Document:

Exhibit 10.1

 

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

 

COMMON STOCK PURCHASE WARRANT

 

IMAGEWARE SYSTEMS, INC.

 

	
  Warrant
  Shares: [    ]

  	
  Issuance
  Date: March 12, 2008

  

 

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

 

Section 1.       Definitions. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated September 25, 2007, among the Company and the purchasers signatory thereto.

 

Section 2.       Exercise.

 

a)        Exercise of Warrant.
Exercise of the purchase rights represented by this Warrant may be made, in
whole or in part, at any time or times on or after the Issuance

 

1

 

Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy
of the Notice of Exercise Form annexed hereto (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of the Holder appearing on the books of the
Company); and, within 3 Trading Days of the date said Notice of Exercise is
delivered to the Company, the Company shall have received  payment of the aggregate Exercise Price of
the shares thereby purchased by wire transfer or cashier’s check drawn on a
United States bank. Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company until
the Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall surrender
this Warrant to the Company for cancellation within 3 Trading Days of the date
the final Notice of Exercise is delivered to the Company. Partial exercises of
this Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the
applicable number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the date of
such purchases. The Company shall deliver any objection to any Notice of
Exercise Form within two (2) Trading Days of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.

 

b)        Exercise Price. The exercise price per share of the Common
Stock under this Warrant shall be $1.20, subject
to adjustment hereunder (the “Exercise Price”).

 

c)        Cashless Exercise. If
at any time after the later of 6 months from the date of issuance and the
completion of the then-applicable holding period required by Rule 144, or
any successor provision then in effect, which would allow “tacking” of the
holding period of this Warrant and the Warrant Shares pursuant to the SEC
Manual of Publicly Available Telephone Interpretations or other Commission rule or
guidance (but in no event later than 1 year from the date of issuance), there
is no effective Registration Statement registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder at a time when such
Registration Statement is required to be effective pursuant to the Registration
Rights Agreement, then this Warrant may also be exercised at such time by means
of a “cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

 

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

 

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

 

 

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

 

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

 

d)        Holder’s
Restrictions. The Company shall not effect any exercise of this Warrant,
and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect
to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates), would beneficially own in excess of the Beneficial
Ownership Limitation (as defined below).  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its Affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other  Common Stock Equivalents) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates.  Except
as set forth in the preceding sentence, for purposes of this Section 2(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder, it
being acknowledged by the Holder that the Company is not representing to the
Holder that such calculation is in compliance with Section 13(d) of
the Exchange Act and the Holder is solely responsible for any schedules
required to be filed in accordance therewith. To the extent that the limitation
contained in this Section 2(d) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the
Holder together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission
of a Notice of Exercise shall be deemed to be the Holder’s determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant
is exercisable, in each case subject to the Beneficial Ownership Limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder. For
purposes of this Section 2(d), in determining the number of outstanding
shares of Common Stock, a Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company’s most recent Form 10-Q
or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or 

 

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the Company’s Transfer
Agent setting forth the number of shares of Common Stock outstanding. 
Upon the written or oral request of a Holder, the Company shall within five (5) Trading
Days confirm orally and in writing to the Holder the number of shares of Common
Stock then outstanding.  In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Warrant, by the Holder or
its Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation” shall
be 4.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon
exercise of this Warrant. The Beneficial Ownership Limitation provisions of
this Section 2(d) may be waived by the Holder, at the election of the
Holder, upon not less than 61 days’ prior notice to the Company to change the
Beneficial Ownership Limitation to 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock upon exercise of this Warrant, and the provisions of this Section 2(d) shall
continue to apply. Upon such a change by a Holder of the Beneficial Ownership
Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial
Ownership Limitation may not be further waived by the Holder. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(d) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

 

e)             Mechanics of
Exercise.

 

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

 

4

 

permitted) and all taxes
required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior
to the issuance of such shares, have been paid.

 

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

 

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

 

iv.     Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise. In addition to any
other rights available to the Holder, other than during any periods that the
Company has notified the Holder in writing that, at such time, there is no
registration statement effective or available for the sale or resale of the
Warrant Shares, if the Company fails to cause its transfer agent to transmit to
the Holder a certificate or certificates representing the Warrant Shares
pursuant to an exercise on or before the second Trading Day following the
Warrant Share Delivery Date, and if after such date the Holder is required by
its broker to purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Company
shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Warrant Shares for which such exercise
was not honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of
the immediately preceding sentence the Company shall 

 

5

 

be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the
Company, including evidence of the amount of such loss. Nothing herein shall
limit a Holder’s right to pursue any other equitable remedies available to it
hereunder, including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.

