Document:

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                                       FORM OF

                               IMAGEWARE SYSTEMS, INC.

                                   PURCHASE WARRANT

                                      Issued to:

                           PAULSON INVESTMENT COMPANY, INC.

                                          and

                             I-BANKERS SECURITIES, INC.

                               Exercisable to Purchase

                                    181,339 UNITS

                        THIS WARRANT HAS NOT BEEN REGISTERED
                          UNDER THE SECURITIES ACT OF 1933
                              AND IS NOT TRANSFERABLE
                             EXCEPT AS PROVIDED HEREIN

                             Void after __________, 2005

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          This is to certify that, for value received and subject to the
terms and conditions set forth below, the Warrantholder (hereinafter defined)
is entitled to purchase, and the Company promises and agrees to sell and
issue to the Warrantholder, at any time on or after ______ ___, 2000 and on
or before __________ ___, 2005, up to 181,339 Units (hereinafter defined) at
the Exercise Price (hereinafter defined).

          This Warrant Certificate is issued subject to the following terms and
conditions:

     1.   DEFINITIONS OF CERTAIN TERMS.  Except as may be otherwise clearly
required by the context, the following terms have the following meanings:

          (a)  "Act" means the Securities Act of 1933, as amended.

          (b)  "Closing Date" means the date on which the Offering is closed.

          (c)  "Commission" means the Securities and Exchange Commission.

          (d)  "Common Stock" means the common stock, $0.01 par value, of the
Company.

          (e)  "Company" means ImageWare Systems, Inc., a California
corporation.

          (f)  "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in Section
6 hereof, except Warrantholder's Expenses.

          (g)  "Effective Date" means the date on which the Registration
Statement is declared effective by the Commission.

          (h)  "Exercise Price" means the price at which the Warrantholder may
purchase one complete Unit (or Securities obtainable in lieu of one complete
Unit) upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof. The initial Exercise Price is $_____ per Unit (120% of the
initial public offering price of a Unit).  If a Warrant is exercised for a
component of a Unit or Units, then the price payable in connection with such
exercise shall be determined by allocating $0.001 to the Unit Warrant and the
balance of the Exercise Price to the share of Common Stock, or, in each case, to
any securities obtainable in addition to or in lieu of such Unit Warrant or
share of Common Stock by virtue of the application of Section 3 of this Warrant.

          (i)  "Offering" means the public offering of Units made pursuant to
the Registration Statement.

          (j)  "Participating Underwriter" means any underwriter participating
in the sale of the Securities pursuant to a registration under Section 6 of this
Warrant Certificate.

          (k)  "Registration Statement" means the Company's registration
statement (File No. 333-____), as amended on the Closing Date.

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          (l)  "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.

          (m)  "Securities" means the securities obtained or obtainable upon
exercise of the Warrant or securities obtained or obtainable upon exercise,
exchange or conversion of such securities.

          (n)  "Unit" means, as the case may require, either one of the Units
offered to the public pursuant to the Registration Statement or one of the Units
obtainable on exercise of a Warrant, each Unit consisting of one share of Common
Stock and one Unit Warrant to purchase one share of Common Stock on the terms
and conditions described in the Registration Statement.

          (o)  "Unit Warrant" means a Common Stock purchase warrant included as
a component of a Unit.

          (p)  "Warrant Certificate" means a certificate evidencing the Warrant.

          (q)  "Warrantholder" means a record holder of the Warrant or
Securities.  The initial Warrantholder is Paulson Investment Company, Inc.

          (r)  "Warrantholder's Expenses" means the sum of (i) the aggregate
amount of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by a
fraction, the numerator of which is the aggregate sales price of the Securities
sold by such underwriter, underwriting syndicate, or agent in such offering on
behalf of the Warrantholder and the denominator of which is the aggregate sales
price of all of the securities sold by such underwriter, underwriting syndicate,
or agent in such offering and (ii) all out-of-pocket expenses of the
Warrantholder, except for the fees and disbursements of one firm retained as
legal counsel for the Warrantholder on behalf of all of the Warrantholders that
will be paid by the Company.

          (s)  "Warrant" means the warrant evidenced by this certificate, any
similar certificate issued in connection with the Offering, or any certificate
obtained upon transfer or partial exercise of the Warrant evidenced by any such
certificate.

     2.   EXERCISE OF WARRANTS.  All or any part of the Warrant may be
exercised commencing on the first anniversary of the Effective Date and
ending at 5:00 p.m. (Pacific Time) on the fifth anniversary of the Effective
Date by surrendering this Warrant Certificate, together with appropriate
instructions, duly executed by the Warrantholder or by its duly authorized
attorney, at the office of the Company, 10833 Thornmint Road, San Diego,
California 92127, or at such other office or agency as the Company may
designate.  Upon receipt of notice of exercise, the Company shall immediately
instruct its transfer agent to prepare certificates for the Securities to be
received by the Warrantholder upon completion of the Warrant exercise.  When
such certificates are prepared, the Company shall notify the Warrantholder
and deliver such certificates to the Warrantholder or as per the
Warrantholder's instructions immediately upon payment in full by the
Warrantholder, in lawful money of the United States, of the Exercise Price
payable with respect to the Securities being purchased.  If the Warrantholder
shall represent and warrant that all applicable registration and prospectus
delivery requirements for their sale have been complied with upon sale

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of the securities received upon exercise of the Warrant, such certificates
shall not bear a legend with respect to the Act.

     If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver
to the Warrantholder a new Warrant Certificate (dated the date hereof), in
form and tenor similar to this Warrant Certificate, evidencing that portion
of the Warrant not exercised.  The Securities to be obtained on exercise of
the Warrant will be deemed to have been issued, and any person exercising the
Warrants will be deemed to have become a holder of record of those
Securities, as of the date of the payment of the Exercise Price.

     3.   ADJUSTMENTS IN CERTAIN EVENTS.  The number, class, and price of
Securities for which this Warrant Certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:

          (a)  If the outstanding shares of the Company's Common Stock are
divided into a greater number of shares or a dividend in stock is paid on the
Common Stock, the number of shares of Common Stock for which the Warrant is
then exercisable will be proportionately increased and the Exercise Price
will be proportionately reduced; and, conversely, if the outstanding shares
of Common Stock are combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock for which the Warrant is then
exercisable will be proportionately reduced and the Exercise Price will be
proportionately increased. The increases and reductions provided for in this
subsection 3(a) will be made with the intent and, as nearly as practicable,
the effect that neither the percentage of the total equity of the Company
obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
subsection 3(a).

          (b)  In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or
other change in the capital structure of the Company, then, as a condition of
such change, lawful and adequate provision will be made so that the holder of
this Warrant Certificate will have the right thereafter to receive upon the
exercise of the Warrant the kind and amount of shares of stock or other
securities or property to which he would have been entitled if, immediately
prior to such event, he had held the number of shares of Common Stock
obtainable upon the exercise of the Warrant.  In any such case, appropriate
adjustment will be made in the application of the provisions set forth herein
with respect to the rights and interest thereafter of the Warrantholder, to
the end that the provisions set forth herein will thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the exercise of the Warrant.  The
Company will not permit any change in its capital structure to occur unless
the issuer of the shares of stock or other securities to be received by the
holder of this Warrant Certificate, if not the Company, agrees to be bound by
and comply with the provisions of this Warrant Certificate.

          (c)  When any adjustment is required to be made in the number of
shares of Common Stock, other securities, or the property purchasable upon
exercise of the Warrant, the Company will promptly determine the new number of
such shares or other securities or property

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purchasable upon exercise of the Warrant and (i) prepare and retain on file a
statement describing in reasonable detail the method used in arriving at the
new number of such shares or other securities or property purchasable upon
exercise of the Warrant and (ii) cause a copy of such statement to be mailed
to the Warrantholder within thirty (30) days after the date of the event
giving rise to the adjustment.

