Document:

Blueprint

 

Exhibit 10.3

890 shares of Series C Convertible Preferred Stock

 

ImageWare Systems, Inc.

 

PLACEMENT AGENCY AGREEMENT

 

 

September
10, 2018

NORTHLAND
SECURITIES, INC.

150
South Fifth Street, Suite 3300

Minneapolis,
Minnesota 55402

 

Ladies
and Gentlemen:

 

ImageWare Systems,
Inc., a Delaware corporation (the “Company”), proposes,
subject to the terms and conditions stated in this Placement Agency
Agreement (this “Agreement”) and the Securities
Purchase Agreement in a form mutually agreed upon by the Company
and the Placement Agent (the “Purchase Agreement”)
entered into with the investors identified therein (each, an
“Investor” and collectively, the
“Investors”), to issue and sell up to an aggregate of
890 shares of the Company’s Series C Convertible Preferred
Stock (the “Preferred Stock”), which are convertible
into shares of the Company’s Common Stock (the
“Conversion Shares,” and together with the Preferred
Stock, the “Securities”). The Company hereby confirms
its agreement with Northland Securities, Inc.
(“Northland” or the “Placement Agent”) as
set forth below. Northland Capital Markets is the trade name for
certain capital markets and investment banking activities of
Northland Securities, Inc., member FINRA/SIPC.

 

1. Agreement to Act as Placement Agent; Delivery
and Payment. On the basis of the representations, warranties
and agreements of the Company herein contained, and subject to the
terms and conditions set forth in this Agreement:

 

(a) The Company hereby
engages the Placement Agent, as the exclusive agent of the Company
concerning a potential private placement (the “Private
Placement”), to, on a commercially reasonable efforts basis,
solicit offers to purchase the Preferred Stock from the Company on
the terms and subject to the conditions set forth in the Purchase
Agreement and Private Placement Documents (as defined below). In
undertaking this assignment, the Placement Agent will, among other
things, identify potential investors (the “Potential
Investors”). The Placement Agent is permitted to engage
selected dealers and co-agents in performing the services
hereunder. The Placement Agent is authorized on behalf of the
Company to use and distribute copies of any documents provided to
the Placement Agent or Potential Investors in connection with the
Private Placement, including SEC Documents, the Certificate of
Designation, Preferences, Rights and Limitations of Series C
Convertible Preferred Stock in the form of Exhibit A attached to
the Purchase Agreement, the Registration Rights Agreement, in the
form attached to the Purchase Agreement as Exhibit B (collectively,
the “Private Placement Documents”) in connection with
the sale of the Securities as, and to the extent, permitted by
federal and applicable state securities laws. The Private Placement
Documents do not contain any material, non-public information
regarding the Company. The Placement Agent shall use commercially
reasonable efforts to assist the Company in obtaining performance
by each Investor whose offer to purchase the Preferred Stock was
solicited by the Placement Agent and accepted by the Company, but
the Placement Agent shall not, except as otherwise provided in this
Agreement, have any liability to the Company in the event any such
purchase is not consummated for any reason. In connection with its
commercially reasonable efforts to solicit offers to purchase the
Preferred Stock, the Placement Agent shall only communicate
information regarding the Company to potential purchasers of the
Preferred Stock that is consistent with the information contained
in the Private Placement Documents. Under no circumstances will the
Placement Agent or any of its affiliates be obligated to underwrite
or purchase any of the Preferred Stock for its own account or
otherwise provide any financing. The Placement Agent shall act
solely as the Company’s agent and not as principal. The
Placement Agent shall not have any authority to bind the Company
with respect to any prospective offer to purchase Preferred Stock,
and the Company shall have the sole right to accept offers to
purchase Preferred Stock and may reject any such offer, in whole or
in part.

 

 

 

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(b) As compensation for
services rendered by the Placement Agent hereunder, on the Closing
Date (as defined below), the Company shall pay or cause to be paid
to the Placement Agent by wire transfer of immediately available
funds to an account or accounts designated by the Placement Agent,
an aggregate amount equal to 8.0% of the gross proceeds received by
the Company from the sale of the Preferred Stock to Investors (the
“Agency Fee”). Such amount may be deducted from the
payment made by the Investor(s) to the Company and paid directly to
the Placement Agent on the Closing Date. The Placement Agent agrees
that the foregoing compensation, together with any expense
reimbursement payable hereunder, constitutes all of the
compensation that the Placement Agent shall be entitled to receive
in connection with the Offering contemplated hereby. The Placement
Agent may allow concessions, or pay commissions, to other dealers
participating in the offering of the Preferred Stock.

 

(c) The Preferred Stock
is being sold to the Investors at a price of $10,000 per share (the
“Purchase Price”). The purchases of Preferred Stock by
the Investors shall be evidenced by the execution of the Purchase
Agreement by each of the parties thereto.

 

(d) Prior to the
earlier of (i) the date on which this
Agreement is terminated and (ii) the Closing Date, the
Company shall not, without the prior written consent of the
Placement Agent, solicit or accept offers to purchase shares of the
Common Stock (other than pursuant to the exercise of options or
warrants to purchase shares of Common Stock that are outstanding at
the date hereof or are granted in the ordinary course to directors,
officers or employees of the Company under the Company’s
equity incentive plans) otherwise than through the Placement Agent
in accordance herewith.

 

(e) No Preferred Stock
that the Company has agreed to sell pursuant to this Agreement and
the Purchase Agreement shall be deemed to have been purchased and
paid for, or sold by the Company, until such Preferred Stock shall
have been delivered to the Investor purchasing such Preferred Stock
against payment therefor by such Investor. If the Company shall
default in its obligations to deliver Preferred Stock to an
Investor whose offer it has accepted, the Company shall indemnify
and hold the Placement Agent harmless against any loss, claim,
damage or liability directly or indirectly arising from or as a
result of the default by the Company in accordance with the
procedures set forth in Section 6(c)
hereof.

 

(f) Payment of the
purchase price for, and delivery of the Preferred Stock shall be
made at a closing (the “Closing”) at the time and date
as the Placement Agent and the Company determine pursuant to Rule
15c6-1(a) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) (such date of payment and delivery
being herein referred to as the “Closing Date”).
Subject to the terms hereof, payment of the purchase price for the
Preferred Stock shall be made to the Company in the manner set
forth below by Federal Funds wire transfer, against delivery of the
Preferred Stock to such persons and shall be registered in the name
or names and shall be in such denominations as the Placement Agent
may request at least one business day before the Closing Date.
Payment of the purchase price for the Preferred Stock to be
purchased by Investors shall be made by such Investors to the
Escrow Agent, as defined in the Purchase Agreement for disbursement
to the Company on the Closing Date. Subject to the terms and
conditions hereof, on the Closing Date, the Company shall pay to
the Placement Agent the amount of expenses for which the Placement
Agent is entitled to reimbursement pursuant hereto. At least one
day prior to the Closing Date, the Placement Agent shall submit to
the Company its bona fide estimate of the amount of expenses for
which it is entitled to reimbursement pursuant hereto. As soon as
reasonably practicable after the Closing Date, the Placement Agent
shall submit to the Company its expense reimbursement invoice and
the Company or the Placement Agent, as applicable, shall make any
necessary reconciling payment(s) within thirty days of receipt of
such invoices.

 

2. Representations and Warranties of the
Company. The Company represents and warrants to the
Placement Agent as of the date hereof and as of the Closing Date,
and agrees with the Placement Agent, as follows:

 

 

 

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(a) Financial Statements. The consolidated
financial statements contained in each report, registration
statement and definitive proxy statement filed by the Company with
the SEC (all documents filed with the SEC, the “ SEC
Documents”) and the Private Placement Documents comply in all
material respects with the requirements of the Securities Act and
the Exchange Act and fairly present the financial condition of the
Company and its consolidated subsidiaries as of the dates indicated
and the results of operations and changes in cash flows for the
periods therein specified in conformity with generally accepted
accounting principles in the United States consistently applied
throughout the periods involved; the supporting schedules included
in the SEC Documents present fairly the information required to be
stated therein; all non-GAAP financial information included in the
SEC Documents complies in all material respects with the
requirements of Regulation G and Item 10 of Regulation S-K under
the Securities Act; and, except as disclosed in the SEC Documents,
there are no material off-balance sheet arrangements (as defined in
Regulation S-K under the Securities Act, Item 303(a)(4)(ii)) or any
other relationships with unconsolidated entities or other persons,
that may have a material current or, to the Company’s
knowledge, material future effect on the Company’s financial
condition, results of operations, liquidity, capital expenditures,
capital resources or significant components of revenue or expenses.
No other financial statements or schedules are required to be
included in the SEC Documents. To the Company’s knowledge
Mayer Hoffman McCann P.C. has expressed its opinion with respect to
the financial statements and schedules filed as a part of the SEC
Documents, is (x) an independent public accounting firm within the
meaning of the Securities Act and the Rules and Regulations, (y) a
registered public accounting firm (as defined in Section 2(a)(12)
of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”)) and (z) not in violation of the auditor independence
requirements of the Sarbanes-Oxley Act.