 

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

 

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

 

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

 

Section 3.               Certain Adjustments.

 

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

 

6

 

case the Exercise Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event and the
number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of this Warrant
shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

b)            [INTENTIONALLY
DELETED]

 

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

 

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

 

7

 

e)             Fundamental Transaction.
If, at any time while this Warrant is outstanding, (A) the Company effects
any merger or consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (C) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (D) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each “Fundamental Transaction”), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right
to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such merger, consolidation
or disposition of assets by a holder of the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to such event. For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing
provisions and evidencing the Holder’s right to exercise such warrant into
Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e) and
insuring that this Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

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

 

g)            Minimum Adjustment. Notwithstanding anything in this Warrant to
the contrary, no adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least $0.01 per share of
Common Stock; provided, however, that any adjustments which by reason of this
Subsection 3(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; provided, further, however,
that adjustments shall be required and made in 

 

8

 

accordance
with the provisions of this Section 3 (other than this Subsection 3(g))
not later than such time as may be required in order to preserve the tax-free
nature of a distribution, if any, to the Holder of this Warrant or the Warrant
Shares. Notwithstanding anything in this Section 3 to the contrary, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those required by this Section 3, as it in its discretion
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.

 

h)            Notice to Holder.  

i.      Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
provision of this Section 3, the Company shall promptly mail to the Holder a
notice setting forth the Exercise Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment. 

ii.     Notice to
Allow Exercise by Holder. If (A) the Company shall declare a dividend (or
any other distribution in whatever form) on the Common Stock; (B) the Company
shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any reclassification
of the Common Stock, any consolidation or merger to which the Company is a
party, any sale or transfer of all or substantially all of the assets of the
Company, of any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, in each case, the Company shall cause to be mailed to the
Holder at its last address as it shall appear upon the Warrant Register of the
Company, at least 20 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of such dividend, distribution, redemption, rights
or warrants, or if a record is not to be taken, the date as of which the
holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity
of the corporate action required to be specified in such notice. 

 

9

 

Subject to applicable
law, the Holder is entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the event
triggering such notice. Notwithstanding the foregoing, the delivery of the
notice described in this Section 3(h) is not intended to and shall
not bestow upon the Holder any voting rights whatsoever with respect to
outstanding unexercised Warrants.

 

Section 4.              Transfer of Warrant.

 

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

 

b)           New Warrants.
This Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a),
as to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.
Subject to applicable securities laws, Warrants issued on transfers or
exchanges shall be dated the original Issue Date and shall be identical with
this Warrant except as to the number of Warrant Shares issuable pursuant
thereto.

 

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

 

d)           Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer, that (i) the
Holder or transferee of this Warrant, as 

 

10

 

the case may be, furnish
to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable transactions)
to the effect that such transfer may be made without registration under the
Securities Act and under applicable state securities or blue sky laws, and (ii) the
Holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company, and (iii) the transferee be
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7), or (a)(8) promulgated under the Securities Act or a “qualified
institutional buyer” as defined in Rule 144A(a) promulgated under the
Securities Act .

 

Section 5.               Investment Intent; Limited Transferability.

 

(a)               By accepting this Warrant, the Holder
represents to the Company that it understands that this Warrant has not been,
and any securities obtainable upon exercise of this Warrant may not have not
been registered for sale under the Securities Act or any state securities or “blue
sky” laws and are being offered and sold to the Holder pursuant to one or more
exemptions from the registration requirements of the Securities Act and
applicable State securities or “blue sky” laws. In the absence of an effective
registration of such securities or an exemption therefrom, any certificates for
such securities shall bear a legend substantially similar to the legend set forth
in the Purchase Agreement. The Holder understands that it may have to bear the
economic risk of its investment in this Warrant and any securities obtainable
upon exercise of this Warrant for an indefinite period of time, until such
securities have been registered under the Securities Act and any applicable
state securities or “blue sky” laws and therefore cannot be sold unless
subsequently registered under such laws, or an exemption from such registration
is available. The Holder further represents to the Company, by accepting this
Warrant, that it has full power and authority to accept this Warrant and make
the representations set forth herein.

 

(b)              The Holder agrees and acknowledges that this
Warrant may not be sold, transferred, assigned or hypothecated by the Holder
except in compliance with the provisions of the Securities Act and any
applicable State securities or “blue sky” laws.

 

Section 6.              Miscellaneous.

 

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

 

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

 

11

 

certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate. Upon
the surrender of this Warrant and the payment of the aggregate Exercise Price
(or by means of a cashless exercise), the Warrant Shares so purchased shall be
and be deemed to be issued to such Holder as the record owner of such shares as
of the close of business on the later of the date of such surrender or payment.

