial Registration Statement,
the Company shall fail to file any pre-effective amendment to the
Initial Registration Statement required to be filed by the SEC or
otherwise respond to comments from the SEC within 15 days from the
date of receipt of such comments (a “Response
Failure”), the Company
will make payments to each Purchaser, as liquidated damages and not
as a penalty, in an amount equal to 1.0% of the aggregate Purchase
Price paid by such Purchaser for its Preferred Stock on the Closing
Date pursuant to the Purchase Agreement (such amount, with respect
to each Purchaser, the “Investment
Amount”) for the first
30-day period or pro rata for any portion thereof following the
Filing Deadline for which no Initial Registration Statement is
filed with respect to the Registrable Securities, or following a
Response Failure, as the case may be, and 1.5% of such
Purchaser’s Investment Amount for each 30-day period
thereafter or pro rata for any portion thereof for which no Initial
Registration Statement is filed with respect to the Registrable
Securities, or following a Response Failure, as the case may
be; provided, that the maximum payments to any Purchaser
pursuant to this Section 2(a)(i) shall not exceed 12.0% of such
Purchaser’s Investment Amount. Such payments shall constitute
the Purchasers’ exclusive monetary remedy for such events,
but shall not affect the right of the Purchasers to seek injunctive
relief.

 

 

-2-

 

 

(b) Expenses.
The Company will pay all expenses associated with each Registration
Statement (whether or not such Registration Statement becomes
effective), including filing and printing fees, the Company’s
counsel and accounting fees and expenses, costs associated with
clearing the Registrable Securities for sale under applicable state
securities laws, listing fees, and the reasonable fees and expenses
of counsel to, (i) with respect to the Initial Registration
Statement, the Required Purchasers, (ii) with respect to a Demand
Registration, the Requesting Holders and (iii) with respect to any
Piggyback Registration, Purchasers that at the relevant time hold
at least a majority of the Registrable Securities held by all
Purchasers to be included in such Piggyback
Registration.

 

(c) Effectiveness
of Registration Statements.

 

(i) The
Company shall use its best efforts to have the Initial Registration
Statement declared effective as soon as practicable, but in no
event later than ninety (90) days after the date of this Agreement.
The Company shall notify the Purchasers by facsimile or e-mail as
promptly as practicable, and in any event, within twenty-four (24)
hours, after any Registration Statement is declared effective and
shall simultaneously provide the Purchasers with copies of any
related Prospectus to be used in connection with the sale or other
disposition of the securities covered thereby. If (A) the Initial
Registration Statement covering the Registrable Securities is not
declared effective by the SEC prior to the earlier of (i) five (5)
Business Days after the SEC shall have informed the Company that no
review of the Initial Registration Statement will be made or that
the SEC has no further comments on the Registration Statement and
(ii) the 90th
day after the date hereof; (B) after
the Initial Registration Statement has been declared effective by
the SEC, sales cannot be made pursuant to such Initial Registration
Statement for any reason (including without limitation by reason of
a stop order, the Company’s failure to update the Initial
Registration Statement or on account of any event described in
Section 3(h)) or the inability of any Purchaser to sell the
Registrable Securities covered thereby due to market conditions; or
(C) the Initial Registration Statement ceases to remain
continuously effective as to all Registrable Securities included
thereunder, then the Company will make payments to each Purchaser,
as liquidated damages and not as a penalty, in an amount equal to
1.0% of such Purchaser’s Investment Amount for the first
30-day period or pro rata for any portion thereof following the
date by which such Initial Registration Statement should have been
effective and 1.5% of such Purchaser’s Investment Amount for
each 30-day period thereafter or pro rata for any portion thereof
for which such Initial Registration Statement should have been
effective (the “Blackout
Period”);
provided, that the maximum payments to any Purchaser
pursuant to this Section 2(c) shall not exceed 16.0% of such
Purchaser’s Investment Amount. Such payments shall constitute
the Purchasers’ exclusive monetary remedy for such events,
but shall not affect the right of the Purchasers to seek injunctive
relief.