 

(b) Organization and Good Standing. Each of
the Company and its subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its
properties and conduct its business as currently being carried on
and as described in the SEC Documents, and is duly qualified to do
business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which
the conduct of its business makes such qualification necessary and
in which the failure to so qualify would have a material adverse
effect upon the business, prospects, management, properties,
operations, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole
(“Material Adverse Effect”).

 

(c) Absence of Certain Events. Except as
contemplated in the SEC Documents, subsequent to the respective
dates as of which information is given in the SEC Documents,
neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any
dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital
stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants or conversion of convertible
securities), or any material change in the short term or long term
debt (other than as a result of the conversion of convertible
securities), or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company or any of its subsidiaries, or any material adverse change
in the general affairs, condition (financial or otherwise),
business, prospects, management, properties, operations or results
of operations of the Company and its subsidiaries, taken as a whole
(“Material Adverse Change”) or any development which
could reasonably be expected to result in any Material Adverse
Change.

 

(d) Absence of Proceedings. Except as set
forth in the SEC Documents, there is not pending or, to the
knowledge of the Company, threatened or contemplated, any action,
suit or proceeding (a) to which the Company or any of its
subsidiaries is a party or (b) which has as the subject thereof any
officer or director of the Company or any subsidiary, any employee
benefit plan sponsored by the Company or any subsidiary or any
property or assets owned or leased by the Company or any subsidiary
before or by any court or Governmental Authority (as defined
below), or any arbitrator, which, individually or in the aggregate,
would result in any Material Adverse Change, or would materially
and adversely affect the ability of the Company to perform its
obligations under this Agreement or which are otherwise material in
the context of the sale of the Securities. There are no current or,
to the knowledge of the Company, pending, legal, governmental or
regulatory actions, suits or proceedings (x) to which the Company
or any of its subsidiaries is subject or (y) which has as the
subject thereof any officer or director of the Company or any
subsidiary, any employee plan sponsored by the Company or any
subsidiary or any property or assets owned or leased by the Company
or any subsidiary, that are required to be described in the SEC
Documents by the Exchange Act or by the Rules and Regulations and
that have not been so described.

 

 

 

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(e) Authorization; No Conflicts; Authority.
This Agreement has been duly authorized, executed and delivered by
the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as
rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles
of equity. The execution, delivery and performance of this
Agreement and the consummation of the transactions herein
contemplated will not (A) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to any indenture, mortgage, deed
of trust, loan agreement or other material agreement or instrument
to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its
subsidiaries is subject, (B) result in any violation of the
provisions of the Company’s charter or by-laws or (C) result
in the violation of any law or statute or any judgment, order,
rule, regulation or decree of any court or arbitrator or federal,
state, local or foreign governmental agency or regulatory authority
having jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets (each, a “Governmental
Authority”), except in the case of clauses (A) and (C) as
would not result in a Material Adverse Effect. No consent,
approval, authorization or order of, or registration or filing with
any Governmental Authority is required for the execution, delivery
and performance of this Agreement or for the consummation of the
transactions contemplated hereby, including the issuance or sale of
the Securities by the Company, except such as may be required under
the Securities Act, the rules of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), the OTCQB Marketplace
(“OTCQB”) or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby, including
the authorization, issuance and sale of the Securities as
contemplated by this Agreement.

 

(f) Capitalization; the Securities; Registration
Rights. All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common
Stock, are duly authorized and validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state and foreign securities laws, were not issued in violation of
or subject to any preemptive rights or other rights to subscribe
for or purchase securities that have not been waived in writing (a
copy of which, if any, has been delivered to counsel to the
Placement Agent), and the holders thereof are not subject to
personal liability by reason of being such holders; the Securities
which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance
with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable, and the holders thereof will
not be subject to personal liability by reason of being such
holders; and the capital stock of the Company conforms to the
description thereof in the SEC Documents. Except as otherwise
stated in the SEC Documents, (A) there are no preemptive rights or
other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant
to the Company’s charter, by laws or any agreement or other
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound;
(B) the offering or sale of the Securities as contemplated by this
Agreement does not give rise to any rights for or relating to the
registration of any shares of Common Stock or other securities of
the Company (collectively “Registration Rights”) and
(C) any person to whom the Company has granted Registration Rights
has agreed not to exercise such rights until after expiration of
the Lock-Up Period (as defined below). All of the issued and
outstanding shares of capital stock of each of the Company’s
subsidiaries have been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise
described in the SEC Documents, the Company owns of record and
beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all of the issued
and outstanding shares of such stock. The Company has an authorized
and outstanding capitalization as set forth in the SEC Documents.
The Common Stock conforms in all material respects to the
description thereof contained in the SEC Documents.

 

 

 

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(g) Stock Options. Except as described in
the SEC Documents, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from
the Company or any subsidiary of the Company any shares of the
capital stock of the Company or any subsidiary of the Company. The
description of the Company’s stock option, stock bonus and
other stock plans or arrangements (the “Company Stock
Plans”), and the options or other rights granted thereunder
(collectively, the “Awards”), set forth in the SEC
Documents accurately and fairly presents in all material respects
the information required to be shown with respect to such plans,
arrangements and Awards. Each grant of an Award (A) was duly
authorized no later than the date on which the grant of such Award
was by its terms to be effective by all necessary corporate action,
including, as applicable, approval by the board of directors of the
Company (or a duly constituted and authorized committee thereof)
and any required stockholder approval by the necessary number of
votes or written consents, and the award agreement governing such
grant (if any) was duly executed and delivered by each party
thereto and (B) was made in accordance with the terms of the
applicable Company Stock Plan, and all applicable laws and
regulatory rules or requirements, including all applicable federal
securities laws.

 

(h) Compliance with Laws. The Company and
each of its subsidiaries holds, and is operating in compliance in
all material respects with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders of
any Governmental Authority or self-regulatory body required for the
conduct of its business and all material franchises, grants,
authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect;
and neither the Company nor any of its subsidiaries has received
notice of any revocation or modification of any material franchise,
grant, authorization, license, permit, easement, consent,
certification or order or has reason to believe that any material
franchise, grant, authorization, license, permit, easement,
consent, certification or order will not be renewed in the ordinary
course; and the Company and each of its subsidiaries is in
compliance in all material respects with all applicable federal,
state, local and foreign laws, regulations, orders and
decrees.

 

(i) Ownership of Assets. The Company and its
subsidiaries have good and marketable title to, or have valid
rights to lease or otherwise use, all property (whether real or
personal) described in the SEC Documents as being owned, leased or
used by them, in each case free and clear of all liens, claims,
security interests, other encumbrances or defects except such as
are described in the SEC Documents. The property held under lease
by the Company and its subsidiaries is held by them under valid,
subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material
respect with the conduct of the business of the Company or its
subsidiaries.

 

(j) Intellectual
Property.

 

(A) 

The Company and
each of its subsidiaries owns or has the right to use pursuant to a
valid and enforceable written license or other legally enforceable
right, all Intellectual Property (as defined below) necessary for
the conduct of the Company’s and its subsidiaries’
businesses as now conducted or as described in the SEC Documents to
be conducted (the “Company IP”). “Intellectual
Property” means all patents, patent applications, trade and
service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, domain names,
technology, know-how and other intellectual property.