 

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

 

d)            Authorized Shares.

 

The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its officers who are charged with the duty of executing
stock certificates have full authority to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of the Trading Market upon which the Common Stock may be listed. The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by
the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

 

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

 

12

 

having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.

 

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

 

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

 

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

 

g)           Nonwaiver and
Expenses. No course of dealing or any delay or failure to exercise any
right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the
fact that all rights hereunder terminate on the Termination Date. If the
Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall
pay to Holder such amounts as shall be sufficient to cover any costs and
expenses including, but not limited to, reasonable attorneys’ fees, including
those of appellate proceedings, incurred by Holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.

 

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

 

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

 

j)             Successors and
Assigns. Subject to applicable securities laws and Section 4(a) hereof,
this Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and shall
be enforceable by any the Holder or holder of Warrant Shares.

 

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

 

13

 

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

 

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

 

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

 

14

 

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

 

 

	
   

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

15

 

NOTICE OF EXERCISE

 

TO:         IMAGEWARE
SYSTEMS, INC.

 

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

 

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

 

o
in lawful money of the United States; or

 

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

 

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

 

 

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

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

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

 

[SIGNATURE OF HOLDER]

 

	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

 

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

 

	
     

  	
  whose address is

  
	
   

  
	
   

  	
  .

  
			

 

	
   

  	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  

 

	
   

  	
  Holder’s Signature:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  
						

 

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

Exhibit 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into this 31st day of December, 2007 (the “Effective Date”), by and between Duska Therapeutics, Inc., a Nevada corporation located at 470 Nautilus Avenue, Suite 300, La Jolla, California 92037 (“Duska”), and Amir Pelleg, Ph.D., residing in 24 Dartmouth Lane, Haverford, Pennsylvania 19041 (“Pelleg”). 

WHEREAS, Duska is desirous of continuing the employment of Pelleg as President and CSO on a full-time basis; 

WHEREAS, Pelleg has informed the Board of Directors of Duska (“Board”) that he would be willing to continue his employment in the position of President and CSO on a full-time basis; and 

WHEREAS, Duska and Pelleg desire to continue the relationship whereby Duska employs Pelleg, and Pelleg serves Duska in the capacity of President and CSO, on a full-time basis pursuant to the terms and provisions contained herein.

NOW, THEREFORE, in consideration of the mutual promises set forth herein, Duska and Pelleg hereby agree as follows:

1.

Responsibilities.  Pelleg agrees to manage the day-to-day scientific operations of Duska in the capacity of President and CSO.  Pelleg will report directly to the Chairman and CEO and work closely with the Chairman and CEO.  His duties will be those customarily performed by President and CSO of an emerging bio-pharmaceutical public company, subject to the management of the Chairman and CEO, including without limitation, the following duties:

·

act as a leader and spokesman of the company’s scientific program;

·

formulate and present to the Board a scientific strategy in accordance with the Board’s vision; 

·

supervise scientific employees and the scientific advisory board;

·

manage scientific operations;

·

identify and present to the board new technologies and licensing opportunities;

·

assist in the negotiations of research agreements, collaborative endeavors, mergers and acquisitions with external entities;

1.1

Term.  The term of this Agreement shall commence as of the Effective Date and shall terminate on December 31, 2010 unless terminated sooner by Pelleg or Duska as set forth in Section 6 hereunder.  The term of this Agreement may be extended upon the mutual written agreement of the parties.

2.

Compensation and Benefits.  

2.1

Title and Commitment.  Pelleg will work on a full-time basis as Duska’s President and CSO and/or any other capacity to be determined by the Chairman and CEO or the Board.

2.2

Salary.  Pelleg’s annual salary will be $175,000. Pelleg shall receive an annual salary increase, but at a minimum, the increase shall be equal to the rate of inflation in San Diego, California as measured by the prior year’s Consumer Price Index.  The salary will be payable in 24 equal, semi-monthly payments on a prorated basis. Beginning in December 2008, the CEO will make a recommendation to the Board as to the annual year end bonus, the target of which will be up to 35% of the base salary and dependent on the achievement of written objectives set by the Company’s CEO in the prior year., The earning and payment of annual bonus will depend on the approval of the Board. Such policy and bonus shall be in the Board’s sole and absolute discretion.

2.3

Stock Options.  Pelleg will receive options to purchase 1,000,000 shares of Common Stock of Duska at an exercise price equal to the three days average of the closing price of the stock prior to the Effective Date. Twenty-five percent of Pelleg’s stock options will be vested upon the Effective Date.  The remaining 75% of the stock options shall vest at a rate of 6.25% per quarter on the last day of each of the 12 calendar quarter, thereafter.  