 

(d) Rule
415; Cutback If at any time the
SEC takes the position that the offering of some or all of the
Registrable Securities in any Registration Statement filed pursuant
to the terms and conditions of this Agreement is not eligible to be
made on a delayed or continuous basis under the provisions of Rule
415 under the 1933 Act or requires any Purchaser to be named as an
“underwriter”, the Company shall use its best efforts
to persuade the SEC that the offering contemplated by such
Registration Statement is a valid secondary offering and not an
offering “by or on behalf of the issuer” as defined in
Rule 415 and that none of the Purchasers is an
“underwriter”. The Purchasers shall have the right to
participate or have their counsel participate in any meetings or
discussions with the SEC regarding the SEC’s position and to
comment or have their counsel comment on any written submission
made to the SEC with respect thereto. No such written submission
shall be made to the SEC to which the Required Purchasers’,
or, with respect to a Demand Registration, the Requesting
Purchasers’ (as such term is defined in Section 2(f)(i)
below), counsel reasonably objects. In the event that, despite the
Company’s best efforts and compliance with the terms of this
Section 2(d), the SEC refuses to alter its position, the Company
shall (i) remove from such Registration Statement such portion of
the Registrable Securities that the SEC requires to be removed from
such Registration Statement, while still including the maximum
number of Registrable Securities permitted to be registered by the
SEC under such Registration Statement at such time (such removed
Registrable Securities, the “Cut Back
Shares”), and/or (ii)
agree to such restrictions and limitations on the registration and
resale of the Registrable Securities as the SEC may require to
assure the Company’s compliance with the requirements of Rule
415 (collectively, the “SEC
Restrictions”);
provided,
however, that the Company shall
not agree to name any Purchaser as an “underwriter” in
any Registration Statement without the prior written consent of
such Purchaser. Any cut-back imposed on the Purchasers pursuant to
this Section 2(d) shall be allocated, first, among all securities
that are not Registrable Securities (to the extent previously
permitted by the Required Purchasers, or, in the case of a Demand
Registration, by the Requesting Purchasers), and second, among the
Purchasers on a pro rata basis, unless the SEC Restrictions
otherwise require or provide or the Purchasers otherwise agree. In
the event of any cut-back imposed on the Purchasers pursuant to
this Section 2(d), the Company will use its best efforts to file
with the SEC, as promptly as allowed by the SEC, one or more
Registration Statements on Form S-1 covering the resale of the Cut
Back Shares or such other form available to register for resale the
Cut Back Shares. No liquidated damages shall accrue as to any Cut
Back Shares until such date as the Company is permitted to effect
the registration of such Cut Back Shares using Form S-3 in
accordance with any SEC Restrictions (such date, the
“Restriction Termination
Date” of such Cut Back
Shares). From and after the Restriction Termination Date applicable
to any Cut Back Shares, all of the provisions of this Section 2
(including the liquidated damages provisions) shall again be
applicable to any Cut Back Shares that are not included in a
Registration Statement prior to the Restriction Termination
Date; provided,
however, that (i) the Filing
Deadline for any Registration Statement including any Cut Back
Shares that have not otherwise been included in a Registration
Statement that has been declared effective shall be ten (10)
Business Days after such Restriction Termination Date, and (ii) the
date by which the Company is required to obtain effectiveness with
respect to such Cut Back Shares under Section 2(c) shall be the
120th
day immediately after the Restriction
Termination Date.

 

 

-3-

 

 

(e) Right
to Piggyback Registration.

 

(i) If
at any time following the date of this Agreement that any
Registrable Securities remain outstanding the Company proposes for
any reason to register any shares of Common Stock under the 1933
Act (other than pursuant to a registration statement on Form S-4 or
Form S-8 (or a similar or successor form)) with respect to an
offering of Common Stock by the Company for its own account or for
the account of any of its stockholders, it shall, unless a holder
of Registrable Securities has provided written notice to the
Company that it does not want to receive such information, at each
such time promptly give written notice to the holders of the
Registrable Securities of its intention to do so (but in no event
less than thirty (30) days before the anticipated filing date) and,
to the extent permitted under the provisions of Rule 415 under the
1933 Act, include in such registration all Registrable Securities
with respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after receipt of the
Company’s notice (a “Piggyback
Registration”). Such
notice shall offer the holders of the Registrable Securities the
opportunity to register such number of shares of Registrable
Securities as each such holder may request and shall indicate the
intended method of distribution of such Registrable
Securities.