 

(B) 

To the knowledge of
the Company, there is no infringement, misappropriation or
violation by third parties of any Company IP. There is no pending
or, to the knowledge of the Company, threatened, action, suit,
proceeding or claim by others challenging the Company’s or
its subsidiaries’ rights in or to any Company IP, and the
Company is unaware of any facts which would form a reasonable basis
for any such claim. The Intellectual Property owned by the Company
and its subsidiaries, and to the knowledge of the Company, the
Intellectual Property licensed to the Company and its subsidiaries,
has not been adjudged invalid or unenforceable, in whole or in
part, and there is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others challenging
the validity or scope of any Company IP, and the Company is unaware
of any facts which would form a reasonable basis for any such
claim. There is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others that the
Company or its subsidiaries infringe, misappropriate or otherwise
violate any Intellectual Property or other proprietary rights of
others, and neither the Company nor any of its subsidiaries has
received any written notice of such claim and the Company is
unaware of any other fact which would form a reasonable basis for
any such claim.

 

 

 

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(C) 

To the
Company’s knowledge, no employee of the Company or any of its
subsidiaries is in or has ever been in material violation of any
term of any employment contract, patent disclosure agreement,
invention assignment agreement, non-competition agreement,
non-solicitation agreement, nondisclosure agreement or any
restrictive covenant to or with a former employer where the basis
of such violation relates to such employee’s employment with
the Company or any of its subsidiaries or actions undertaken by the
employee while employed with the Company or any of its
subsidiaries.

 

(D) 

The Company and its
subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their material
Intellectual Property.

 

(E) 

All patent
applications owned by the Company or its subsidiaries and filed
with the U.S. Patent and Trademark Office (the “PTO”)
or any foreign or international patent authority that have resulted
in patents or currently pending applications that describe
inventions necessary to conduct the business of the Company or its
subsidiaries as now conducted or as described in the SEC Documents
to be conducted (collectively, the “Company Patent
Applications”) have been or were duly and properly
filed.

 

(F) 

The Company and its
subsidiaries have complied with their duty of candor and disclosure
to the PTO for the Company Patent Applications. To the
Company’s knowledge, there are no facts required to be
disclosed to the PTO that were not disclosed to the PTO and which
would preclude the grant of a patent for the Company Patent
Applications. The Company has no knowledge of any facts which would
preclude it or its applicable subsidiary from having clear title to
the Company Patent Applications that have been identified by the
Company as being exclusively owned by the Company or one of its
subsidiaries.

 

(k) No Violations or Defaults. Neither the
Company nor any of its subsidiaries is in violation of its
respective charter, by laws or other organizational documents, or
in breach of or otherwise in default, and no event has occurred
which, with notice or lapse of time or both, would constitute such
a default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan
agreement or any other contract, lease or other instrument to which
it is subject or by which any of them may be bound, or to which any
of the property or assets of the Company or any of its subsidiaries
is subject, except as would not have a Material Adverse
Effect.

 

(l) Taxes. The Company and its subsidiaries
have timely filed all federal, state, local and foreign income and
franchise tax returns required to be filed and are not in default
in the payment of any taxes which were payable pursuant to said
returns or any assessments with respect thereto, other than any
which the Company or any of its subsidiaries is contesting in good
faith. There is no pending dispute with any taxing authority
relating to any of such returns, and the Company has no knowledge
of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an
adequate reserve reflected in the Company’s financial
statements included in the SEC Documents.

 

(m) Exchange Listing and Exchange Act
Registration. The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is quoted on the OTCQB and
the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that
the Securities and Exchange Commission (the
“Commission”) is contemplating terminating such
registration. The Company has complied in all material respects
with the applicable requirements of the OTCQB for maintenance of
inclusion of the Common Stock on the OTCQB automated quotation
system. Except as previously disclosed to counsel for the Placement
Agent or as set forth in the SEC Documents, to the knowledge of the
Company, no beneficial owners of the Company’s capital stock
who, together with their associated persons and affiliates, hold in
the aggregate 10% or more of such capital stock, have any direct or
indirect association or affiliate with a FINRA member.

 

 

 

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(n) Ownership of Other Entities. Other than
the subsidiaries listed in this paragraph, the Company, directly or
indirectly, owns no capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association,
trust or other entity. The Company’s subsidiaries currently
consist of the following entities: I.W. Systems Canada Company, a
Nova Scotia unlimited liability company; Digital Imaging
International GmbH, a company formed under German laws; and
ImageWare Mexico, S. DE R.L.

 

(o) Internal Controls. The Company and its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management’s general or
specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles in the United States and
to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Except
as disclosed in the SEC Documents, the Company’s internal
control over financial reporting is effective and none of the
Company, its board of directors and audit committee is aware of any
“significant deficiencies” or “material
weaknesses” (each as defined by the Public Company Accounting
Oversight Board) in its internal control over financial reporting,
or any fraud, whether or not material, that involves management or
other employees of the Company and its subsidiaries who have a
significant role in the Company’s internal controls; and
since the end of the latest audited fiscal year, there has been no
change in the Company’s internal control over financial
reporting (whether or not remediated) that has materially affected,
or is reasonably likely to materially affect, the Company’s
internal control over financial reporting. The Company’s
board of directors has, subject to the exceptions, cure periods and
the phase in periods specified in the applicable stock exchange
rules (“Exchange Rules”), validly appointed an audit
committee to oversee internal accounting controls whose composition
satisfies the applicable requirements of the Exchange Rules and the
Company’s board of directors and/or the audit committee has
adopted a charter that satisfies the requirements of the Exchange
Rules.

 

(p) No Brokers or Finders. Other than as
contemplated by this Agreement, the Company has not incurred any
liability for any finder’s or broker’s fee or
agent’s commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.

 

(q) Insurance. The Company and each of its
subsidiaries carries, or is covered by, insurance from reputable
insurers in such amounts and covering such risks as is adequate for
the conduct of its business and the value of its properties and the
properties of its subsidiaries and as is customary for companies
engaged in similar businesses in similar industries; all policies
of insurance and any fidelity or surety bonds insuring the Company
or any of its subsidiaries or its business, assets, employees,
officers and directors are in full force and effect; the Company
and its subsidiaries are in compliance with the terms of such
policies and instruments in all material respects; there are no
claims by the Company or any of its subsidiaries under any such
policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause;
neither the Company nor any of its subsidiaries has been refused
any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has reason to believe that it
will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.

 

(r) Investment Company Act. The Company is
not and, after giving effect to the offering and sale of the
Securities, will not be an “investment company,” as
such term is defined in the Investment Company Act of 1940, as
amended.

 

(s) Sarbanes-Oxley Act. The Company is in
compliance with all applicable provisions of the Sarbanes-Oxley Act
and the rules and regulations of the Commission
thereunder.

 

(t)  Disclosure Controls. The Company has
established and maintains disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Exchange Act) and such
controls and procedures are effective in ensuring that material
information relating to the Company, including its subsidiaries, is
made known to the principal executive officer and the principal
financial officer. The Company has utilized such controls and
procedures in preparing and evaluating the disclosures in the SEC
Documents.

 

 

 

-7-

 

 

(u)  Anti-Bribery and Anti-Money Laundering
Laws. Each of the Company, its subsidiaries, its affiliates
and any of their respective officers, directors, supervisors,
managers, agents or employees has not, to the Company’s,
knowledge, violated and its participation in the offering will not
violate each of the following laws: anti-bribery laws, including
but not limited to, any applicable law, rule, or regulation of any
locality, including but not limited to any law, rule, or regulation
promulgated to implement the OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions,
signed December 17, 1997, including the U.S. Foreign Corrupt
Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or
any other law, rule or regulation of similar purposes and scope, or
anti-money laundering laws, including but not limited to,
applicable federal, state, international, foreign or other laws,
regulations or government guidance regarding anti-money laundering,
including, without limitation, Title 18 U.S. Code Section 1956 and
1957, the Patriot Act, the Bank Secrecy Act, and international
anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial
Action Task Force on Money Laundering, of which the United States
is a member and with which designation the United States
representative to the group or organization continues to concur,
all as amended, and any executive order, directive, or regulation
pursuant to the authority of any of the foregoing, or any orders or
licenses issued thereunder.

 

(v)  OFAC.

 

(A) 

Neither the Company
nor any of its subsidiaries, nor any of their directors, officers
or employees, nor, to the Company’s knowledge, any agent,
affiliate or representative of the Company or its subsidiaries, is
an individual or entity that is, or is owned or controlled by an
individual or entity that is:

 

(1) 

the subject of any
sanctions administered or enforced by the U.S. Department of
Treasury’s Office of Foreign Assets Control, the United
Nations Security Council, the European Union, Her Majesty’s
Treasury, or other relevant sanctions authority (collectively,
“Sanctions”), nor

 

(2) 

located, organized
or resident in a country or territory that is the subject of
Sanctions (including, without limitation, the Crimea Region of
Ukraine, Cuba, Iran, North Korea, Sudan and Syria).