          (d)  No fractional shares of Common Stock or other securities will
be issued in connection with the exercise of the Warrant, but the Company
will pay, in lieu of fractional shares, a cash payment therefor on the basis
of the mean between the bid and asked prices of the Common Stock in the
over-the-counter market or the last sale price of the Common Stock on the
Nasdaq SmallCap Market or a national securities exchange on the day
immediately prior to exercise.

          (e)  If securities of the Company or securities of any subsidiary
of the Company are distributed pro rata to holders of Common Stock, such
number of securities will be distributed to the Warrantholder or his assignee
upon exercise of his rights hereunder as such Warrantholder or assignee would
have been entitled to if this Warrant Certificate had been exercised prior to
the record date for such distribution.  The provisions with respect to
adjustment of the Common Stock provided in this Section 3 will also apply to
the securities to which the Warrantholder or his assignee is entitled under
this subsection 3 (e).

          (f)  Notwithstanding anything herein to the contrary, there will be
no adjustment made hereunder on account of the sale by the Company of the
Common Stock or other Securities purchasable upon exercise of the Warrant.

     4.   RESERVATION OF SECURITIES.  The Company agrees that the number of
shares of Common Stock, Unit Warrants or other Securities sufficient to provide
for the exercise of the Warrant upon the basis set forth above will at all times
during the term of the Warrant be reserved for issuance upon exercise of the
Warrant.

     5.   VALIDITY OF SECURITIES.  All Securities delivered upon the exercise of
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all documentary and transfer taxes, if any, in respect of
the original issuance thereof upon exercise of the Warrant.

     6.   REGISTRATION OF SECURITIES ISSUABLE ON EXERCISE OF WARRANT
CERTIFICATE.

          (a)  The Company will register the Securities with the Commission
pursuant to the Act so as to allow the unrestricted sale of the Securities to
the public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. (Pacific Time) on the fifth anniversary
of the Effective Date (the "Registration Period").  The Company will also file
such applications and other documents necessary to permit the sale of the
Securities to the public during the Registration Period in those states
designated by the Warrantholders among those in which the Units were qualified
for sale in the Offering or in such other states as the Company and the
Warrantholder agree to.  In order to comply with the provisions of this Section
6(a), the Company is not required to file more than one registration statement
in addition to the Registration Statement.

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          (b)  The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer and sale of the Securities.

          (c)  Except as specifically provided herein, the manner and conduct
of the registration, including the contents of the registration statement,
will be entirely in the control and at the discretion of the Company.  The
Company will file such post-effective amendments and supplements as may be
necessary to maintain the currency of the registration statement during the
Registration Period.  In addition, if the Warrantholder participating in the
registration is advised by counsel that the registration statement, in their
opinion, is deficient in any material respect, the Company will use its best
efforts to cause the registration statement to be amended to eliminate the
concerns raised.

          (d)  The Company will furnish to the Warrantholder the number of
copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Securities owned
by it.

          (e)  The Company will, at the request of Warrantholders holding at
least 50 percent of the then outstanding Warrants, (i) furnish an opinion of
the counsel representing the Company for the purposes of the registration
pursuant to this Section 6, addressed to the Warrantholders and any
Participating Underwriter, (ii) in the event of an underwritten offering,
furnish an appropriate letter from the independent public accountants of the
Company, addressed to the Warrantholders and any Participating Underwriter,
and (iii) make such representations and warranties to the Warrantholders and
any Participating Underwriter as are customarily given to underwriters of
public offerings of equity securities in connection with such offerings.  A
request pursuant to this subsection (e) may be made on three occasions.  The
documents required to be delivered pursuant to this subsection (e) will be
dated within ten days of the request and will be, in form and substance,
equivalent to similar documents furnished to the underwriters in connection
with the Offering, with such changes as may be appropriate in light of
changed circumstances.

     7.   INDEMNIFICATION IN CONNECTION WITH REGISTRATION.

          (a)  If any of the Securities are registered, the Company will
indemnify and hold harmless each selling Warrantholder, any person who
controls any selling Warrantholder within the meaning of the Act, and any
Participating Underwriter against any losses, claims, damages, or
liabilities, joint or several, to which any Warrantholder, controlling
person, or Participating Underwriter may be subject under the Act or
otherwise; and it will reimburse each Warrantholder, each controlling person,
and each Participating Underwriter for any legal or other expenses reasonably
incurred by the Warrantholder, controlling person, or Participating
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action, insofar as such losses, claims, damages,
or liabilities, joint or several (or actions in respect thereof), arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any such
registration statement or any preliminary prospectus or final prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated

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therein or necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that the Company will not be liable in any case to the extent that
any loss, claim, damage, or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in any registration statement, preliminary prospectus, final prospectus,
or any amendment or supplement thereto, in reliance upon and in conformity
with written information furnished by a Warrantholder for use in the
preparation thereof.  The indemnity agreement contained in this subsection
will not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval not
to be unreasonably withheld.

          (b)  Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed any registration
statement or other filing, or any amendment or supplement thereto, and any
person who controls the Company within the meaning of the Act, against any
losses, claims, damages, or liabilities to which the Company or any such
director, officer, or controlling person may become subject under the Act or
otherwise, and will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in said registration
statement, any preliminary or final prospectus, or other filing or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in said registration statement,
preliminary or final prospectus, or other filing, or amendment or supplement,
in reliance upon and in conformity with written information furnished by such
Warrantholder for use in the preparation thereof; PROVIDED, HOWEVER, that the
indemnity agreement contained in this subsection (b) will not apply to
amounts paid to any claimant in settlement of any suit or claim unless such
payment is first approved by the Warrantholder, such approval not to be
unreasonably withheld.

          (c)  Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, notify the indemnifying party of the commencement
thereof; but the omission to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified party otherwise
than under subsections (a) and (b).

          (d)  If any such action is brought against any indemnified party
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.

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     8.   RESTRICTIONS ON TRANSFER.  This Warrant Certificate and the Warrant
may not be sold, transferred, assigned or hypothecated except for a one-year
period after the Effective Date to underwriters of the Offering or to
individuals who are either a partner or an officer of such an underwriter or
by will or by operation of law.  The Warrant may be divided or combined, upon
request to the Company by the Warrantholder, into a certificate or
certificates evidencing the same aggregate number of Warrants.

     9.   NO RIGHTS AS A SHAREHOLDER.  Except as otherwise provided herein, the
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.

     10.  OPTIONAL CONVERSION.

     (a)  In addition to and without limiting the right of any Warrantholder
under the terms of this Warrant, the Warrantholder shall have the right (the
"Conversion Right") to convert this Warrant or any portion thereof into
Securities as provided in this Section 10 at any time or from time-to-time after
the first anniversary of the date hereof and prior to its expiration.  Upon
exercise of the Conversion Right with respect to a particular number of Units
subject to this Warrant (the "Converted Securities"), the Company shall deliver
to the holder of this Warrant, without payment by the holder of any exercise
price or any cash or other consideration, that number of Units equal to the
quotient obtained by dividing the Net Value (as hereinafter defined) of the
Converted Securities by the sum of the fair market value (as defined in
paragraph (c) below) of a single share of Common Stock plus a single Unit
Warrant, determined in each case as of the close of business on the Conversion
Date (as hereinafter defined).  The "Net Value" of the Converted Securities
shall be determined by subtracting the aggregate Exercise Price of the Converted
Securities from the aggregate fair market value of the Converted Securities.
Notwithstanding anything in this Section 10 to the contrary, the Conversion
Right cannot be exercised with respect to a number of Converted Securities
having a Net Value below $100.  No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder of this Warrant an amount in cash equal to the fair
market value of the resulting fractional share.