 

(ii) Notwithstanding
the foregoing, (A) if such registration involves an underwritten
public offering, the Purchasers must sell their Registrable
Securities to, if applicable, the underwriter(s) at the same price
and subject to the same underwriting discounts and commissions that
apply to the other securities sold in such offering (it being
acknowledged that the Company shall be responsible for other
expenses as set forth in Section 2(b)) and subject to the
Purchasers entering into customary underwriting documentation for
selling stockholders in an underwritten public offering, and (B)
if, at any time after giving written notice of its intention to
register any Registrable Securities pursuant to Section 2(e)(i) and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for
any reason not to cause such registration statement to become
effective under the 1933 Act, the Company shall deliver written
notice to the Purchasers and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection
with such registration; provided,
however, that nothing contained
in this Section 2(e) shall limit the Company’s liabilities
and/or obligations under this Agreement, including, without
limitation, the obligation to pay liquidated damages under this
Section 2. Any Purchaser may elect to withdraw such
Purchaser’s request for inclusion of Registrable Securities
in any Piggyback Registration by giving written notice to the
Company of such request to withdraw prior to the effectiveness of
the Registration Statement or the pricing of an underwritten
offering, as applicable.

 

(f) Demand
Registration.

 

(i) At
any time and from time to time after the Initial Registration
Statement has been declared effective, any Purchaser or group of
Purchasers (acting together) that own or control Registrable
Securities representing at least fifty percent (50%) of the
then-issued and outstanding Registrable Securities (collectively,
the “Requesting
Purchasers”), may deliver
to the Company a written notice (a “Demand Registration
Notice”) informing the
Company that such Requesting Purchasers require the Company to
register for resale some or all of such Requesting
Purchasers’ Registrable Securities not otherwise then
registered for resale by the Initial Registration Statement (a
“Demand
Registration”);
provided,
however, that the Company will
not be required to effect more than two (2) Demand Registrations in
accordance with this Agreement. Upon receipt of the Demand
Registration Notice, the Company will use best efforts to file with
the SEC as promptly as practicable after receiving the Demand
Registration Notice, but in no event more than sixty (60) days
following receipt of the Demand Registration Notice, a Registration
Statement covering all requested Registrable Securities (the
“Demand Registration
Statement”), and agrees
to use best efforts to cause the Demand Registration Statement to
be declared effective by the SEC as soon as practicable following
the filing thereof, but in no event later than ninety (90) days
after the filing of such Demand Registration Statement. The Company
agrees to use best efforts to keep any Demand Registration
Statement continuously effective (including the preparation and
filing of any amendments and supplements necessary for that
purpose) until such time as all of the Registrable Securities
covered thereby have been sold (“Minimum Effective
Period”).

 

(ii) Notice
to Purchasers. The Company
shall give written notice of the proposed filing of any Demand
Registration Statement to all Purchasers (other than the Requesting
Purchasers) as soon as practicable, and each such Purchaser who
wishes to participate in such Demand Registration Statement shall
notify the Company in writing within five (5) Business Days after
the receipt by such Purchaser of the notice from the Company, and
shall specify in such notice the number of Registrable Securities
held by such Purchaser to be included in the Demand Registration
Statement. Upon the written request of any Purchaser, delivered to
the Company no later than five (5) Business Days after the
Company’s notice is delivered to such Purchaser (each such
Purchaser, a “Joining
Purchaser”), to register,
on the same terms and conditions as the Registrable Securities
otherwise being sold pursuant to such Demand Registration, any of
its Registrable Securities, the Company will use its best efforts
to cause such Registrable Securities to be included in the Demand
Registration Statement proposed to be filed by the Company on the
same terms and conditions as any Registrable Securities included
therein.

 

-4-

 

 

3.

Company
Obligations. The Company will
use best efforts to effect the registration of the Registrable
Securities in accordance with the terms hereof, and pursuant
thereto the Company will, as expeditiously as
possible:

 

(a) use
best efforts to cause the Initial Registration Statement to become
effective and to remain continuously effective for a period that
will terminate upon the earlier of (i) the date on which all
Registrable Securities covered by such Initial Registration
Statement as amended from time to time, have been sold, and (ii)
the date on which all Registrable Securities covered by such
Initial Registration Statement may be sold without restriction and
without the need for current public information pursuant to Rule
144 (the “Effectiveness
Period”) and advise the
Purchasers in writing when the Effectiveness Period has
expired;

 