2.4

Benefits and Insurance.  While this Agreement is in effect, Duska will provide Pelleg with all standard Duska employee benefits, including health insurance and worker’s compensation insurance. Duska will continue to pay up to $1,000 per month for the existing disability and life insurance policies (the “Policies”) of which Pelleg is the beneficiary.

2.5

 Disability. In the event that Pelleg cannot perform the duties because of illness or incapacity for a period of more than six weeks, the compensation otherwise due during said illness or incapacity will be reduced by 50%. Pelleg’s full compensation will be reinstated upon return to work. However, if Pelleg is absent from work for any reason for a continuous period of over two months, the Duska may terminate Pelleg’s employment, and Duska’s obligations under this Agreement will cease on that date.

2.6 

Death Benefit. Should Employee die during the term of employment, the Company shall pay to Employee's estate any compensation due through the end of the month in which death occurred as well as vested stock options.

2.7

Vacation. The Employee shall be entitled to accrue vacation time of three weeks yearly at full pay.  The Employee shall cease accruing vacation time after accruing eight weeks of unused vacation time.

2.8 

Office. The Employee will be reimbursed for the cost of an office in the Philadelphia area, up to a monthly rent of $1,000.  

2

2.9

Reimbursement of Expenses. The Employee may incur reasonable expenses associated with the fulfillment of his duties, including expenses for entertainment, travel, and similar items. The Company shall reimburse Employee for all business expenses after the Employee presents an itemized account of expenditures, pursuant to Company policy.

3.

Indemnity.  Pelleg agrees to indemnify and hold Duska harmless from and against any and all claims, demands, causes of action, losses, damages, liabilities, costs, and expenses, including attorneys' fees, arising from a breach of any of the Pelleg's covenants, representations and warranties herein or attributable to or resulting from Pelleg's gross negligence or willful misconduct in fulfilling his duties as Duska’s President and CSO.  Pelleg warrants and represents that he has full power and authority to enter into and perform this Agreement.  Duska agrees to indemnify and hold Pelleg harmless from and against any and all claims, demands, causes of action, losses, damages, liability, costs and expenses, including attorneys’ fees arising out of Pelleg’s fulfillment of his duties as Duska’s President and CSO, other than those arising from Pelleg’s breach of any of his covenants, representations and warranties hereunder or Pelleg’s gross negligence or willful misconduct. 

4.

Proprietary Rights.  All work performed and all materials developed or prepared for Duska by Pelleg in his capacity as an officer and employee are the property of Duska and all title and interest therein shall vest in Duska and shall be deemed to be works made for hire and made in the course of Pelleg’s fulfillment of his duties.  To the extent that title to any such works may not, by operation of law, vest in Duska or such works may not be considered works made for hire, all rights, title and interest therein are hereby irrevocably assigned to Duska.  All such materials shall belong exclusively to Duska, and Duska shall have the right to obtain and to hold in its own name, copyrights, trademarks, patents, other registrations, or such other protection as may be appropriate to the subject matter, and any extensions and renewals thereof.  Pelleg agrees to give Duska and any person designated by Duska such reasonable assistance, at Duska’s expense, as is required to perfect the rights defined in this Section.  

5.

Confidential Information.

5.1

Confidentiality Obligations.  Pelleg hereby enters into and agrees to be bound by the Proprietary Information and Innovations Agreement in substantially the form set forth as Exhibit A (the “Proprietary Info Agreement”), which is hereby incorporated herein, regardless of whether or not Pelleg actually signs the Proprietary Info Agreement.  

6.

Termination.  Pelleg’s rights hereunder shall, under any of the following circumstances, terminate in advance of the time specified in Section 1 above, and Pelleg shall have the right to receive only compensation that shall have accrued hereunder through the effective date of such termination and shall have no right to receive any further compensation hereunder from and after the time of such termination, except as explicitly provided herein:

6.1

Death.  Pelleg’s rights hereunder shall terminate immediately upon the death of Pelleg.

3

6.2

Termination by Duska.  In the event that Pelleg shall become either physically or mentally incapacitated so as to be incapable of performing his duties of President and CSO required hereunder Duska may, at its option, terminate the term of this Agreement by written notice to Pelleg with no further obligations to Pelleg in accordance with the disability terms listed in paragraph 2.5 above.  Duska may terminate the term of this Agreement for “Cause” (as hereinafter defined) at any time upon written notice to Pelleg.  “Cause” as used in this Agreement means that Pelleg, (i) after three working days’ notice, has failed to perform his duties to Duska, as determined by the Chairman and CEO or the Board, (ii) has materially breached any of the terms or conditions of this Agreement, or (iii) has been charged with a felony or has committed or participated in any intentionally dishonest or fraudulent act that damages, or may damage, the business or reputation of Duska.  Duska, acting through the Chairman and CEO or the Board, may terminate the term of this Agreement without “Cause” upon written notice to Pelleg. If the Company so requests, the Employee will continue to perform his/her duties and may be paid his/her regular salary up to the date of termination. In addition, the Company will pay the Employee accrued and unpaid vacation and over the three months following the date of the termination a severance allowance of $43,750 less taxes and Social Security required to be withheld. Medical and dental benefits reimbursements would also continue over the three months following the date of termination.  Notwithstanding anything to the contrary contained in this agreement, the Company may terminate the Employee's employment upon 30 days' notice to the Employee should any of the following events occur:

(a)

The sale of substantially all of the Company's assets to a single purchaser or group of associated purchasers; or

(b)

The sale, exchange, or other disposition, in one transaction of the majority of the Company's outstanding corporate shares; or

(c)

The Company's decision to terminate its business and liquidate its assets;

(d)

The merger or consolidation of the Company with another company.

(e)

 Bankruptcy or chapter 11 reorganization.

In the case of (a) (b) (c) or (d), the Company will pay the Employee over the three months following the date of the termination a severance allowance of $43,750 less taxes and Social Security required to be withheld.  In addition, all stock options granted to Employee will fully vest immediately and become exercisable.

6.3

Termination by Pelleg.  Pelleg may voluntarily terminate the term of this Agreement at any time upon 30 days prior written notice to Duska.  Pelleg may also terminate the term of this Agreement at any time upon written notice to Duska if Duska shall have materially breached any of the provisions of this Agreement.

7.

General Terms.

7.1

Successors and Assigns.  This Agreement shall inure to the benefit of Pelleg and Duska, and Duska’s successors and assigns. This Agreement is personal to Pelleg.  Pelleg may not sell, transfer, sublicense, subcontract, hypothecate or assign his rights and duties 

4

under this Agreement without the prior written consent of Duska, which Duska may refuse in its sole and absolute discretion.  Duska may assign its rights and obligations under this Agreement to any successor including without limitation any entity that takes control of Duska. 

7.2

Notices.  Any notices or communications under this Agreement shall be in writing and shall be hand-delivered or sent by certified mail (return receipt requested), or telecopied, or overnight couriered to the party receiving such communication at the address specified below:

		
	If to Duska:

	Duska Therapeutics, Inc.

470 Nautilus Street, Suite 300

La Jolla, CA 92037

Attn: Chairman of the Board and CEO

	If to Pelleg:

	Amir Pelleg, Ph.D.

24 Dartmouth Lane 

Haverford, PA 19041-1020

or such other address or addressee as either party may in the future communicate to the other party using this notice provision.

7.3

California Law.  This Agreement is entered into in San Diego, California and shall be governed by and construed in San Diego, California in accordance with the internal laws of the State of California, excluding its conflicts of laws provisions.  Any dispute arising out of or relating to this Agreement shall be decided by binding arbitration by the American Arbitration Association and shall be held in San Diego, California.  The ruling of the arbitrator shall be final and may be enforced by any party to such arbitration in any court of competent jurisdiction located in San Diego, California.

8.4  

Dispute Resolution.  The parties agree that in the event Pelleg’s employment is terminated by either party, any dispute that may arise between them relating to such termination of employment (including, without limitation, any claim(s) based on common law, any federal or state statute, Title VII of the Civil Rights Act of 1964, as amended, the California Fair Employment and Housing Act, any statute or provision relating to employment discrimination and/or employment rights, the federal or any state constitution and/or any public policy) will be determined by arbitration and not by a lawsuit or resort to court process.  Any contractual dispute relating to termination of employment, including claims based on breach of the at-will employment and arbitration agreement, any express or implied agreement and/or any covenant of good faith and fair dealing, must be properly initiated within one year of termination of employment.  Any dispute based on any federal or state statute, Title VII of the Civil Rights Act of 1964, as amended, the California Fair Employment and Housing Act, any statute or provision relating to employment discrimination or employment rights, the federal or any state constitution and/or any public policy must be properly initiated within one year of termination of employment.  The parties agree that the time set forth for initiating arbitration of claims (one year) are important to avoid the loss of evidence and fading memories.  In addition, the prompt assertion of claims gives both parties an opportunity to take any appropriate corrective action.  

5

Such arbitration shall be the exclusive forum for any dispute between the parties related to such termination of employment.  The arbitration of issues relating to the termination of employment shall be submitted pursuant to the employment arbitration rules of the American Arbitration Association that are in effect on the date of termination.  It is agreed that the arbitrator’s decision will be final and binding on all parties unless a party proves in San Diego Superior Court that the arbitrator, in making the decision, acted with criminal intent or in explicit violation of the employment arbitration rules of the American Arbitration Association that are in effect on the date of termination. Pelleg’s employment is at-will and this arbitration provision does not alter the at-will status of Pelleg’s employment.