     (b)  The Conversion Right may be exercised by the holder of this Warrant
by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends
to exercise the Conversion Right and indicating the number of Securities
subject to this Warrant which are being surrendered (referred to in paragraph
(a) above as the Converted Securities) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of this Warrant. Certificates for the shares of Common Stock
and Unit Warrants issuable upon exercise of the Conversion Right, together
with a check in payment of any fractional share and, in the case of a partial
exercise, a new Warrant evidencing the Securities remaining subject to this
Warrant, shall be issued as of the Conversion Date, and shall be delivered to
the holder of this Warrant within seven days following the Conversion Date.

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     (c)  For purposes of this Section 10, the "fair market value" of a share
of Common Stock or Unit Warrant as of a particular date shall be the mean
between the bid and asked price of the Common Stock or Unit Warrant, as the
case may be, as quoted in the over the counter market, or, if applicable, the
closing sale price of the Common Stock or Unit Warrant, as the case may be,
on the Nasdaq Stock Market or a national exchange.

     11.  NOTICE.  Any notices required or permitted to be given hereunder
will be in writing and may be served personally or by mail addressed as
follows:

          If to the Company:

               10833 Thornmint Road
               San Diego, California 92127
               Attn:  President

          If to the Warrantholder:

               at the address furnished
               by the Warrantholder to the
               Company for the purpose of
               notice.

     Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above.  Any
party may by written notice to the other specify a different address for notice
purposes.

     12.  APPLICABLE LAW.  This Warrant Certificate will be governed by and
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder.  All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon, to the exclusion of all other courts that might have
jurisdiction.

Dated as of _______ ___, 2000.

IMAGEWARE SYSTEMS, INC.

By:________________________________

   ________________________________

Agreed and Accepted as of ________ ___, 2000

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PAULSON INVESTMENT COMPANY, INC.

By:_______________________________

   _______________________________

I-BANKERS SECURITIES, INC.

By:_______________________________

   _______________________________

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                    WARRANT AND UNIT AGREEMENT ("AGREEMENT")

ImageWare Systems, Inc., 10883 Thornmint Road, San Diego, California 92127, a
California corporation ("Company"), and American Securities Transfer & Trust,
Inc. ("AST"), 12039 West Alameda Parkway, Suite Z-2, Lakewood, Colorado 80228, a
Colorado corporation ("Transfer Agent"), agree as follows:

         1.       PURPOSE. The Company proposes to publicly offer and issue
                  2,156,250 units ("Units"). Each Unit will entitle the
                  registered holder of a Unit ("Unit Holder") to (i) one (1)
                  share of the Company's $0.01 par value common stock ("Shares")
                  and (ii) one (1) warrant permitting the purchase of one (1)
                  Share ("Warrant").

         2.       WARRANTS. Each Warrant will entitle the registered holder of a
                  Warrant ("Warrant Holder") to purchase from the Company one
                  (1) Share at one hundred twenty percent (120%) of the Initial
                  Public Offering price of the Units during the first year after
                  the offering and one hundred fifty percent (150%) of the
                  Initial Public Offering price of the Units thereafter
                  ("Exercise Price"). A Warrant Holder may exercise all or any
                  number of Warrants resulting in the purchase of a whole number
                  of Shares.

         3.       EXERCISE PERIOD. The Warrants may be exercised at any time
                  during the period commencing thirty (30) days after the
                  Initial Public Offering ("Exercise Date") and ending at 3:00
                  p.m., Denver Colorado time on the fifth (5th) anniversary date
                  of the closing of the offering ("Expiration Date") except as
                  changed by Section 15 of this Agreement.

         4.       NON-DETACHABILITY. A Warrant Certificate (as defined below)
                  may not be detached from a Share certificate contained in a
                  Unit for at least thirty (30) days following the Initial
                  Public Offering. Until such time a Warrant Certificate may be
                  split up, combined, exchanged or transferred on the books of
                  the Transfer Agent only together with a Share certificate.
                  Paulson Investment Company, Inc. will then determine when the
                  Units separate, after which the common stock and public
                  warrants will trade separately.

         5.       CERTIFICATES. The Warrant certificates shall be in registered
                  form only and shall be substantially in the form set forth in
                  Exhibit A attached to this Agreement ("Warrant Certificate").
                  The Unit certificates shall be in registered form only and
                  shall be substantially in the form set forth in Exhibit B
                  attached to this Agreement ("Unit Certificate"). Warrant and
                  Unit Certificates shall be signed by, or shall bear the
                  facsimile signature of, the President or a Vice President of
                  the Company and the Secretary or an Assistant Secretary of the
                  Company and shall bear a facsimile of the Company's corporate
                  seal. If any person, whose facsimile signature has been placed
                  upon any Warrant or Unit Certificate or the signature of an
                  officer of the Company, shall have ceased to be such officer
                  before such Warrant or Unit Certificate is countersigned,
                  issued and delivered, such Warrant or Unit Certificate shall
                  be countersigned, issued and delivered with the same effect as
                  if such person had not ceased to be such officer. Any Warrant
                  or Unit Certificate may be signed by, or made to bear the
                  facsimile signature of, any person who at the actual date of
                  the preparation of such Warrant or Unit Certificate shall be a
                  proper officer of the Company to sign such Warrant or Unit
                  Certificate, even though such person was not such an officer
                  upon the date of the Agreement.

         6.       ISSUANCE OF NEW CERTIFICATES. Notwithstanding any of the
                  provisions of this Agreement or the several Warrant or Unit
                  Certificates to the contrary, the

                                       1

<PAGE>

                  Company may, at its option, issue new Warrant or Unit
                  Certificates in such form as may be approved by its Board of
                  Directors to reflect any adjustment or change in the Exercise
                  Price or the number or kind of shares purchasable under the
                  several Warrant or Unit Certificates made in accordance with
                  the provisions of this Agreement.

         7.       COUNTERSIGNING. Warrant and Unit Certificates shall be
                  manually countersigned by the Transfer Agent and shall not be
                  valid for any purpose unless so countersigned. The Transfer
                  Agent hereby is authorized to countersign and deliver to, or
                  in accordance with the instructions of, any Warrant or Unit
                  Holder any Warrant or Unit Certificate, respectively, which is
                  properly issued.

         8.       REGISTRATION OF TRANSFER AND EXCHANGES. The Transfer Agent
                  will keep or cause to be kept books for registration of
                  ownership or transfer of Warrant and Unit Certificates issued
                  hereunder. Such registers shall show the names and addresses
                  of the respective holders of the Warrant and Unit Certificates
                  and the number of Warrants and Units evidenced by each such
                  Warrant or Unit Certificate. Subject to the provisions of
                  Section 4, the Transfer Agent shall from time to time register
                  the transfer of any outstanding Warrant or Unit Certificate
                  upon records maintained by the Transfer Agent for such purpose
                  upon surrender of such Warrant or Unit Certificate to the
                  Transfer Agent for transfer, accompanied by appropriate
                  instruments of transfer in form satisfactory to the Company
                  and the Transfer Agent and duly executed by the Warrant or
                  Unit Holder or a duly authorized attorney. Upon any such
                  registration of transfer, a new Warrant or Unit Certificate
                  shall be issued in the name of and to the transferee and the
                  surrendered Warrant or Unit Certificate shall be cancelled.