(b) prepare
and file with the SEC such amendments and post-effective amendments
to any Registration Statement and Prospectus as may be necessary to
keep such Registration Statement effective for, with respect to the
Initial Registration Statement, the Effectiveness Period and with
respect to any Demand Registration Statement, the Minimum Effective
Period, and in any case to comply with the provisions of the 1933
Act and the 1934 Act with respect to the distribution of all of the
Registrable Securities covered in any Registration
Statement;

 

(c) provide
copies to and permit counsel designated by the Purchasers to review
each Registration Statement and all amendments and supplements
thereto no fewer than seven (7) days prior to their filing with the
SEC and not file any Registration Statement or other document to
which such counsel reasonably objects;

 

(d) furnish
to the Purchasers and their legal counsel (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or
received by the Company (but not later than two (2) Business Days
after the filing date, receipt date or sending date, as the case
may be) one (1) copy of any Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and
each amendment or supplement thereto, and each letter written by or
on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than
any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of
copies of a Prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as each
Purchaser may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Purchaser
that are covered by the related Registration
Statement;

 

(e) use
best efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued,
obtain the withdrawal of any such order at the earliest possible
moment;

 

(f) prior to any public offering of Registrable
Securities, use best efforts to register or qualify or cooperate
with the Purchasers and their counsel in connection with the
registration or qualification of such Registrable Securities for
offer and sale under the securities or blue sky laws of such
jurisdictions requested by the Purchasers and do any and all other
acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by any
Registration Statement; provided,
however, that the Company shall
not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(f),
(ii) subject itself to general taxation in any jurisdiction where
it would not otherwise be so subject but for this Section 3(f), or
(iii) file a general consent to service of process in any such
jurisdiction;

 

 

-5-

 

 

(g) use
best efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar
securities issued by the Company are then listed or
quoted;

 

(h) immediately
notify the Purchasers, at any time prior to the end of the
Effectiveness Period or the Minimum Effective Period, as
applicable, upon discovery that, or upon the happening of any event
as a result of which, any Prospectus includes an untrue statement
of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and
promptly prepare, file with the SEC and furnish to such holder a
supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include 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 not misleading in light of the circumstances then
existing;

 

(i) otherwise
use best efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act,
including, without limitation, Rule 172 under the 1933 Act, file
any final Prospectus, including any supplement or amendment
thereof, with the SEC pursuant to Rule 424 under the 1933 Act,
promptly inform the Purchasers in writing if, at any time during
the Effectiveness Period or Minimum Effective Period, as
applicable, the Company does not satisfy the conditions specified
in Rule 172 and, as a result thereof, the Purchasers are required
to deliver a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its
security holders, as soon as reasonably practicable, but not later
than the Availability Date (as defined below), an earnings
statement covering a period of at least twelve (12) months,
beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section
11(a) of the 1933 Act, including Rule 158 promulgated thereunder
(for the purpose of this subsection 3(i),
“Availability
Date” means the 45th day
following the end of the fourth fiscal quarter that includes the
effective date of such Registration Statement, except that, if such
fourth fiscal quarter is the last quarter of the Company’s
fiscal year, “Availability
Date” means the 90th day
after the end of such fourth fiscal quarter);

 

(j) if
during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 100% of the number of shares of
Common Stock then registered in the Initial Registration Statement,
the Company shall file as soon as reasonably practicable an
additional Registration Statement covering the resale by the
Purchasers of not less than the number of such Registrable
Securities; and

 

(k) with
a view to making available to the Purchasers the benefits of Rule
144 (or its successor rule) and any other rule or regulation of the
SEC that may at any time permit the Purchasers to sell shares of
Common Stock to the public without registration, the Company
covenants and agrees to: (i) make and keep public information
available, as those terms are understood and defined in Rule 144,
until the earlier of (A) six months after such date as all of the
Registrable Securities may be sold without restriction (including
without volume or manner-of-sale restrictions) and without the need
for current public information by the holders thereof pursuant to
Rule 144 or any other rule of similar effect and (B) such date as
all of the Registrable Securities shall have been resold; (ii) file
with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act; and (iii) furnish to
each Purchaser upon request, as long as such Purchaser owns any
Registrable Securities, (A) a written statement by the Company that
it has complied with the reporting requirements of the 1934 Act,
(B) a copy of the Company’s most recent Annual Report on Form
10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such
Purchaser of any rule or regulation of the SEC that permits the
selling of any such Registrable Securities without registration.
The parties agree that nothing contained herein shall limit the
Company’s obligations under the Purchase
Agreement.