NOTICE:  BY SIGNING THIS AGREEMENT YOU ARE AGREEING TO HAVE ANY ISSUE CONCERNING THE TERMINATION OF YOUR EMPLOYMENT DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL.

8.5 

Amendment.  No modification, amendment, supplement to or waiver of the provisions of this Agreement shall be binding upon the parties hereto unless made in writing and duly signed by both parties.

8.6

Waiver.  A failure of either party to exercise any right provided for herein shall not be deemed to be a waiver of any right hereunder.

8.7

Entire Agreement.  This Agreement and any attachment hereto set forth the entire understanding of the parties as to the subject matter therein and may not be modified except in writing executed by both parties.

8.8

Severability; Construction.  In the event any one or more of the provisions of this Agreement is invalid or otherwise unenforceable, the enforceability of remaining provisions shall be unimpaired.  Each party has had ample opportunity to retain independent legal counsel.  Therefore, this Agreement shall not be strictly construed against any party regardless of who is deemed the drafting party.

8.9

Survival.  The following Sections shall survive the termination of the term of this Agreement:  3 (Indemnity), 4 (Proprietary Rights), and 5 (Confidentiality).

8.10

Counterparts.  This Agreement may be signed in original or faxed counterparts.

  

IN WITNESS WHEREOF, the parties hereto, each acting under due and proper authority, have executed this Agreement as of the Effective Date.

				
	 /s/ Amir Pelleg, Ph.D.

	 
	DUSKA THERAPEUTICS, INC.,

	Amir Pelleg, Ph.D.

	a Nevada corporation  

	 
	 
	 

	 
	By:  

	/s/ James S. Kuo, M.D., M.B.A.

	 
	 
	James S. Kuo, M.D., M.B.A.

Chairman of the Board and CEO

	 
	 

6

PROPRIETARY INFORMATION AND INNOVATIONS AGREEMENT 

(Check  Pappropriate box for R employee or ✓ independent contractor.)

In consideration of my future or continued employment with, or my retention as an independent contractor by, Duska Therapeutics, Inc., a Nevada corporation (the "Company"), the compensation to be paid to me during the period of my employment or retention, and for other adequate and valuable consideration, I hereby agree to this PROPRIETARY INFORMATION AND INNOVATIONS AGREEMENT (this "Agreement"), which provides as follows: 

1.

Employment. This Section 1 only applies if I am an employee of the Company. If I am an employee of the Company, I will perform the duties of my employment, as assigned by the Company and in a manner satisfactory to the Company, and will devote my full working time (unless specifically agreed in writing to the contrary) to such duties. I understand and acknowledge that this Agreement does not guarantee my employment for any specified term nor guarantee my continued employment by the Company and that either I or the Company may terminate my employment at any time, for any reason or without a reason, and that the termination shall be completely in the sole discretion of, and at the will of, the terminating party. I also understand and acknowledge that the Company may increase, decrease or change my hours, assignments or other terms of my employment in its sole discretion. The "at-will" nature of my employment relationship, and all provisions of this Agreement, cannot be changed except in a writing signed by the CEO of the Company (the "CEO"). 

2. 

Loyal Performance. If I am an employee, I agree that during the period of my employment or retention by the Company, I will devote my full energies and productive time to the Company, except as explicitly permitted by an authorized representative of the Company in a formal written agreement. Whether I am an employee or an independent contractor, I will not, without the CEO's express written consent, engage in any business activity competitive with the Company during the term of my employment or retention. 

3. 

Confidential Information. I recognize that my employment or retention by the Company will involve contact with information of substantial value to the Company, which is not old and not generally known in the industry, and which gives the Company an advantage over its competitors who do not know or use it, including but not limited to, the following and any derivatives thereof: concepts, plans, referral lists, research, formulas, arrangements, techniques, contact identification and information, contract renewal dates, terms, test results, drawings, designs, models, samples, programs, software, hardware, techniques, procedures, processes, inventions, developments, equipment, prototypes, look and feel, trade secrets, trade dress, proposals, bid information, sales and customer information (including without limitation supplier, provider and customer preferences, pricing, and buying and selling habits), customer/client and prospect lists and contact information, source lists, contractor, supplier, vendor, customer/client and other relationships and contact information, promotional material, advertisements, displays, and business, financial, and marketing information relating to the business, products, services, practices and techniques of the Company (hereinafter referred to as "Confidential Information"). I recognize that the identity of, knowledge about, and the practices of, the Company's customers, joint venture partners, employees and independent contractors are at the very core of this Confidential Information. I recognize that I would not have any 