 

(B) 

Neither the Company
nor any of its subsidiaries will, directly or indirectly, use the
proceeds of the offering, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or
other individual or entity:

 

(1) 

to fund or
facilitate any activities or business of or with any individual or
entity or in any country or territory that, at the time of such
funding or facilitation, is the subject of Sanctions;
or

 

(2) 

in any other manner
that will result in a violation of Sanctions by any individual or
entity (including any individual or entity participating in the
offering, whether as underwriter, advisor, investor or
otherwise).

 

(C) 

For the past five
years, neither the Company nor any of its subsidiaries has
knowingly engaged in, and is not now knowingly engaged in, any
dealings or transactions with any individual or entity, or in any
country or territory, that at the time of the dealing or
transaction is or was the subject of Sanctions.

 

(w) Compliance with Environmental Laws.
Except as disclosed in the SEC Documents, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any Governmental Authority or any
court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, “Environmental
Laws”), owns or operates any real property contaminated with
any substance that is subject to any Environmental Laws, is liable
for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or
claim would, individually or in the aggregate, have a Material
Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim. Neither the Company
nor any of its subsidiaries anticipates incurring any material
capital expenditures relating to compliance with Environmental
Laws.

 

 

 

-8-

 

 

(x) Compliance with Occupational Laws. The
Company and each of its subsidiaries (A) is in compliance, in all
material respects, with any and all applicable foreign, federal,
state and local laws, rules, regulations, treaties, statutes and
codes promulgated by any and all Governmental Authorities
(including pursuant to the Occupational Health and Safety Act)
relating to the protection of human health and safety in the
workplace (“Occupational Laws”); (B) has received all
material permits, licenses or other approvals required of it under
applicable Occupational Laws to conduct its business as currently
conducted; and (C) is in compliance, in all material respects, with
all terms and conditions of any such permits, licenses or
approvals. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or, to the Company’s
knowledge, threatened against the Company or any of its
subsidiaries relating to Occupational Laws, and the Company does
not have knowledge of any facts, circumstances or developments
relating to its operations or cost accounting practices that could
reasonably be expected to form the basis for or give rise to such
actions, suits, investigations or proceedings.

 

(y) ERISA and Employee Benefits Matters. (A)
To the knowledge of the Company, no “prohibited
transaction” as defined under Section 406 of ERISA (as
defined below) or Section 4975 of the Code (as defined below) and
not exempt under ERISA Section 408 and the regulations and
published interpretations thereunder has occurred with respect to
any Employee Benefit Plan (as defined below). At no time has the
Company or any ERISA Affiliate (as defined below) maintained,
sponsored, participated in, contributed to or has or had any
liability or obligation in respect of any Employee Benefit Plan
subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA, or Section 412 of the Code or any “multiemployer
plan” as defined in Section 3(37) of ERISA or any multiple
employer plan for which the Company or any ERISA Affiliate has
incurred or could incur liability under Section 4063 or 4064 of
ERISA. No Employee Benefit Plan provides or promises, or at any
time provided or promised, retiree health, life insurance, or other
retiree welfare benefits except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
or similar state law. Each Employee Benefit Plan is and has been
operated in material compliance with its terms and all applicable
laws, including but not limited to ERISA and the Code and, to the
knowledge of the Company, no event has occurred (including a
“reportable event” as such term is defined in Section
4043 of ERISA) and no condition exists that would subject the
Company or any ERISA Affiliate to any material tax, fine, lien,
penalty or liability imposed by ERISA, the Code or other applicable
law. Each Employee Benefit Plan intended to be qualified under Code
Section 401(a) is so qualified and has a favorable determination or
opinion letter from the IRS upon which it can rely, and any such
determination or opinion letter remains in effect and has not been
revoked; to the knowledge of the Company, nothing has occurred
since the date of any such determination or opinion letter that is
reasonably likely to adversely affect such qualification; (B) with
respect to each Foreign Benefit Plan (as defined below), such
Foreign Benefit Plan (1) if intended to qualify for special tax
treatment, meets, in all material respects, the requirements for
such treatment, and (2) if required to be funded, is funded to the
extent required by applicable law, and with respect to all other
Foreign Benefit Plans, adequate reserves therefor have been
established on the accounting statements of the applicable Company
or subsidiary; (C) neither the Company nor any of its subsidiaries
has any obligations under any collective bargaining agreement with
any union and no organization efforts are underway with respect to
employees of the Company or any of its subsidiaries. As used in
this Agreement, “Code” means the Internal Revenue Code
of 1986, as amended; “Employee Benefit Plan” means any
“employee benefit plan” within the meaning of Section
3(3) of ERISA, including, without limitation, all stock purchase,
stock option, stock-based severance, employment, change-in-control,
medical, disability, fringe benefit, bonus, incentive, deferred
compensation, employee loan and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or
not subject to ERISA, under which (1) any current or former
employee, director or independent contractor of the Company or its
subsidiaries has any present or future right to benefits and which
are contributed to, sponsored by or maintained by the Company or
any of its subsidiaries or (2) the Company or any of its
subsidiaries has had or has any present or future obligation or
liability; “ERISA” means the Employee Retirement Income
Security Act of 1974, as amended; “ERISA Affiliate”
means any member of the Company’s controlled group as defined
in Code Section 414(b), (c), (m) or (o); and “Foreign Benefit
Plan” means any Employee Benefit Plan established, maintained
or contributed to outside of the United States of America or which
covers any employee working or residing outside of the United
States.

 

 

 

-9-

 

 

(z)  Business Arrangements. Except as
disclosed in the SEC Documents, neither the Company nor any of its
subsidiaries has granted exclusive rights to develop, manufacture,
produce, assemble, distribute, license, market or sell its products
to any other person and is not bound by any agreement that affects
the exclusive right of the Company or such subsidiary to develop,
manufacture, produce, assemble, distribute, license, market or sell
its products.

 

(aa)  Labor
Matters. No labor problem or dispute with the employees of
the Company or any of its subsidiaries exists or is threatened or
imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or its
subsidiaries’ principal suppliers, contractors or customers,
that could have a Material Adverse Effect.

 

(bb) Restrictions
on Subsidiary Payments to the Company. No subsidiary of the
Company is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other
distribution on such subsidiary’s capital stock, from
repaying to the Company any loans or advances to such subsidiary
from the Company or from transferring any of such
subsidiary’s property or assets to the Company or any other
subsidiary of the Company, except as provided by applicable state
law or described in the SEC Documents.

 

(cc)  Statistical
Information. Any third-party statistical and market-related
data included in the SEC Documents are based on or derived from
sources that the Company believes to be reasonably current and
reliable and accurate in all material respects.

 

(dd)  Forward-looking
Statements. No forward-looking statement (within the meaning
of Section 27A of the Securities Act and Section 21E of the
Exchange Act) contained in the SEC Documents has been made or
reaffirmed without a reasonable basis or has been disclosed other
than in good faith.

 

(ee) Non-public
Information. The Company has
not provided and has not authorized any other person to act on its
behalf to provide any Investor or its respective agents or counsel
with any information about the Company that constitutes or might
constitute material, non-public information which is not otherwise
disclosed in the SEC Documents.

 

(ff) Private
Placement. Assuming the accuracy of the representations of
the Purchasers in the Purchase Agreement, on each Closing Date and
solely as this subsection relates to the issue and sale of the
Conversion Shares on the date(s) of conversion of the Preferred
Stock (assuming no change in applicable law prior to the date the
Conversion Shares are issued), are and will be exempt from the
registration and prospectus delivery requirements of the Securities
Act of 1933 (the “Securities Act”) and have been or
will be registered or qualified (or are or will be exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any
security under circumstances that would require registration under
the Securities Act of the issuance of the Securities to the
purchasers in the Private Placement. Upon the conversion of the
Preferred Stock pursuant to their terms, the Conversion Shares will
be quoted on the OTCQB. Other than the Private Placement Documents,
the Company has not distributed and will not distribute prior to a
Closing any offering material in connection with the offering and
sale of the Securities, unless such offering materials are provided
to the Placement Agent prior to or simultaneously with such
delivery to the offerees of the Securities. The Company agrees that
no Private Placement Documents (as hereinafter defined) or
materials presented or distributed to the Potential Investors,
including the SEC Documents, shall contain an untrue statement of a
material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.