 

 

-6-

 

 

 

4.

Due Diligence Review;
Information. The Company shall
make available, upon reasonable advance written notice, during
normal business hours, for inspection and review by the Purchasers,
advisors to and representatives of the Purchasers (who may or may
not be affiliated with the Purchasers and who are reasonably
acceptable to the Company), all financial and other records, all
SEC Documents (as defined in the Purchase Agreement) and other
filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company’s officers,
directors and employees, within a reasonable time period, to supply
all such information reasonably requested by the Purchasers or any
such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted
by any of them), prior to and from time to time after the filing
and effectiveness of the Registration Statement for the sole
purpose of enabling the Purchasers and such representatives,
advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect
to the accuracy of such Registration Statement.

 

The
Company shall not disclose material nonpublic information to the
Purchasers, or to advisors to or representatives of the Purchasers,
unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information
and provides the Purchasers, such advisors and representatives with
the opportunity to accept or refuse to accept such material
nonpublic information for review and any Purchaser wishing to
obtain such information enters into an appropriate confidentiality
agreement with the Company with respect thereto.

 

5.

Obligations of the
Purchasers.

 

(a) Each
Purchaser shall furnish in writing to the Company such information
regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably
request. At least ten (10) Business Days prior to the first
anticipated filing date of any Registration Statement, the Company
shall notify each Purchaser of the information the Company requires
from such Purchaser if such Purchaser elects to have any of the
Registrable Securities included in the Registration Statement. A
Purchaser shall provide such information to the Company at least
two (2) Business Days prior to the first anticipated filing date of
such Registration Statement if such Purchaser elects to have any of
the Registrable Securities included in the Registration
Statement.

 

(b) Each
Purchaser, by its acceptance of the Registrable Securities agrees
to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of a
Registration Statement hereunder, unless such Purchaser has
notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration
Statement.

 

(c) Each
Purchaser agrees that, upon receipt of any notice from the Company
of the happening of an event pursuant to Section 3(h) hereof, such
Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the applicable Registration Statement
covering such Registrable Securities, until the Purchaser is
advised by the Company that such dispositions may again be
made.

 

 

-7-

 

 

 

6.

Indemnification.

 

(a) Indemnification
by the Company. The Company
will indemnify and hold harmless each Purchaser and its officers,
directors, members, employees and agents, successors and assigns,
and each other person, if any, who controls such Purchaser within
the meaning of the 1933 Act (collectively, the
“Purchaser
Indemnitees”), against
any losses, claims, damages or liabilities, joint or several, to
which such Purchaser Indemnitee may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement or
omission or alleged omission of any material fact contained in any
Registration Statement, any preliminary Prospectus or final
Prospectus, or any amendment or supplement thereof; (ii) any blue
sky application or other document executed by the Company
specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Registrable Securities under
the securities laws thereof (any such application, document or
information herein called a “Blue Sky
Application”); (iii) the
omission or alleged omission to state in a Blue Sky Application a
material fact required to be stated therein or necessary to make
the statements therein not misleading; (iv) any violation by the
Company or its agents of any rule or regulation promulgated under
the 1933 Act or 1934 Act or any state securities laws in connection
with the performance of its obligations under this Agreement; or
(v) any failure to register or qualify the Registrable Securities
included in any such Registration Statement in any state where the
Company or its agents has affirmatively undertaken or agreed in
writing that the Company will undertake such registration or
qualification on an Purchaser’s behalf and will promptly
reimburse such Purchaser Indemnitee for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action as such
expenses are incurred; provided,
however, that the Company will
not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such
Purchaser or any such controlling person in writing specifically
for use in such Registration Statement or Prospectus. The indemnity
provided in this Section 6(a) shall survive the transfer of the
Registrable Securities by any Purchaser to any other
Person.