         9.       EXERCISE OF WARRANTS.

                  a.       Any one Warrant or any multiple of one Warrant
                           evidenced by any Warrant Certificate may be exercised
                           on or after the Exercise Date, and on or before the
                           Expiration Date. A Warrant shall be exercised by the
                           Warrant Holder by surrendering to the Transfer Agent
                           the Warrant Certificate evidencing such Warrant with
                           the exercise form on the reverse of such Warrant
                           Certificate duly completed and executed and
                           delivering to the Transfer Agent, by good check or
                           bank draft payable to the order of the Company, the
                           Exercise Price for each Share to be purchased.

                  b.       Upon receipt of a Warrant Certificate with the
                           exercise form thereon duly executed together with
                           payment in full of the Exercise Price (and an amount
                           equal to any applicable taxes or government charges)
                           for the Shares for which Warrants are then being
                           exercised, the Transfer Agent shall requisition from
                           any transfer agent for the Shares, and upon receipt
                           shall make delivery of, certificates evidencing the
                           total number of whole Shares for which Warrants are
                           then being exercised in such names and denominations
                           as are required for delivery to, or in accordance
                           with the instructions of, the Warrant Holder. Such
                           certificates for the Shares shall be deemed to be
                           issued, and the person whom such Shares are issued of
                           record shall be deemed to have become a holder of
                           record of such Shares, as of the date of the
                           surrender of such Warrant Certificate and payment of
                           the Exercise Price (and an amount equal to any
                           applicable taxes or government charges), whichever
                           shall

                                       2

<PAGE>

                           last occur, provided that if the books of the Company
                           with respect to the Shares shall be deemed to be
                           issued, and the person to whom such Shares are issued
                           of record shall be deemed to have become a record
                           holder of such Shares, as of the date on which such
                           books shall next be open (whether before, on or after
                           the Expiration Date) but at the Exercise Price (and
                           an amount equal to any applicable taxes or government
                           charges), whichever shall have last occurred, to the
                           Transfer Agent. The Company covenants and agrees that
                           it shall not cause its stock transfer books to be
                           closed for a period of more than twenty (20)
                           consecutive business days except upon consolidation,
                           merger, sale of all of its assets, dissolution or
                           liquidation or as otherwise provided by law.

                  c.       In addition, if it is required by law and upon
                           instruction by the Company, the Transfer Agent will
                           deliver to each Warrant Holder a prospectus that
                           complies with the provisions of Section 5 of the
                           Securities Act, as amended, and the Company agrees to
                           supply the Transfer Agent with a sufficient number of
                           prospectuses to effectuate that purpose.

                  d.       Any Warrant Certificate or Certificates may be
                           exchanged at the option of the holder thereof for
                           another Warrant Certificate or Certificates of
                           different denominations, of like tenor and
                           representing in the aggregate the same number of
                           Warrants, upon surrender of such Warrant Certificate
                           or Certificates, with the Form of Assignment duly
                           filled in and executed, to the Transfer Agent, at any
                           time or from time-to-time after the close of business
                           on the date hereof and prior to the close of business
                           on the Expiration Date. The Transfer Agent shall
                           promptly cancel the surrendered Warrant Certificate
                           and deliver the new Warrant Certificate pursuant to
                           the provisions of this Section.

                  e.       If less than all the Warrants evidenced by a Warrant
                           Certificate are exercised upon a single occasion, a
                           new Warrant Certificate for the balance of the
                           Warrants not so exercised shall be issued and
                           delivered to, or in accordance with, transfer
                           instructions properly given by the Warrant Holder
                           until the Expiration Date.

                  f.       All Warrant Certificates surrendered upon exercise of
                           the Warrants shall be cancelled.

                  g.       Upon the exercise, or conversion of any Warrant, the
                           Transfer Agent shall account promptly to the Company
                           with respect to Warrants exercised and concurrently
                           pay to the Company all moneys received by the
                           Transfer Agent for the purchase of securities or
                           other property through the exercise of such Warrants.

                  h.       Expenses incurred by American Securities Transfer &
                           Trust, Inc. while acting in the capacity as Transfer
                           Agent, in accordance with this Agreement, will be
                           paid by the Company. A detailed accounting statement
                           relating to the number of shares exercised, names of
                           registered Warrant Holder(s) and the net amount of
                           exercised funds remitted will be given to the Company
                           with the payment of each exercise amount.

         10.      REDEMPTION. Following six (6) months after the closing of the
                  Company's initial public offering, the Warrants outstanding at
                  the time of a redemption may be

                                       3

<PAGE>

                  redeemed at the option of the Company, in whole or in part on
                  a pro-rata basis, at any time if, at the time notice of such
                  redemption is given by the Company as provided in subsection
                  a., below, the Daily Price has exceeded two hundred percent
                  (200%) of the Initial Public Offering Price for the ten (10)
                  consecutive trading days immediately preceding the date of
                  such notice, at a price of $0.25 per Warrant (the "Redemption
                  Price"). For the purpose of the foregoing sentence, the term
                  "Daily Price" shall mean, for any relevant day, the closing
                  bid price on that day as reported by the principal exchange or
                  quotation system on which prices for the Common Stock are
                  reported. On the redemption date the holders of record of
                  redeemed Warrants shall be entitled to payment of the
                  Redemption Price upon surrender of such redeemed Warrants to
                  the Company at the principal office of the Transfer Agent in
                  Denver, Colorado.

                  a.       Notice of redemption of Warrants shall be given at
                           least thirty (30) days prior to the redemption date
                           by mailing, by registered or certified mail, return
                           receipt requested, a copy of such notice to the
                           Transfer Agent and by first class mail to all of
                           the holders of record of Warrants at their
                           respective addresses appearing on the books or
                           transfer records of the Company or such other
                           address designated in writing by the holder of
                           record to the Transfer Agent not less than forty
                           (40) days prior to the redemption date.

                  b.       From and after the redemption date, all rights of the
                           Warrant Holders (except the right to receive the
                           Redemption Price) shall terminate, but only if (i) no
                           later than one day prior to the redemption date the
                           Company shall have irrevocably deposited with the
                           Transfer Agent as paying agent a sufficient amount to
                           pay on the redemption date the Redemption Price for
                           all Warrants called for redemption and (ii) the
                           notice of redemption shall have stated the name and
                           address of the Transfer Agent and the intention of
                           the Company to deposit such amount with the Transfer
                           Agent no later than one day prior to the redemption
                           date.

                  c.       The Transfer Agent shall pay to the holders of record
                           of redeemed Warrants all monies received by the
                           Transfer Agent for the redemption of Warrants to
                           which the holders of record of such redeemed Warrants
                           who shall have surrendered their Warrants are
                           entitled.

                  d.       Any amounts deposited with the Transfer Agent that
                           are not required for redemption of Warrants may be
                           withdrawn by the Company. Any amounts deposited with
                           the Transfer Agent that shall be unclaimed after six
                           (6) months after the redemption date may be withdrawn
                           by the Company, and thereafter the holders of the
                           Warrants called for redemption for which such funds
                           were deposited shall look solely to the Company for
                           payment. The Company shall be entitled to the
                           interest, if any, on funds deposited with the
                           Transfer Agent and the holders of redeemed Warrants
                           shall have no right to any such interest.

                  e.       If the Company fails to make a sufficient deposit
                           with the Transfer Agent as provided above, the holder
                           of any Warrants called for redemption may at the
                           option of the holder (i) by notice to the Company
                           declare the notice of redemption a nullity as to such
                           holder, or (ii) maintain an action against the
                           Company for the Redemption Price. If the holder

                                       4

<PAGE>

                           brings such an action, the Company will pay
                           reasonable attorneys' fees of the holder. If the
                           holder fails to bring an action against the Company
                           for the Redemption Price within sixty (60) days after
                           the redemption date, the holder shall be deemed to
                           have elected to declare the notice of redemption to
                           be a nullity as to such holder and such notice shall
                           be without any force or effect as to such holder.
                           Except as otherwise specifically provided in this
                           subsection e., a notice of redemption, once mailed by
                           the Company, as provided in subsection a., shall be
                           irrevocable.