 

(gg) No
General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has
engaged or will engage in any form of general solicitation or
general advertising (within the meaning of Regulation D promulgated
under the Securities Act) in connection with the offer or sale of
the Securities.

 

 

 

-10-

 

 

(hh) Bad
Actor Disqualification.

 

(A) 

With respect to
Securities to be offered and sold hereunder in reliance on Rule 506
under the Securities Act (“Regulation D Securities”),
none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the
Company participating in the Private Placement, any beneficial
owner of 20% or more of the Company's outstanding voting equity
securities (calculated on the basis of voting power), nor any
promoter (as that term is defined in Rule 405 under the Securities
Act) connected with the Company in any capacity at the time of such
sale (each, an “Issuer Covered Person” and, together,
“Issuer Covered Persons”) is subject to any of the
“Bad Actor” disqualifications described in Rule
506(d)(1)(i)–(viii) under the Securities Act (a
“Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any
Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure
obligations under Rule 506(e), and has furnished to the Placement
Agent and the Potential Investors a copy of any disclosures
provided thereunder.

 

(B) 

The Company is not
aware of any person (other than any Issuer Covered Person or Dealer
Covered Person that has been or will be paid (directly or
indirectly) remuneration for solicitation of purchasers in
connection with the sale of the Securities. For the purposes of
this subsection, “Dealer Covered Person” shall mean
Northland Securities, Inc. or any of its directors, executive
officers, general partners, managing members or other officers
participating in the Private Placement.

 

(C) 

The Company will
notify the Placement Agent in writing, prior to each Closing Date
of (i) any Disqualification Event relating to any Issuer Covered
Person and (ii) any event that would, with the passage of time,
become a Disqualification Event relating to any Issuer Covered
Person.

 

(ii) No
Manipulation; Disclosure Of Information. None of the
Company, its subsidiaries or any executive officer of the Company
(as defined in Rule 501(f) of Regulation D under the Securities
Act) has taken and will not take any action designed to or that
might reasonably be expected to cause or result in an unlawful
manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities,. The Company confirms that, to
its knowledge, with the exception of the proposed sale of
Securities contemplated in the Purchase Agreement (as to which the
Company makes no representation), neither it nor any other person
acting on its behalf has provided any of the Potential Investors or
their agent or counsel with any information that constitutes or
might constitute material, non-public information. The Company
understands and confirms that the Potential Investors shall be
relying on the foregoing representations in effecting transactions
in securities of the Company. All disclosures provided to the
Potential Investors regarding the Company, its business and the
transactions contemplated by the Purchase Agreement, including the
exhibits to the Purchase Agreement and the SEC Documents, furnished
by the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not
misleading.

 

(jj) Application
Of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under
the Company’s articles of incorporation or the laws of the
jurisdiction of its formation which is or could become applicable
to any Potential Investor as a result of the transactions
contemplated by the Purchase Agreement, including, without
limitation, the Company’s issuance of the Securities and any
Potential Investor’s ownership of the Securities. The Company
has not adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock
or a change in control of the Company.

 

 

 

-11-

 

 

Any
certificate signed by any officer of the Company or any Subsidiary
and delivered to the Placement Agent or to counsel for the
Placement Agent in connection with the offering of the Preferred
Stock shall be deemed a representation and warranty by the Company
to the Placement Agent and the Investors as to the matters covered
thereby. All representations and warranties of the Company in the
Purchase Agreement are deemed to have been made to the Placement
Agent and incorporated by reference herein.

 

3. Covenants. The Company covenants and
agrees with the Placement Agent as follows:

 

(a) Blue Sky Laws. The
Company will promptly take or cause to be taken, from time to time,
such actions as the Placement Agent may reasonably request to
qualify the Securities for offering and sale under the state
securities, or blue sky, laws of such states or other jurisdictions
as the Placement Agent may reasonably request and to maintain such
qualifications in effect so long as the Placement Agent may request
for the distribution of the Securities, provided that in no event
shall the Company be obligated to qualify as a foreign corporation
in any jurisdiction in which it is not so qualified or to file a
general consent to service of process in any jurisdiction or
subject itself to taxation as doing business in any jurisdiction.
The Company will advise the Placement Agent promptly of the
suspension of the qualification or registration of (or any
exemption relating to) the Securities for offering, sale or trading
in any jurisdiction or any initiation or threat of any proceeding
for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof
at the earliest possible moment.

 

(b) Public
Communications. Prior to 9:00 a.m. New York City time on the
business day immediately subsequent to the date hereof, the Company
shall issue a press release (the “Press Release”)
reasonably acceptable to the Placement Agent disclosing the
execution of this Agreement, the Purchase Agreement and the
transactions contemplated hereby and thereby. Prior to the Closing
Date, the Company covenants not to issue any press release (other
than the Press Release) or other communication directly or
indirectly or hold any press conference with respect to the
Company, its condition, financial or otherwise, or earnings,
business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the
Placement Agent is notified), without the prior written consent of
the Placement Agent, unless in the judgment of the Company and its
counsel, and after notification to the Placement Agent, such press
release or communication is required by law.

 

(c) Stabilization. The
Company will not take directly or indirectly any action designed,
or that would reasonably be expected to cause or result in, or that
will constitute, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of
the Preferred Stock and Conversion Shares.

 

(d) Transfer Agent. The
Company shall engage and maintain, at its expense, a transfer agent
and, if necessary under the jurisdiction of incorporation of the
Company, a registrar for the Preferred Stock and Conversion
Shares.

 

(e) Investment Company
Act. The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Preferred Stock in
such a manner as would require the Company or any Subsidiary to
register as an investment company under the Investment Company
Act.

 

4. Costs and Expenses. In addition to the
Agency Fee, the Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is
terminated, will reimburse the Placement Agent for (a) all
reasonable fees and disbursements of counsel retained by the
Placement Agent with the Company’s consent, provided that
such fees and disbursements of such counsel shall not exceed
$90,000, (b) all of the Placement Agent’s reasonable travel
and related expenses, and (c) any other reasonable out-of-pocket
expenses incurred by the Placement Agent in connection with the
performance of their services hereunder.

 

 

 

-12-

 

 

5. Conditions of Placement Agent’s
Obligations. The obligations of the Placement Agent
hereunder and the Investors under the Purchase Agreement are
subject to the following conditions:

 

(a) Action Preventing
Issuance. No action shall have been taken and no law, statute,
rule, regulation or order shall have been enacted, adopted or
issued by any governmental agency or body which would prevent the
issuance or sale of the Securities or materially and adversely
affect or potentially materially and adversely affect the business
or operations of the Company; and no injunction, restraining order
or order of any other nature by any federal or state court of
competent jurisdiction shall have been issued which would prevent
the issuance or sale of the Securities or materially and adversely
affect or potentially materially and adversely affect the business
or operations of the Company.

 

(b) Material Adverse
Change. Subsequent to the date of the latest audited financial
statements included or incorporated by reference in the SEC
Documents, (i) the Company has not
sustained any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth in the SEC
Documents, or (ii) there has not been any
change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares
upon the exercise of outstanding options or warrants or the
conversion of convertible indebtedness), or material change in the
short-term debt or long-term debt of the Company (other than upon
conversion of convertible indebtedness) or any material adverse
change, in or affecting the business, assets, general affairs,
management, financial position, prospects, stockholders’
equity or results of operations of the Company, otherwise than as
set forth in the SEC Documents, the effect of which, in any such
case described in clause (i) or (ii) of this subsection (b), is, in the reasonable
judgment of the Placement Agent, so material and adverse as to make
it impracticable or inadvisable to proceed with Private
Placement.

 

(c) Representations and
Warranties. Each of the representations and warranties of the
Company contained herein shall be true and correct in all material
respects when made and on and as of the Closing Date, as if made on
such date (except that those representations and warranties that
address matters only as of a particular date shall remain true and
correct as of such date), and all covenants and agreements herein
contained to be performed on the part of the Company and all
conditions herein contained to be fulfilled or complied with by the
Company at or prior to the Closing Date shall have been duly
performed, fulfilled or complied with.