 

(b) Indemnification
by the Purchasers. Each
Purchaser agrees, severally but not jointly, to indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the 1933 Act)
(collectively, the “Company
Indemnitees”) against any
losses, claims, damages, liabilities and expense (including
reasonable attorney fees) resulting from any untrue statement of a
material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary
Prospectus or amendment or supplement thereto or necessary to make
the statements therein not misleading, to the extent, but only to
the extent that such untrue statement or omission is contained in
any information furnished in writing by such Purchaser to the
Company specifically for inclusion in such Registration Statement
or Prospectus or amendment or supplement thereto. In no event shall
the liability of a Purchaser be greater in amount than the dollar
amount of the proceeds (net of all underwriter’s discounts
and expenses paid by such Purchaser in connection with any claim
relating to this Section 6 and the amount of any damages such
Purchaser has otherwise been required to pay by reason of such
untrue statement or omission) received by such Purchaser upon the
sale of the Registrable Securities included in the Registration
Statement giving rise to such indemnification
obligation.

 

(c) Conduct
of Indemnification Proceedings.
Any person entitled to indemnification under Section 6(a) or
Section 6(b) (an “Indemnitee”) shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to
the Indemnitee; provided that any Indemnitee shall have the right to employ
separate counsel and to participate in the defense of such claim,
but the fees and expenses of such counsel shall be at the expense
of such Indemnitee unless (a) the indemnifying party has agreed to
pay such fees or expenses, or (b) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such Indemnitee or (c) in the reasonable
judgment of any such Indemnitee, based upon written advice of its
counsel, a conflict of interest exists between such Indemnitee and
the indemnifying party with respect to such claims (in which case,
if such Indemnitee notifies the indemnifying party in writing that
such Indemnitee elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such
Indemnitee); and provided,
further, that the failure of
any Indemnitee to give notice as provided herein shall not relieve
the indemnifying party of its obligations hereunder, except to the
extent that such failure to give notice shall materially adversely
affect the indemnifying party in the defense of any such claim or
litigation. It is understood that the indemnifying party shall not,
in connection with any proceeding in the same jurisdiction, be
liable for fees or expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for
all such Indemnitees. No indemnifying party will, except with the
consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement that (i) does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability in respect of
such claim or litigation or (ii) includes a statement as to, or an
admission of, fault, culpability or a failure to act, by or on
behalf of the Indemnitee.

 

(d) Contribution.
If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an Indemnitee or
insufficient to hold it harmless, other than as expressly specified
therein, then the indemnifying party shall contribute to the amount
paid or payable by the Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect
the relative fault of the Indemnitee and the indemnifying party, as
well as any other relevant equitable considerations. No person
guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution
from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of
Registrable Securities be greater in amount than the dollar amount
of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount
of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable
Securities giving rise to such contribution
obligation.

 

 

-8-

 

 

7.

Miscellaneous.

 

(a) Amendments
and Waivers. This Agreement may
be amended only by a writing signed by the Company and the Required
Purchasers. The Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only
if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the Required
Purchasers.

 

(b) Notices.
All notices and other communications provided for or permitted
hereunder shall be made as set forth in the Purchase
Agreement.

 

(c) Assignments
and Transfers by Purchasers.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the Purchasers and their respective successors and
assigns. A Purchaser may transfer or assign, in whole or from time
to time in part, to one or more persons its rights and obligations
hereunder in connection with the transfer of Registrable Securities
by such Purchaser to such person, provided that such Purchaser
complies with all laws applicable thereto and provides written
notice of assignment to the Company promptly after such assignment
is effected (such transferee, a "permitted
transferee").

 

(d) Assignments
and Transfers by the Company.
This Agreement may not be assigned by the Company (whether by
operation of law or otherwise) without the prior written consent of
the Required Purchasers, provided, however, that in the event that
the Company is a party to a merger, consolidation, share exchange
or similar business combination transaction in which the Common
Stock is converted into the equity securities of another Person,
from and after the effective time of such transaction, such Person
shall, by virtue of such transaction, be deemed to have assumed the
obligations of the Company hereunder (and shall have acknowledged
such assumption in writing), the term “Company” shall be deemed to refer to such Person
and the term “Registrable
Securities” shall be
deemed to include the securities received by the Purchasers in
connection with such transaction unless such securities are
otherwise freely tradable by the Purchasers after giving effect to
such transaction.

 

(e) Benefits
of the Agreement. Nothing in
this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors
and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in
this Agreement and except for any Indemnitee not a party hereto
(solely with respect to Section 6).