         11.      TAXES. The Company will pay all taxes attributable to the
                  initial issuance of Shares upon exercise of Warrants. The
                  Company shall not, however, be required to pay any tax which
                  may be payable in respect to any transfer involved in any
                  issue of Warrant or Unit Certificates or in the issue of any
                  certificates of Shares in the name other than that of the
                  Warrant or Unit Holder upon the exercise of any Warrant or
                  Unit, as the case may be.

         12.      MUTILATED OR MISSING CERTIFICATES. If any Warrant or Unit
                  Certificate is mutilated, lost, stolen or destroyed, the
                  Company and the Transfer Agent may, on such terms as to
                  indemnity or otherwise as they may in their discretion impose
                  (which shall, in the case of a mutilated Warrant or Unit
                  Certificate, include the surrender thereof), and upon receipt
                  of evidence satisfactory to the Company and the Transfer Agent
                  of such mutilation, loss, theft or destruction, issue a
                  substitute Warrant or Unit Certificate, respectively, of like
                  denomination or tenor as the Warrant or Unit Certificate so
                  mutilated, lost, stolen or destroyed. Applicants for
                  substitute Warrant or Unit Certificates shall comply with such
                  other reasonable regulations and pay any reasonable charges as
                  the Company or the Transfer Agent may prescribe.

         13.      SUBSEQUENT ISSUE OF CERTIFICATES. Subsequent to their original
                  issuance, no Warrant or Unit Certificates shall be reissued
                  except (i) such Certificates issued upon transfer thereof in
                  accordance with Section 8 hereof, (ii) such Certificates
                  issued upon any combination, split-up or exchange of Warrant
                  or Unit Certificates pursuant to Section 8 hereof, (iii) such
                  Certificates issued in replacement of mutilated, destroyed,
                  lost or stolen Warrant or Unit Certificates pursuant to
                  Section 12 hereof, (iv) Warrant Certificates issued upon the
                  partial exercise of Warrant Certificates pursuant to Section 9
                  hereof, and (v) Warrant Certificates issued to reflect any
                  adjustment or change in the Exercise Price or the number or
                  kind of shares purchasable thereunder pursuant to Section 6
                  hereof. The Transfer Agent is hereby irrevocably authorized to
                  countersign and deliver, in accordance with the provisions of
                  said Sections 6, 8, 9 and 12, the new Warrant or Unit
                  Certificates, as the case may be, required for purposes
                  thereof, and the Company, whenever required by the Transfer
                  Agent, will supply the Transfer Agent with Warrant and Unit
                  Certificates duly executed on behalf of the Company for such
                  purposes.

         14.      RESERVATION OF SHARES. For the purpose of enabling the Company
                  to satisfy all obligations to issue Shares upon exercise of
                  Warrants, the Company will at all times reserve and keep
                  available free from preemptive rights, out of the aggregate of
                  its authorized but unissued shares, the full number of Shares
                  which may be issued upon the exercise of the Warrants. The
                  Company covenants all shares which shall be so issuable, will
                  upon issue be fully paid and nonassessable by the Company and
                  free from all taxes, liens, charges and security interests
                  with respect to the issue thereof. In the case of a Warrant
                  exercisable solely for securities listed on a securities
                  exchange or for which

                                       5

<PAGE>

                  there are at least two (2) independent market makers, in lieu
                  of obtaining such registration or approval, the Company may
                  elect to redeem Warrants submitted to the Transfer Agent for
                  exercise for a price equal to the difference between the
                  aggregate low asked price, or closing price, as the case may
                  be, of the securities for which such Warrant is exercisable on
                  the date of such submission and the Exercise Price of such
                  Warrants; in the event of such redemption, the Company will
                  pay to the holder of such Warrants the above-described
                  redemption price in cash within ten (10) business days after
                  receipt of notice from the Transfer Agent that such Warrants
                  have been submitted for exercise.

         15.      GOVERNMENTAL RESTRICTIONS. If any Shares issuable upon the
                  exercise of Warrants require registration or approval of any
                  governmental authority, the Company will use commercially
                  reasonable efforts to secure such registration or approval
                  and, to the extent practicable, take action in anticipation of
                  and prior to the exercise of the Warrants necessary to permit
                  a public offering of the securities underlying the Warrants
                  during the term of this Agreement; provided that in no event
                  shall such Shares be issued, and the Company shall have the
                  authority to suspend the exercise of all Warrants, until such
                  registration or approval shall have been obtained; but all
                  Warrants, the exercise of which is requested during any such
                  suspension, shall be exercisable at the Exercise Price. If any
                  such period of suspension continues past the Expiration Date,
                  all Warrants, the exercise of which have been requested on or
                  prior to the Expiration Date, shall be exercisable upon the
                  removal of such suspension until the close of business on the
                  business day immediately following the expiration of such
                  suspension.

         16.      ADJUSTMENTS OF NUMBER AND KIND OF SHARES PURCHASABLE AND
                  EXERCISE PRICE. The number and kind of securities or other
                  property purchasable upon exercise of a Warrant shall be
                  subject to adjustment from time to time upon the occurrence,
                  after the date hereof, of any of the following events:

                  a.       In case the Company shall (i) pay a dividend in, or
                           make a distribution of, shares of capital stock on
                           its outstanding Common Stock, (ii) subdivide its
                           outstanding shares of Common Stock into a greater
                           number of such shares or (iii) combine its
                           outstanding shares of Common Stock into a smaller
                           number of such shares, the total number of shares of
                           Common Stock purchasable upon the exercise of each
                           Warrant outstanding immediately prior thereto shall
                           be adjusted so that the holder of any Warrant
                           Certificate thereafter surrendered for exercise shall
                           be entitled to receive at the same aggregate Exercise
                           Price the number of shares of capital stock (of one
                           or more classes) which such holder would have owned
                           or have been entitled to receive immediately
                           following the happening of any of the events
                           described above had such Warrant been exercised in
                           full immediately prior to the record date with
                           respect to such event. Any adjustment made pursuant
                           to this subsection shall, in the case of a stock
                           dividend or distribution, become effective as of the
                           record date therefor and, in the case of a
                           subdivision or combination, be made as of the
                           effective date thereof. If, as a result of an
                           adjustment made pursuant to this subsection, the
                           holder of any Warrant Certificate thereafter
                           surrendered for exercise shall become entitled to
                           receive shares of two or more classes of capital
                           stock of the Company, the Board of Directors of the
                           Company (whose determination shall be conclusive and
                           shall be evidenced by a Board resolution filed with
                           the Transfer Agent) shall determine the allocation of
                           the adjusted

                                       6

<PAGE>

                           Exercise Price between or among shares of such
                           classes of capital stock.