opportunity to develop any relationship whatsoever with the Company's customers, joint venture partners, employees and independent contractors without utilizing the Confidential Information. I will at all times regard and preserve as confidential such Confidential Information obtained by me from whatever source or developed by me while employed or retained by the Company and will not, either during my employment or retention or thereafter, use, publish or disclose any part of such Confidential Information in any manner at any time, except on behalf of the Company, without the prior written consent of the CEO. Further, both during my employment or retention and thereafter, I will refrain from any acts or omissions that would reduce the value of such Confidential Information to the Company. I agree to maintain all Confidential Information and related items solely at the Company's office, absent the express written consent of the CEO.

4.

 Non-Solicitation/Protection of Confidential Information. In order to protect the Confidential Information of the Company and its trade secrets, avoid unfair injury to the Company and avoid the use and disclosure of its Confidential Information and because the foregoing acts would necessarily and inevitably involve the use or disclosure of Confidential Information, I agree that during the term of my employment or retention and for a period of one (1) years following termination of my employment or retention with the Company for any reason:

(a) I will not directly or indirectly solicit the customers or joint venture partners of the Company to enter into a joint venture or purchase products or services that are competitive to those of the Company, or to solicit an engagement from the customers or prospective customers of the Company for consulting or other services or products involving the Company's Confidential Information or Innovations;

(b) I will not directly or indirectly solicit the suppliers, agents, distributors, joint venture partners or others with whom the Company has a material relationship to enter into a contract or relationship that may become competitive to any contract or relationship of the Company; and

(c) I will not directly or indirectly solicit or in any manner encourage employees of the Company to leave its employ or independent contractors or joint venture partners of the Company to terminate their retention.

5. 

Disclosure of Innovations. I will promptly disclose in writing to the CEO, complete information concerning each and every innovation, invention, discovery, improvement, device, design, apparatus, practice, process, method, product, service, or new supplier or customer relationship (hereinafter referred to as "Innovations"), whether or not I consider them patentable or copyrightable, made, developed, perfected, devised, conceived or first reduced to practice by me, either solely or in collaboration with others, during the period of my employment or retention by the Company, and up to and including a period of twelve (12) months after termination of my employment or retention, whether or not during regular working hours, relating to the business, customers, products, practices or techniques of the Company, or to the Company's actual or demonstrably anticipated research or development, or resulting from any work performed by me for the Company.

8

6.

Assignment of Innovations. I hereby agree that any and all of said Innovations made, developed, perfected, devised, conceived or reduced to practice by me during the period of my employment or retention by the Company, and any other Innovations made, developed, perfected, devised, conceived or reduced to practice by me during said period of twelve (12) months after termination of my employment or retention if based upon the Confidential Information of the Company, relating to the business, products, practices or techniques of the Company or the Company's actual or demonstrably anticipated research or development, or resulting from any work performed by me for the Company, are the sole property of the Company, and I hereby assign and agree to assign to the Company, its successors and assigns, any and all of my right, title and interest in and to any and all of said Innovations, and any copyright, mark, patent applications or Letters Patent thereon.

7.

Applicability of Assignment Requirements. This Agreement shall not apply to any Innovations that I can prove through clear and convincing evidence qualify fully under the provisions of Section 2870 of the California Labor Code, as amended from time to time. I understand that Section 2870 provides that no assignment is required of any Innovations for which no equipment, supplies, facilities, or trade secret information of the Company was used and which was developed entirely on my own time without using any of the Company's equipment, supplies, facilities, or trade secret information, except for those Innovations that either:

(a) Related at the time of conception or reduction to practice of the innovation to the Company's business, or actual or demonstrably anticipated research or development of the Company.

(b)  Result from any work performed by me for the Company.

8.

List of Innovations. As a matter of record, I have attached to this Agreement as Exhibit a complete list of all innovations, inventions or improvements relevant to the subject matter of my employment or retention by the Company that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company that I desire to remove from the operation of this Agreement, and I represent that such list is complete. If no list is attached or the list is blank, it means that I have no innovations, inventions or improvements to list.

9.

Right to Use or Publish. Nothing in this Agreement shall limit or be construed to limit my right to use or publish information that I can prove by clear and convincing evidence originated from a source other than the Company and (a) was entirely in the public domain before my employment or retention commenced, (b) was known to me free from any claim of other third parties before my employment or retention, (e) fully complied with California Labor Code Section 2870, or (d) became public knowledge in its entirety without breach of any obligations of  confidentiality to the Company.