 

(d) Opinions of Counsel
to the Company. The Placement Agent shall have received from
Disclosure Law Group, a professional corporation, counsel to the
Company, such counsel’s written opinions, addressed to the
Placement Agent and the Investors and dated the Closing Date, in
form and substance reasonably satisfactory to the Placement Agent
and its counsel.

 

(e) Opinion of
Intellectual Property Counsel to the Company. The Placement Agent
shall have received from San Diego IP Law Group LLP, intellectual
property counsel for the Company, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Placement
Agent may reasonably require, and the Company shall have furnished
to such counsel such documents as it requests to enable it to pass
upon such matters.

 

(f) Opinion of Counsel
to the Placement Agent. The Placement Agent shall have received
from Faegre Baker Daniels LLP, counsel for the Placement Agent,
such opinion or opinions, dated the Closing Date, with respect to
such matters as the Placement Agent may reasonably require, and the
Company shall have furnished to such counsel such documents as it
requests to enable it to pass upon such matters.

 

(g) No FINRA Objection.
The Placement Agent shall not have received any unresolved
objection from the FINRA as to the fairness and reasonableness of
the amount of compensation allowable or payable to the Placement
Agent in connection with the issuance and sale of the
Securities.

 

 

 

-13-

 

 

(h) Officers’
Certificate. The Placement Agent shall have received on the Closing
Date a certificate, addressed to the Placement Agent and dated the
Closing Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that:

 

(i)           each
of the representations, warranties and agreements of the Company
contained in this Agreement were true and correct when originally
made and are true and correct in all material respects as of the
Closing Date as if made on each such date (except that those
representations and warranties that address matters only as of a
particular date remain true and correct as of each such date); and
the Company has complied with all agreements and satisfied all the
conditions on its part required under this Agreement to be
performed or satisfied at or prior to the Closing Date;
and

 

(ii)           there
has not been, subsequent to the date of the most recent audited
financial statements included the SEC Documents, any material
adverse change in the financial position or results of operations
of the Company, or any change or development that, singularly or in
the aggregate, would involve a material adverse change or a
prospective material adverse change, in or affecting the condition
(financial or otherwise), results of operations, business, assets
or prospects of the Company except as set forth in the SEC
Documents.

 

(i) Purchase Agreement.
The Company shall have entered into the Purchase Agreement with
each of the Investors, and such agreement shall be in full force
and effect on the Closing Date.

 

(j) Additional
Documents. Prior to the Closing Date, the Company shall have
furnished to the Placement Agent such further information,
certificates or documents as the Placement Agent shall have
reasonably requested.

 

All
opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance
with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel for the Placement
Agent.

 

If any
condition specified in this Section 5 is not satisfied when
and as required to be satisfied, this Agreement may be terminated
by the Placement Agent by notice to the Company at any time prior
to the Closing Date, which termination shall be without liability
on the part of any party to any other party, except that
Section 4,
Section 6 and
Section 8 hereof
shall at all times be effective and shall survive such
termination.

 

6. Indemnification and
Contribution.

 

(a) Indemnification of
the Placement Agent. The Company agrees to indemnify, defend and
hold harmless the Placement Agent, its affiliates and each of its
and their respective directors, officers, members, employees,
representatives and agents and its
affiliates, and each of its and their respective directors,
officers, members, employees, representatives and agents and each
person who controls the Placement Agent within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the successors and assigns of all of the foregoing
persons, from and against any losses, claims, damages, expenses or
liabilities, joint or several, to which such person may become
subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, the common law or
otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the
Private Placement Documents or any amendment or supplement thereto,
or in any materials or information provided to Investors or
Potential Investors by, or with the approval of, the Company in
connection with the marketing of the offering of the Common Stock,
including any roadshow or investor presentations made to Investors
or Potential Investors by the Company (whether in person or
electronically) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Placement Agent for any legal or
other expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage,
liability, expense or action; or (ii) in whole or in part upon
any inaccuracy in the representations and warranties of the Company
contained herein; or (iii) in whole or in part upon
any failure of the Company to perform its obligations hereunder or
under law.

 

 

 

-14-

 

 

(b) Notice and
Procedures. If any action, suit or proceeding (each, a
“Proceeding”) is brought against a person (an
“Indemnified Party”) in respect of which indemnity may
be sought against the Company or the Placement Agent (as
applicable, the “Indemnifying Party”) pursuant to
subsections
(a) or (b) above, respectively, of
this Section 6, such
Indemnified Party shall promptly notify such Indemnifying Party in
writing of the institution of such Proceeding and such Indemnifying
Party shall assume the defense of such Proceeding, including the
employment of counsel reasonably satisfactory to such Indemnified
Party and payment of all fees and expenses; provided, however, that
the omission to so notify such Indemnifying Party shall not relieve
such Indemnifying Party from any liability which such Indemnifying
Party may have to any Indemnified Party or otherwise, except to the
extent the Indemnifying Party has been materially prejudiced by
such failure; and provided, further, that the failure to notify the
Indemnifying Party shall not relieve it from any liability that it
may have to an Indemnified Party otherwise than under subsection (a) or (b) above. The Indemnified
Party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or parties unless
(i) the employment
of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such
Proceeding, (ii) the Indemnifying Party
shall not have, within a reasonable period of time in light of the
circumstances, employed counsel to defend such Proceeding or
(iii) such
Indemnified Party or parties shall have reasonably concluded upon
written advice of counsel that there may be one or more legal
defenses available to it or them which are different from,
additional to or in conflict with those available to such
Indemnifying Party (in which case such Indemnifying Party shall not
have the right to direct that portion of the defense of such
Proceeding on behalf of the Indemnified Party or parties, but such
Indemnifying Party or parties may employ counsel and participate in
the defense thereof but the fees and expenses of such counsel shall
be at the expense of the Indemnifying Party), in any of which
events such reasonable fees and expenses shall be borne by such
Indemnifying Party and paid as incurred (it being understood,
however, that such Indemnifying Party shall not be liable for the
expenses of more than one separate counsel (in addition to any
local counsel) in any one Proceeding or series of related
Proceedings in the same jurisdiction representing the Indemnified
Parties who are parties to such Proceeding). An Indemnifying Party
shall not be liable for any settlement of any Proceeding effected
without its written consent but, if settled with its written
consent, such Indemnifying Party agrees to indemnify and hold
harmless the Indemnified Party or parties from and against any loss
or liability by reason of such settlement. Notwithstanding the
foregoing sentence, if at any time an Indemnified Party shall have
requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the second
sentence of this Section 6(c), then the
Indemnifying Party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent
if (i) such
settlement is entered into more than 60 days after receipt by such
Indemnifying Party of the aforesaid request, (ii) such Indemnifying
Party shall not have fully reimbursed the Indemnified Party in
accordance with such request prior to the date of such settlement
and (iii) such
Indemnified Party shall have given the Indemnifying Party at least
30 days’ prior notice of its intention to settle. No
Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement, compromise or consent to
the entry of judgment in any pending or threatened Proceeding in
respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that
are the subject matter of such Proceeding and does not include an
admission of fault or culpability or a failure to act by or on
behalf of such Indemnified Party.

 

(c) Contribution. If
the indemnification provided for in this Section 6 is unavailable
to an Indemnified Party under subsections (a) or
(b) of this
Section 6 or
insufficient to hold an Indemnified Party harmless in respect of
any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of the
losses, claims, damages, liabilities or expenses referred to in
subsections (a) or
(b) above,
(i) in such
proportion as is appropriate to reflect the relative benefits
received by the Indemnifying Party or parties on the one hand and
the Indemnified Party or parties on the other hand from the
offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the
relative fault of the Indemnifying Party or parties on the one hand
and the Indemnified Party or parties on the other hand in
connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Placement Agent on
the other hand shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the
Preferred Stock (before deducting expenses) received by the
Company

 

 

 

-15-

 

 

bear to
the Agency Fee received by the Placement Agent. The relative fault
of the Company on the one hand and the Placement Agent on the other
hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or
by the Placement Agent, on the other hand, and the parties’
relevant intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement, omission, act or
failure to act; provided that the parties hereto agree that the
Placement Agent provided no written information to the Company for
use in the Private Placement Documents.

 

(d) Allocation. The
Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to subsection (d) above were to be
determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in the first sentence of subsection (d) above.
Notwithstanding the provisions of this Section 6(e), the Placement
Agent shall not be required to contribute any amount in excess of
the total Agency Fee received by the Placement Agent in accordance
with Section 1(b)
less the amount of any damages which the Placement Agent has
otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement, omission or alleged omission, act or
alleged act or failure to act or alleged failure to act. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 6 are not exclusive and
shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in
equity.