                  b.       In the event of a capital reorganization or a
                           reclassification of the Common Stock (except as
                           provided in subsection a. above or subsection e.
                           below), any Warrant Holder, upon exercise of
                           Warrants, shall be entitled to receive, in
                           substitution for the Common Stock to which he would
                           have become entitled upon exercise immediately prior
                           to such reorganization or reclassification, the
                           shares (of any class or classes) or other securities
                           or property of the Company (or cash) that he would
                           have been entitled to receive at the same aggregate
                           Exercise Price upon such reorganization or
                           reclassification if such Warrants had been exercised
                           immediately prior to the record date with respect to
                           such event; and in any such case, appropriate
                           provision (as determined by the Board of Directors of
                           the Company, whose determination shall be conclusive
                           and shall be evidenced by a certified Board
                           resolution filed with the Transfer Agent) shall be
                           made for the application of this Section with respect
                           to the rights and interests thereafter of the Warrant
                           Holders (including but not limited to the allocation
                           of the Exercise Price between or among shares of
                           classes of capital stock), to the end that this
                           Section (including the adjustments of the number of
                           shares of Common Stock or other securities
                           purchasable and the Exercise Price thereof) shall
                           thereafter be reflected, as nearly as reasonably
                           practicable, in all subsequent exercises of the
                           Warrants for any shares or securities or other
                           property (or cash) thereafter deliverable upon the
                           exercise of the Warrants.

                  c.       Whenever the number of shares of Common Stock or
                           other securities purchasable upon exercise of a
                           Warrant is adjusted as provided in this Section, the
                           Company will promptly file with the Transfer Agent a
                           certificate signed by a Chairman or co-Chairman of
                           the Board or the President or a Vice President of the
                           Company and by the Treasurer or an Assistant
                           Treasurer or the Secretary or an Assistant Secretary
                           of the Company setting forth the number and kind of
                           securities or other property purchasable upon
                           exercise of a Warrant, as so adjusted, stating that
                           such adjustments in the number or kind of shares or
                           other securities or property conform to the
                           requirements of this Section, and setting forth a
                           brief statement of the facts accounting for such
                           adjustments. Promptly after receipt of such
                           certificate, the Company, or the Transfer Agent at
                           the Company's request, will deliver, by first-class,
                           postage prepaid mail, a brief summary thereof (to be
                           supplied by the Company) to the registered holders of
                           the outstanding Warrant Certificates; provided,
                           however, that failure to file or to give any notice
                           required under this subsection, or any defect
                           therein, shall not affect the legality or validity of
                           any such adjustments under this Section; and
                           provided, further, that, where appropriate, such
                           notice may be given in advance and included as part
                           of the notice required to be given pursuant to
                           Section 18 hereof.

                  d.       In case of any consolidation of the Company with, or
                           merger of the Company into, another corporation
                           (other than a consolidation or merger which does not
                           result in any reclassification or change of the
                           outstanding Common Stock), or in case of any sale or
                           conveyance to another corporation of the property of
                           the Company as an entirety or substantially as an
                           entirety, the corporation formed by such
                           consolidation or merger or the corporation which
                           shall have acquired such assets, as the case may be,
                           shall execute and deliver to the

                                       7

<PAGE>

                           Transfer Agent a supplemental warrant agreement
                           providing that the holder of each Warrant then
                           outstanding shall have the right thereafter (until
                           the expiration of such Warrant) to receive, upon
                           exercise of such Warrant, solely the kind and amount
                           of shares of stock and other securities and property
                           (or cash) receivable upon such consolidation, merger,
                           sale or transfer by a holder of the number of shares
                           of Common Stock of the Company for which such Warrant
                           might have been exercised immediately prior to such
                           consolidation, merger, sale or transfer. Such
                           supplemental warrant agreement shall provide for
                           adjustments which shall be as nearly equivalent as
                           may be practicable to the adjustments provided in
                           this Section. The above provision of this subsection
                           shall similarly apply to successive consolidations,
                           mergers, sales or transfers.

                           The Transfer Agent shall not be under any
                           responsibility to determine the correctness of any
                           provision contained in any such supplemental warrant
                           agreement relating to either the kind or amount of
                           shares of stock or securities or property (or cash)
                           purchasable by holders of Warrant Certificates upon
                           the exercise of their Warrants after any such
                           consolidation, merger, sale or transfer or of any
                           adjustment to be made with respect thereto, but
                           subject to the provisions of Section 23 hereof, may
                           accept as conclusive evidence of the correctness of
                           any such provisions, and shall be protected in
                           relying upon, a certificate of a firm of independent
                           certified public accountants (who may be the
                           accountants regularly employed by the Company) with
                           respect thereto.

                  e.       Irrespective of any adjustments in the number or kind
                           of shares issuable upon exercise of Warrants, Warrant
                           Certificates theretofore or thereafter issued may
                           continue to express the same price and number and
                           kind of shares as are stated in the similar Warrant
                           Certificates initially issuable pursuant to this
                           Agreement.

                  f.       The Company may retain a firm of independent public
                           accountants of recognized standing, which may be the
                           firm regularly retained by the Company, selected by
                           the Board of Directors of the Company or the
                           Executive Committee of said Board, and not
                           disapproved by the Transfer Agent, to make any
                           computation required under this Section, and a
                           certificate signed by such firm shall, in the absence
                           of fraud or gross negligence, be conclusive evidence
                           of the correctness of any computation made under this
                           Section.

                  g.       For the purpose of this Section, the term "Common
                           Stock" shall mean (i) the Common Stock or (ii) any
                           other class of stock resulting from successive
                           changes or reclassifications of such Common Stock
                           consisting solely of changes in par value, or from
                           par value to no par value, or from no par value to
                           par value. In the event that at any time as a result
                           of an adjustment made pursuant to this Section, the
                           holder of any Warrant thereafter surrendered for
                           exercise shall become entitled to receive any shares
                           of capital stock of the Company other than shares of
                           Common Stock, thereafter the number of such other
                           shares so receivable upon exercise of any Warrant
                           shall be subject to adjustment from time to time in a
                           manner and on terms as nearly equivalent as
                           practicable to the provisions with respect to the
                           Common Stock contained in this Section, and all other
                           provisions of this Agreement,

                                       8

<PAGE>

                           with respect to the Common Stock, shall apply on like
                           terms to any such other shares.

                  h.       The Company may, from time to time and to the extent
                           permitted by law, reduce the exercise price of the
                           Warrants by any amount for a period of not less than
                           twenty (20) days. If the Company so reduces the
                           exercise price of the Warrants, it will give not less
                           than fifteen (15) days' notice of such decrease,
                           which notice may be in the form of a press release,
                           and shall take such other steps as may be required
                           under applicable law in connection with any offers or
                           sales of securities at the reduced price.

         17.      REDUCTION OF EXERCISE PRICE BELOW PAR VALUE. Before taking any
                  action that would cause an adjustment pursuant to Section 16
                  hereof reducing the portion of the Exercise Price required to
                  purchase one share of capital stock below the then par value
                  (if any) of a share of such capital stock, the Company will
                  use its best efforts to take any corporate action which, in
                  the opinion of its counsel, may be necessary in order that the
                  Company may validly and legally issue fully paid and
                  non-assessable shares of such capital stock.