 

(f) Counterparts;
Faxes. This Agreement may be
executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile
or other electronic means, which shall be deemed an
original.

 

(g) Titles
and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.

 

(h) Severability.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the
maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any
provisions hereof prohibited or unenforceable in any
respect.

 

(i) Further
Assurances. The parties shall
execute and deliver all such further instruments and documents and
take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.

 

 

-9-

 

 

(j) Entire
Agreement. This Agreement is
intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with
respect to such subject matter.

 

(k) Governing Law; Consent
to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New
York without regard to the choice of law principles thereof. Each
of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern
District of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement
and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served
on each party hereto anywhere in the world by the same methods as
are specified for the giving of notices under this Agreement. Each
of the parties hereto irrevocably consents to the jurisdiction of
any such court in any such suit, action or proceeding and to the
laying of venue in such court. Each party hereto irrevocably waives
any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

(l) Injunctive
Relief. It is hereby agreed and
acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties to this Agreement
fail to comply with any of the obligations imposed on them by this
Agreement and that in the event of any such failure, a
non-breaching party hereto will be irreparably damaged and will not
have an adequate remedy at law. Any such Person shall, therefore,
be entitled to injunctive relief, specific performance or other
equitable remedies to enforce such obligations, this being in
addition to any other remedy to which such Person is entitled at
law or in equity. Each of the parties hereto hereby waives any
defense that a remedy at law is adequate and any requirement to
post bond or other security in connection with actions instituted
for injunctive relief, specific performance or other equitable
remedies. Each of the parties hereto hereby agrees not to assert
that specific performance, injunctive relief and other equitable
remedies are unenforceable, violate public policy, invalid,
contrary to law or inequitable for any reason. The right of
specific performance, injunctive relief and other equitable
remedies is an integral part of the transactions contemplated by
this Agreement.

 

(m) Recapitalizations,
Exchanges, Etc. The provisions
of this Agreement shall apply, to the full extent set forth herein
with respect to the Registrable Securities, to any and all shares
of capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities and shall be
appropriately adjusted for any stock dividends, splits, reverse
splits, combinations, recapitalizations and the like occurring
after the date hereof

 

 

-10-

 

 

(n) Independent
Nature of Purchasers’ Obligations and
Rights. The obligations of each
Purchaser hereunder are several and not joint with the obligations
of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of
any other Purchaser hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of group or entity, or create a
presumption that the Purchasers are in any way acting in concert or
as a group or entity with respect to such obligations or the
transactions contemplated by this Agreement or any other matters,
and the Company acknowledges that the Purchasers are not acting in
concert or as a group, and the Company shall not assert any such
claim, with respect to such obligations or transactions. Without
limiting the foregoing, no Purchaser has agreed with any other
Purchaser, and no term, provision, obligation or agreement of any
Purchaser set forth herein shall be deemed to constitute an
agreement with any other Purchaser, to act together for the
purposes of acquiring, holding, voting or disposing of equity
securities of the Company. Each Purchaser 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 Purchaser to be joined as an additional party in any
proceeding for such purpose. The use of a single agreement with
respect to the obligations of the Company contained herein was
solely in the control of the Company, not the action or decision of
any Purchaser, and was done solely for the convenience of the
Company and not because it was required or requested to do so by
any Purchaser. It is expressly understood and agreed that each
provision contained in this Agreement is between the Company and an
Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among
Purchasers.

 

(o) 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 have the effect of
impairing the rights granted to the Purchasers in this Agreement or
otherwise conflicts with the provisions hereof. 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.

 

(p) Prohibition on Filing
Other Registration Statements.
The Company shall not file any other registration statements until
all Registrable Securities are registered pursuant to the Initial
Registration Statement that is declared effective by the staff of
the Commission, provided that this Section 7(p) shall not prohibit the
Company from filing amendments to registration statements filed
prior to the date of this Agreement.

 

 

 

(Signature
Pages Follow)

 

 

 

-11-

 

IN
WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the
date first above written.

 

The
Company:  

IMAGEWARE SYSTEMS,
INC.

 

 

 

By:_________________________

Name:
Jim Miller

Title:
Chief Executive Officer

 

 

 

-12-

 

The
Purchasers:   

____________________________________

 

 

 

By:_______________________________

Name:

Title:

 

 

 

 

-13-

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