 

(e) Representations and
Agreements to Survive Delivery. The obligations of the Company and
the Placement Agent under this Section 6 shall be in
addition to any liability which the Company and the Placement Agent
may otherwise have. The indemnity and contribution agreements
contained in this Section 6 and the
covenants, agreements, warranties and representations of the
Company contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made
by or on behalf of the Placement Agent, any person who controls the
Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or any
affiliate of the Placement Agent, or by or on behalf of the
Company, its directors or officers or any person who controls the
Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and
(iii) the issuance
and delivery of the Preferred Stock. The Company and the Placement
Agent agree promptly to notify each other of the commencement of
any Proceeding against it and, in the case of the Company, against
any of the Company’s officers or directors in connection with
the issuance and sale of the Securities, or in connection with the
Private Placement Documents.

 

7. Termination. The Placement Agent shall
have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the Closing Date,
without liability on the part of the Placement Agent to the
Company, if (i)
prior to delivery and payment for the Preferred Stock (A) trading in securities
generally shall have been suspended on or by the New York Stock
Exchange, the NYSE MKT, the NASDAQ Global Market, the NASDAQ
Capital Market or in the over-the-counter markets, (B) trading in the Common
Stock of the Company shall have been suspended on any exchange or
in the over-the-counter market or by the Commission, or
(C) a general
moratorium on commercial banking activities shall have been
declared by federal or New York state authorities or a material
disruption shall have occurred in commercial banking or securities
settlement or clearance services in the United States,
(D) there
shall have occurred any outbreak or material escalation of
hostilities or acts of terrorism involving the United States or
there shall have been a declaration by the United States of a
national emergency or war, or (E) there shall have occurred
any other calamity or crisis or any material change in general
economic, political or financial conditions in the United States or
elsewhere, if the effect of any such event specified in clause (D)
or (E), in the reasonable judgment of the Placement Agent, is
material and adverse and makes it impractical or inadvisable to
proceed with the completion of the sale of and payment for the
Preferred Stock on the Closing Date on the terms and in the manner
contemplated by this Agreement and the Private Placement Documents,
(ii) since the time
of execution of this Agreement or the earlier respective dates as
of which information is given in the Private Placement Documents,
there has been any Material Adverse Effect, (iii) the Company shall have
failed, refused or been unable to comply with the material terms or
perform any material agreement or obligation of this Agreement or
the Purchase Agreement, other than by reason of a default by the
Placement Agent, or (iv) any condition of the
Placement Agent’s obligations hereunder is not fulfilled.
This Agreement may be terminated by any party if the Closing does
not occur on or before September 30, 2018. Any such termination
shall be without liability of any party to any other party except
that the provisions of Section 4, Section 6, and
Section 12 hereof
shall at all times be effective notwithstanding such
termination.

 

 

 

-16-

 

 

8. Notices. All statements, requests,
notices and agreements hereunder shall be in writing or by
facsimile, and:

 

(a) if to the Placement
Agent, shall be delivered or sent by mail or facsimile transmission
as follows:

 

Northland
Securities, Inc.

45
South Seventh Street, Suite 2000

Minneapolis,
Minnesota 55402

Attention:
Investment Banking

 

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

 

Faegre
Baker Daniels LLP

2200
Wells Fargo Center

90
South Seventh Street

Minneapolis,
Minnesota 55402

Attention: Jonathan
R. Zimmerman

Facsimile No.:
(612) 766-1600

 

(b) if to the Company
shall be delivered or sent by mail or facsimile transmission
to:

 

ImageWare Systems,
Inc.

10815
Rancho Bernanrdo Road, Suite 310,

San
Diego, California 92127,

Attention: S. James
Miller

 

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

 

Disclosure Law
Group, a professional corporation

600
West Broadway, Suite 700

San
Diego, California 92101

Attention: Jessica
R. Sudweeks

Facsimile: (619)
330-2101

 

Any
such statements, requests, notices or agreements shall be effective
only upon receipt. Any party to this Agreement may change such
address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.

 

9. Persons Entitled to Benefit of
Agreement. This Agreement shall inure to the benefit of and
shall be binding upon the Placement Agent, the Company, and their
respective successors and assigns. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any
person other than the persons mentioned in the preceding sentence
any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended
to be and being for the sole and exclusive benefit of such persons
and for the benefit of no other person, except that (i) the representations,
warranties, covenants, agreements and indemnities of the Company
contained in this Agreement shall also be for the benefit of the
controlling persons, officers and directors referred to in
Section 6(a) hereof
and the indemnities of the Placement Agent shall also be for the
benefit of the controlling persons, officers and directors referred
to in Section 6(b)
hereof; and (ii)
the Investors are relying on the representations, warranties,
covenants and agreements made by the Company under, and are
intended third party beneficiaries of, this Agreement. The term
“successors and assigns” as herein used shall not
include any purchaser of the Securities by reason merely of such
purchase.

 

 

 

-17-

 

 

10. Governing Law; Submission to
Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York,
without giving effect to the conflicts of laws provisions thereof.
Except as set forth below, no Proceeding may be commenced,
prosecuted or continued in any court other than the courts of State
of New York located in the City and County of New York or the
United States District Court for the Southern District of New York,
which courts shall have jurisdiction over the adjudication of such
matters, and the parties hereby consent to the jurisdiction of such
courts and personal service with respect thereto. The Company
hereby consents to personal jurisdiction, service and venue in any
court in which any Proceeding arising out of or in any way relating
to this Agreement is brought by any third party against the
Placement Agent. All parties hereby waive all right to trial by
jury in any Proceeding (whether based upon contract, tort or
otherwise) in any way arising out of or relating to this Agreement.
All parties agree that a final judgment in any such Proceeding
brought in any such court shall be conclusive and binding upon each
party and may be enforced in any other courts in the jurisdiction
of which a party is or may be subject, by suit upon such
judgment.

 

11. No Fiduciary Relationship. The Company
hereby acknowledges and agrees that:

 

(a) No Other
Relationship. The Placement Agent has been retained solely to act
as the exclusive placement agent in connection with the offering of
the Company’s securities. The Company further acknowledges
that the Placement Agent is acting pursuant to a contractual
relationship created solely by this Agreement entered into on an
arm’s-length basis and in no event do the parties intend that
the Placement Agent act or be responsible as a fiduciary to the
Company, its management, stockholders, creditors or any other
person in connection with any activity that the Placement Agent may
undertake or has undertaken in furtherance of the offering of the
Company’s securities, either before or after the date hereof,
irrespective of whether the Placement
Agent has advised or is advising the Company on other
matters. The Placement Agent hereby expressly disclaims any
fiduciary or similar obligations to the Company, either in
connection with the transactions contemplated by this Agreement or
any matters leading up to such transactions, and the Company hereby
confirms its understanding and agreement to that
effect.

 

(b) Arm’s-Length
Negotiations. The price and terms of the Securities set forth in
this Agreement was established by the Company following discussions
and arm’s-length negotiations with the Investors and the
Placement Agent, and the Company is capable of evaluating and
understanding, and understands and accepts, the terms, risks and
conditions of the transactions contemplated by this
Agreement.

 

(c) Absence of
Obligation to Disclose. The Company has been advised that the
Placement Agent and its affiliates are engaged in a broad range of
transactions which may involve interests that differ from those of
the Company and that the Placement Agent does not have any
obligation to disclose such interests or transactions to the
Company by virtue of any fiduciary, advisory or agency
relationship.

 

(d) Waiver. The Company
hereby waives and releases, to the fullest extent permitted by law,
any claims that the Company may have against the Placement Agent
with respect to any breach or alleged breach of any fiduciary or
similar duty to the Company in connection with the transactions
contemplated by this Agreement or any matters leading up to such
transactions and agrees that the Placement Agent shall have no
liability (whether direct or indirect) to the Company in respect of
such a fiduciary duty claim to any person asserting a fiduciary
duty claim on behalf of the Company, including stockholders,
employees or creditors of the Company.

 

12. Headings. The Section headings in this
Agreement have been inserted as a matter of convenience of
reference and are not a part of this Agreement.

 

13. Amendments and Waivers. No supplement,
modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. The failure
of a party to exercise any right or remedy shall not be deemed or
constitute a waiver of such right or remedy in the future. No
waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof
(regardless of whether similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly
provided.