         18.      NOTICE TO WARRANT HOLDERS. In case the Company after the date
                  hereof shall propose (i) to offer to the holders of Common
                  Stock, generally, rights to subscribe to or purchase any
                  additional shares of any class of its capital stock, any
                  evidences of its indebtedness or assets, or any other rights
                  or options or (ii) to effect any reclassification of Common
                  Stock (other than a reclassification involving merely the
                  subdivision or combination of outstanding shares of Common
                  Stock) or any capital reorganization, or any consolidation or
                  merger to which the Company is a party and for which approval
                  of any stockholders of the Company is required, or any sale,
                  transfer or other disposition of its property and assets
                  substantially as an entirety, or the liquidation, voluntary or
                  involuntary dissolution or winding-up of the Company, then, in
                  each such case, the Company shall file with the Transfer Agent
                  and the Company, or the Transfer Agent on its behalf, shall
                  mail (by first-class, postage prepaid mail) to all registered
                  holders of the Warrant Certificates notice of such proposed
                  action, which notice shall specify the date on which the books
                  of the Company shall close or a record be taken for such offer
                  of rights or options, or the date on which such
                  reclassification, reorganization, consolidation, merger, sale,
                  transfer, other disposition, liquidation, voluntary or
                  involuntary dissolution or winding-up shall take place or
                  commence, as the case may be, and which shall also specify any
                  record date for determination of holders of Common Stock
                  entitled to vote thereon or participate therein and shall set
                  forth such facts with respect thereto as shall be reasonably
                  necessary to indicate any adjustments in the Exercise Price
                  and the number or kind of shares or other securities
                  purchasable upon exercise of Warrants which will be required
                  as a result of such action. Such notice shall be filed and
                  mailed in the case of any action covered by clause (i) above,
                  at least ten (10) days prior to the record date for
                  determining holders of the Common Stock for purposes of such
                  action or, if a record is not to be taken, the date as of
                  which the holders of shares of Common Stock of record are to
                  be entitled to such offering; and, in the case of any action
                  covered by clause (ii) above, at least twenty (20) days prior
                  to the earlier of the date on which such reclassification,
                  reorganization, consolidation, merger, sale, transfer, other
                  disposition, liquidation, voluntary or involuntary dissolution
                  or winding-up is expected to become effective and the date on
                  which it is expected that holders of shares of Common Stock of
                  record on such date shall be entitled to exchange their shares
                  for securities or other property

                                       9

<PAGE>

                  deliverable upon such reclassification, reorganization,
                  consolidation, merger, sale, transfer, other disposition,
                  liquidation, voluntary or involuntary dissolution or
                  winding-up.

                  Failure to give any such notice or any defect therein shall
                  not affect the legality or validity of any transaction listed
                  in this Section.

         19.      NO FRACTIONAL WARRANTS, UNITS OR SHARES. The Company shall not
                  be required to issue fractions of Warrants or Units upon the
                  reissue of Warrants or Units, any adjustments as described in
                  Section 16 or otherwise; but the Company in lieu of issuing
                  any such fractional interest, shall adjust the fractional
                  interest by payment to the Warrant or Unit Holder an amount,
                  in cash, equal to the current market value of any such
                  fraction or interest. If the total Warrants or Units
                  surrendered by exercise would result in the issuance of a
                  fractional Share, the Company shall not be required to issue a
                  fractional Share but rather the resulting fractional interest
                  shall be adjusted by payment in an amount, in cash, equal to
                  the current market value of such fractional interest.

         20.      RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall
                  have any rights of a shareholder of the Company, either at law
                  or equity, and the rights of the Warrant Holders, as such, are
                  limited to those rights expressly provided in this Agreement
                  or in the Warrant Certificates. The Company and the Transfer
                  Agent may treat the registered Warrant Holder in respect of
                  any Warrant Certificates as the absolute owner thereof for all
                  purposes notwithstanding any notice to the contrary.

         21.      RIGHT OF ACTION. All rights of action in respect to this
                  Agreement are vested in the respective registered holders of
                  the Warrant and Unit Certificates; and any registered holder
                  of any Warrant or Unit Certificate, without the consent of the
                  Transfer Agent or of any other holder of a Warrant or Unit
                  Certificate, may, in his own behalf for his own benefit,
                  enforce, and may institute and maintain any suit, action or
                  proceeding against the Company suitable to enforce, or
                  otherwise in respect of, his right to exercise the Warrants
                  evidenced by such Warrant Certificate, for the purchase of
                  shares of the Common Stock in the manner provided in the
                  Warrant Certificate and in this Agreement.

         22.      AGREEMENT OF WARRANT AND UNIT HOLDERS. Every holder of a
                  Warrant or Unit Certificate by accepting the same consents and
                  agrees with the Company, the Transfer Agent and with every
                  other holder of a Warrant or Unit Certificate, respectively,
                  that:

                  a.       The Warrant and Unit Certificates are transferable on
                           the registry books of the Transfer Agent only upon
                           the terms and conditions set forth in this Agreement;
                           and

                  b.       The Company and the Transfer Agent may deem and treat
                           the person in whose name the Warrant or Unit
                           Certificate is registered as the absolute owner of
                           the Warrant or Unit, as the case may be,
                           (notwithstanding any notation of ownership or other
                           writing thereon made by anyone other than the Company
                           or the Transfer Agent) for all purposes whatever and
                           neither the Company nor the Transfer Agent shall be
                           affected by any notice to the contrary.

         23.      TRANSFER AGENT. The Company hereby appoints the Transfer Agent
                  to act as the agent of the Company and the Transfer Agent
                  hereby accepts such

                                       10

<PAGE>

                  appointment upon the following terms and conditions by all of
                  which the Company and every Warrant and Unit Holder, by
                  acceptance of his Warrants or Units, shall be bound:

                  a.       Statements contained in this Agreement and in the
                           Warrant and Unit Certificates shall be taken as
                           statements of the Company. The Transfer Agent assumes
                           no responsibility for the correctness of any of the
                           same except such as describes the Transfer Agent or
                           for action taken or to be taken by the Transfer
                           Agent.

                  b.       The Transfer Agent shall not be responsible for any
                           failure of the Company to comply with any of the
                           Company's covenants contained in this Agreement or in
                           the Warrant or Unit Certificates.

                  c.       The Transfer Agent may consult at any time with
                           counsel satisfactory to it (who may be counsel for
                           the Company) and the Transfer Agent shall incur no
                           liability or responsibility to the Company or to any
                           Warrant or Unit Holder in respect of any action
                           taken, suffered or omitted by it hereunder in good
                           faith and in accordance with the opinion or the
                           advice of such counsel, provided the Transfer Agent
                           shall have exercised reasonable care in the selection
                           and continued employment of such counsel.

                  d.       The Transfer Agent shall incur no liability or
                           responsibility to the Company or to any Warrant or
                           Unit Holder for any action taken in reliance upon any
                           notice, resolution, waiver, consent, order,
                           certificate or other paper, document or instrument
                           believed by it to be genuine and to have been signed,
                           sent or presented by the proper party or parties.

                  e.       The Company agrees to pay to the Transfer Agent
                           reasonable compensation for all services rendered by
                           the Transfer Agent in the execution of this
                           Agreement, to reimburse the Transfer Agent for all
                           expenses, taxes and governmental charges and all
                           other charges of any kind or nature incurred by the
                           Transfer Agent in the execution of this Agreement and
                           to indemnify the Transfer Agent and save it harmless
                           against any and all liabilities, including judgments,
                           costs and counsel fees, for this Agreement except as
                           a result of the Transfer Agent's negligence, bad
                           faith or willful misconduct.

                  f.       The Transfer Agent shall be under no obligation to
                           institute any action, suit or legal proceeding or to
                           take any other action likely to involve expense
                           unless the Company or one or more Warrant or Unit
                           Holders shall furnish the Transfer Agent with
                           reasonable security and indemnity for any costs and
                           expenses which may be incurred in connection with
                           such action, suit or legal proceeding, but this
                           provision shall not affect the power of the Transfer
                           Agent to take such action as the Transfer Agent may
                           consider proper, whether with or without any such
                           security or indemnity. All rights of action under
                           this Agreement or under any of the Warrants or Units
                           may be enforced by the Transfer Agent without the
                           possession of any of the Warrant or Unit Certificates
                           or the production thereof at any trial or other
                           proceeding relative thereto, and any such action,
                           suit or proceeding instituted by the Transfer Agent
                           shall be brought in its name as Transfer Agent, and
                           any recovery of judgement shall be for the ratable
                           benefit of the Warrant or Unit Holders as their
                           respective rights or interest may appear.

                                       11

<PAGE>

                  g.       The Transfer Agent and any shareholder, director,
                           officer or employee of the Transfer Agent may buy,
                           sell or deal in any of the Warrants, Units or other
                           securities of the Company or become pecuniarily
                           interested in any transaction in which the Company
                           may be interested, or contract with or lend money to
                           the Company or otherwise act as fully and freely as
                           though it were not Transfer Agent under this
                           Agreement. Nothing herein shall preclude the Transfer
                           Agent from acting in any other capacity for the
                           Company or for any other legal entity.

         24.      SUCCESSOR TRANSFER AGENT. Any corporation into which the
                  Transfer Agent may be merged or converted or with which it may
                  be consolidated, or any corporation resulting from any merger,
                  conversion or consolidation to which the Transfer Agent shall
                  be a party, or any corporation succeeding to the corporate
                  trust business of the Transfer Agent, shall be the successor
                  to the Transfer Agent hereunder without the execution or
                  filing of any paper or any further act of a party or the
                  parties hereto provided such corporation is eligible to be
                  appointed under Section 25 below. In any such event or if the
                  name of the Transfer Agent is changed, the Transfer Agent or
                  such successor may adopt the countersignature of the original
                  Transfer Agent and may countersign such Warrant or Unit
                  Certificates either in the name of the predecessor Transfer
                  Agent or in the name of the successor Transfer Agent.

         25.      CHANGE OF TRANSFER AGENT. The Transfer Agent may resign or be
                  discharged by the Company from its duties under this Agreement
                  by the Transfer Agent or the Company, as the case may be,
                  giving notice in writing to the other, and by giving a date
                  when such resignation or discharge shall take effect, which
                  notice shall be sent at least thirty (30) days prior to the
                  date so specified. If the Transfer Agent shall resign, be
                  discharged or shall otherwise become incapable of acting, the
                  Company shall appoint a successor to the Transfer Agent. If
                  the Company shall fail to make such appointment within a
                  period of thirty (30) days after it has been notified in
                  writing of such resignation or incapacity by the resigning or
                  incapacitated Transfer Agent or by any Warrant or Unit Holder
                  or after discharging the Transfer Agent, then the Company
                  agrees to perform the duties of the Transfer Agent hereunder
                  until a successor Transfer Agent is appointed. Any successor
                  Transfer Agent shall be a bank or a trust company, in good
                  standing, organized under the laws of any state of the United
                  States of America, having a combined capital and surplus of at
                  least $4,000,000.00 at the time of its appointment as Transfer
                  Agent. After appointment, the successor Transfer Agent shall
                  be vested with the same powers, rights, duties and
                  responsibilities as if it had been originally named as
                  Transfer Agent without further act or deed, and the former
                  Transfer Agent shall deliver and transfer to the successor
                  Transfer Agent any property at the time held by it thereunder,
                  and execute and deliver any further assurance, conveyance, act
                  or deed necessary for effecting the delivery or transfer.
                  Failure to give any notice provided for in this Section,
                  however, or any defect therein, shall not affect the legality
                  or validity of the resignation or removal of the Transfer
                  Agent or the appointment of the successor Transfer Agent, as
                  the case may be.

         26.      NOTICES. Any notice or demand authorized by this Agreement to
                  be given or made by the Transfer Agent or by any Warrant or
                  Unit Holder to or on the Company shall be sufficiently given
                  or made if sent by mail, first class, certified or registered,
                  postage prepaid, addressed (until another address is filed in
                  writing by the Company with the Transfer Agent), as follows:

                                       12

<PAGE>

                                    ImageWare Systems, Inc.
                                    10883 Thornmint Road
                                    San Diego, California  92127

                  Any notice or demand authorized by this Agreement to be given
                  or made by any Warrant or Unit Holder or by the Company to or
                  on the Transfer Agent shall be sufficiently given or made if
                  sent by mail, first class, certified or registered, postage
                  prepaid, addressed (until another address is filed in writing
                  by the Transfer Agent with the Company), as follows:

                                    American Securities Transfer & Trust, Inc.
                                    12039 West Alameda Parkway Suite Z-2
                                    Denver, Colorado 80228

                  Any distribution, notice or demand required or authorized by
                  this Agreement to be given or made by the Company or the
                  Transfer Agent to or on the Warrant or Unit Holders shall be
                  sufficiently given or made if sent by mail, first class,
                  certified or registered, postage prepaid, addressed to the
                  Warrant or Unit Holders at their last known addresses as they
                  shall appear on the registration books for the Warrant or Unit
                  Certificates maintained by the Transfer Agent.

         27.      SUPPLEMENTS AND AMENDMENTS. The Company and the Transfer Agent
                  may from time to time supplement or amend this Agreement
                  without the approval of any Warrant or Unit Holders in order
                  to cure any ambiguity or to correct or supplement any
                  provision contained herein which may be defective or
                  inconsistent with any other provisions herein, or to make any
                  other provisions in regard to matters or questions arising
                  hereunder which the Company and the Transfer Agent may deem
                  necessary or desirable.

         28.      SUCCESSORS. All the covenants and provisions of this Agreement
                  by or for the benefit of the Company or the Transfer Agent
                  shall bind and inure to the benefit of their respective
                  successors and assigns hereunder.

         29.      TERMINATION. This Agreement shall terminate at the close of
                  business on the Expiration Date or such earlier date upon
                  which all Warrants have been exercised; provided, however,
                  that if exercise of the Warrants is suspended pursuant to
                  Section 15 and such suspension continues past the Expiration
                  Date, this Agreement shall terminate at the close of business
                  on the business day immediately following expiration of such
                  suspension. The provisions of Section 23 shall survive such
                  termination.

         30.      GOVERNING LAW. This Agreement and each Warrant and Unit
                  Certificate issued hereunder shall be deemed to be a contract
                  made under the laws of the State of California and for all
                  purposes shall be construed in accordance with the laws of
                  said State.

         31.      BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
                  construed to give any person or corporation other than the
                  Company, the Transfer Agent and the Warrant and Unit Holders
                  any legal or equitable right, remedy or claim under this
                  Agreement; but this Agreement shall be for the sole and
                  exclusive benefit of the Company, the Transfer Agent and the
                  Warrant and Unit Holders.

         32.      COUNTERPARTS. This Agreement may be executed in any number of
                  counterparts, each of such counterparts shall for all purposes
                  be deemed to be an original and all such counterparts shall
                  together constitute but one and the

                                       13

<PAGE>

                  same instrument.

         33.      INTEGRATION. As of the date hereof, this Agreement contains
                  the entire and only agreement, understanding, representation,
                  condition, warranty or covenant between the parties hereto
                  with respect to the matters herein, supersedes any and all
                  other agreements between the parties hereto relating to such
                  matters, and may be modified or amended only by a written
                  agreement signed by both parties hereto pursuant to the
                  authority granted by Section 27.

         34.      DESCRIPTIVE HEADINGS. The descriptive headings of the Sections
                  of this Agreement are inserted for convenience only and shall
                  not control or affect the meaning or construction of any of
                  the provisions hereof.

         Date:    January       , 2000
                          ------

                                           ImageWare Systems, Inc.
                                           a California corporation

                                           By:
                                              ---------------------------------
                                              Its President and CEO

         SEAL

         ATTEST:

         ----------------------------------
         Secretary:  Anne Hoversten

                                           American Securities Transfer & Trust,
                                           Inc.
                                           a Colorado corporation

                                           By:
                                              ---------------------------------
                                              Vice President:

         SEAL

         ATTEST:

         ----------------------------------
         Secretary:

                                          14

<PAGE>

                                    EXHIBIT A
                              [WARRANT CERTIFICATE]

<PAGE>

                                    EXHIBIT B
                               [UNIT CERTIFICATE]

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