 

 

 

-18-

 

 

14. Counterparts. This Agreement may be
executed in one or more counterparts and, if executed in more than
one counterpart, the executed counterparts shall each be deemed to
be an original and all such counterparts shall together constitute
one and the same instrument. Delivery of an executed counterpart by
facsimile or portable document format (.pdf) shall be effective as
delivery of a manually executed counterpart thereof.

 

15. Research Analyst Independence. The
Company acknowledges that the Placement Agent’s research
analysts and research departments are required to be independent
from its investment banking division and are subject to certain
regulations and internal policies, and that the Placement
Agent’s research analysts may hold views and make statements
or investment recommendations and/or publish research reports with
respect to the Company and/or the offering that differ from the
views of their investment banking division. The Company hereby
waives and releases, to the fullest extent permitted by law, any
claims that the Company may have against the Placement Agent with
respect to any conflict of interest that may arise from the fact
that the views expressed by its independent research analysts and
research department may be different from or inconsistent with the
views or advice communicated to the Company by the Placement
Agent’s investment banking division. The Company acknowledges
that the Placement Agent is a full service securities firm and as
such from time to time, subject to applicable securities laws,
rules and regulations, may effect transactions for its own account
or the account of its customers and hold long or short positions in
debt or equity securities of the Company; provided, however, that
nothing in this Section
16 shall relieve the Placement Agent of any responsibility
or liability it may otherwise bear in connection with activities in
violation of applicable securities laws, rules or
regulations.

 

16. Entire Agreement. This Agreement
constitutes the entire agreement of the parties to this Agreement
with respect to the Company’s offering, issuance and sale of
the Securities, and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.

 

17. Partial Unenforceability. The invalidity
or unenforceability of any section, paragraph, clause or provision
of this Agreement shall not affect the validity or enforceability
of any other section, paragraph, clause or provision hereof. If any
section, paragraph, clause or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall
be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and
enforceable.

 

18. Effectiveness. This Agreement shall
become effective upon the execution and delivery hereof by the
parties hereto.

 

[Signature
page follows.]

 

-19-

 

 

If the
foregoing is in accordance with your understanding of the agreement
between the Company and the Placement Agent, kindly indicate your
acceptance in the space provided for that purpose
below.

 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	

Very
truly yours,

	
 

	
 

	
 

	
 

	
 

	

IMAGEWARE
SYSTEMS, INC.

	
 

	
 

	
 

	
 

	
 

	

By:

	
 

	

s/ Wayne
Wetherell

	
 

	
 

	
 

	

Name:
Wayne Wetherell

	
 

	
 

	
 

	

Title:
Chief Financial Officer

	

Accepted
as of

	
 

	
 

	

the
date first above written:

	
 

	
 

	
 

	
 

	
 

	

 

NORTHLAND
SECURITIES, INC.

 

 

By:  
/s/ Shawn D.
Messner

        Name: Shawn D.
Messner

      
Title: Managing Director, Investment Banking

	
 

	
 

	
 

	
 

	
 

 

 

-20-Blueprint

 

 Exhibit 10.4

EXCHANGE AGREEMENT

 

This
Exchange Agreement (this “Agreement”) is dated as of
September __, 2018 (the “Closing Date”), by and among
ImageWare Systems, Inc., a Delaware corporation (the
“Company”), and
________ (“______”).

 

RECITALS

 

WHEREAS, the
Company and Crocker are currently parties to that certain
Convertible Promissory Note, dated _________, as amended ________
(as amended, the “Note”), which Note provides for
maximum borrowings of up to $_______;

 

WHEREAS, as of
September __, 2018, the total amount of advances under the Note,
including outstanding principal and all accrued and unpaid interest
thereon, equals $_______ (the “Outstanding Amount”);
and

 

WHEREAS, subject to
the terms and conditions set forth herein, the Company and _______
desire that, concurrently with the execution and delivery of this
Agreement by the Company and ____________, (i) the Outstanding
Amount shall be exchanged for shares of the Company’s Series
A Convertible Preferred Stock, par value $0.01 per share, with a
stated value of $1,000 per share (the “Exchange Shares”) (the
“Exchange”),
which Exchange Shares shall be convertible into shares of common
stock of the Company, par value $0.01 per share
(“Conversion
Shares”), and (ii) all indebtedness, liabilities and
other obligations arising under or relating to the Note (including,
without limitation, principal, interest, fees, expenses, costs,
disbursements, premium, and indemnification) be deemed cancelled,
extinguished, released, discharged and satisfied in full without
the requirement for the payment or provision of any consideration
or other amounts (except for the issuance of the Exchange Shares in
exchange for the Outstanding Amount as contemplated herein), each
on the terms and conditions set forth in this
Agreement.

 

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

 

AGREEMENT

 

1. Securities
Exchange.

 

(a) In consideration of
and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, ____________
hereby exchanges the Outstanding Amount for that number of Exchange
Shares equal to the Outstanding Amount divided by 1,000 (rounded
down to the nearest whole share), it being understood that the
number of Exchange Shares issued in connection with the Exchange
shall include accrued and unpaid interest on such Note up to and
including the Closing Date. In consideration for the foregoing, the
Company agrees to issue and deliver the Exchange Shares to
____________, as directed by ____________. For the avoidance of
doubt, the number of Exchange Shares issued by the Company in
exchange for the Outstanding Amount pursuant to this Section 1(a)
is _________ (_____) Exchange Shares.

 

(b) Within five
business days after the Closing Date, the Company shall issue and
deliver to ____________ a certificate evidencing the Exchange
Shares against delivery of the Note to the Company. Following the
Closing Date, the parties agree that all indebtedness, liabilities and other
obligations arising under or relating to the Note (including,
without limitation, principal, interest, fees, expenses, costs,
disbursements, premium, and indemnification) shall be deemed
cancelled, extinguished, released, discharged and satisfied in full
without the requirement for the payment or provision of any
consideration or other amounts (except for the issuance of the
Exchange Shares in exchange for the Outstanding Amount as
contemplated herein), and the Note shall be marked cancelled and
paid in full. As a result of the foregoing the Note shall be
terminated and of no further force and effect.

 

 

-1-

 

 

2. Representations,
Warranties and Covenants of ____________. ____________ hereby makes the
following representations and warranties to the Company, and
covenants for the benefit of the Company:

 

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

 

(b) ____________
understands that the Exchange Shares are being offered and sold to
it in reliance on the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of
____________ set forth herein.

 

(c) ____________ is and
will be acquiring the Exchange Shares for ____________’s own
account, for investment purposes, and not with a view to any resale
or distribution in whole or in part, in violation of the Securities
Act of 1933, as amended (“Securities Act”) or any
applicable securities laws.

 

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

 

(e) ____________ agrees
and acknowledges that it is currently an “affiliate” of
the Company, as such term is defined in the Securities Act, and as
a result cannot resell the Exchange Shares or Conversion Shares, as
such term is defined in the Certificate of Designations,
Preferences and Rights of the Exchange Shares, except in compliance
with the Securities Act and any applicable state blue sky
laws.

 

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

 

(a) The Company has
been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware, with full corporate power
and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered
and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or
qualification, except where the failure to register or qualify
would not have a Material Adverse Effect. For purposes of this
Agreement, “Material Adverse
Effect” shall mean any material adverse effect on the
business, operations, properties, prospects, or financial condition
of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material
respect.

 

(b) The Exchange Shares
have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the
Exchange Shares shall be validly issued and outstanding, fully paid
and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind.

 

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

 

 

 

 

-2-

 

 

(d) The Company has
complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and delivery
of the Exchange Shares hereunder.

 

4. Governing
Law; Consent to Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of
California without giving effect to conflict of law principles that
would result in the application of the substantive laws of another
jurisdiction. Each of the parties consents to the exclusive
jurisdiction of the Federal courts whose districts encompass any
part of the State of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection
based on forum non
conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party waives its right to a trial by jury. Each
party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its
address set forth herein. Nothing herein shall affect the right of
any party to serve process in any other manner permitted by
law.

 

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

 

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

 

 

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

-3-

 

 

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

 

 

 

	

IMAGEWARE SYSTEMS, INC.

 

 

	

 By:______________________________________

      
Name:

      
Title:

 

 

 

	

______________:

	

________________________________________

 

 

 

 

 

-4-

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