10.

Further Cooperation. I will, at any time during my employment or retention or thereafter, upon request and without further compensation therefor, but at no expense to me, do all lawful acts including the execution of papers and oaths and the giving of testimony that, in the opinion of the Company, its successors and assigns, may be necessary or desirable for obtaining, sustaining, reissuing, or enforcing Letters Patent, copyrights, trademarks or service marks in the 

9

United States and throughout the world for any and all of said Innovations, and for perfecting, recording, and maintaining the title of the Company, its successors and assigns, to the Innovations and to any patent applications made and any Letters Patent, copyrights, trademarks or service marks granted for the Innovations in the United States and throughout the world. To accomplish the foregoing, I hereby appoint the CEO as my attorney-in-fact to execute any documents that the CEO deems necessary or desirable.

 

11. 

Keeping of Records. I will keep complete, accurate and authentic accounts,  notes, data and records of any and all of the Innovations in the manner and form requested by the Company. Such accounts, notes, data and records, including all copies thereof, shall be the property of the Company, and, upon its request, I will promptly surrender the same to it, or if not previously surrendered, I will promptly surrender the same to the Company at the conclusion of my employment or retention.

12. 

Surrender of Materials. I agree that I will also surrender to the Company, at its request, or at the conclusion of my employment or retention, all formulas, programs, samples, products, models, accounts, notes, data, sketches, drawings, lists and other documents and records, and all material and physical items of any kind, including all reproductions and copies thereof, which relate in any way to the business, products, practices or techniques of the Company or contain Confidential Information, whether created by me, or which come into my possession by reason of my employment or retention with the Company, and I agree further that all of the foregoing are the property of the Company, including without limitation all buyer and supplier lists and contact information.

 

13.

Prohibition of Misappropriation from Others. I agree that I will not disclose 

to the Company, use, or induce the Company to use, any innovation, trade secret or other 

proprietary information belonging to any third party, including but not limited to misappropriated software or copyrighted material. I further agree to defend, indemnify and hold the Company harmless against any action, claim or liability arising from or relating to my use or inducement of the Company to use any innovation, trade secret or other proprietary information allegedly belonging to any third party.

14.

Imposed Obligations'. I understand that the Company may enter into agreements or arrangements that may be subject to laws and regulations that impose obligations, restrictions and limitations on it with respect to Confidential Information, trade secrets, Innovations and patents that may be used or acquired by it or that may be conceived or developed by customers, employees, consultants or other agents rendering services to it. I agree that I shall be bound by all such obligations, restrictions and limitations and shall take any and all further action that may be required to discharge such obligations and to comply with such restrictions and limitations.

 

15.

Due Care of Properly. I will exercise the highest standard of care, consistent with good business judgment, to preserve in good working order subject to reasonable wear and tear from authorized usage, and to prevent loss of any equipment, instruments, samples, materials or accessories of the Company in my custody for the purpose of making demonstrations, implementing trials, carrying out development work, or otherwise conducting 

10

the business of the Company. I will promptly surrender the same to the Company at the conclusion of my employment or retention, or if not surrendered, I will account to the Company to its reasonable satisfaction as to the present location of all such instruments or accessories and the business purpose for their placement at such location. At the conclusion of my employment or retention with the Company, I agree to return such instruments or accessories to the Company or to account for same to the Company's reasonable satisfaction.

 

16. 

No Inconsistent Agreements. I affirm that I have no direct or indirect  affiliation or relationship with any competitor of the Company, and I have no agreement with any other party that would preclude my compliance with my obligations under this Agreement. 

17. 

Post-Termination Statement. At the conclusion of my employment or retention with the Company, I agree to give a written statement to the Company certifying that I have complied with my obligations under this Agreement as set forth above and acknowledging my continuing obligations. I also consent to the Company notifying my later employers, partners and others about my obligations under this Agreement.

18.

Successors. The provisions of this Agreement shall inure to the benefit of, and be 

binding upon my heirs, personal representatives, successors and assigns. However, I affirm that I may not delegate my obligations under this Agreement, although the Company may freely assign this Agreement. 

19.

Equitable Relief. I acknowledge and agree that (a) the provisions of this Agreement are reasonable and necessary to protect the legitimate interests of the Company, (b) the restrictions contained in this Agreement will not prevent me from earning or seeking a livelihood, (c) the restrictions contained in this Agreement shall apply in all areas where such application is permitted by law, (d) any violation of this Agreement by me would result in irreparable harm to the Company, and (e) the restrictions contained in this Agreement are a material consideration for the Company to enter into the employment or independent contractor relationship and that absent the restrictions contained in this Agreement, the Company would not have entered into such relationship. I understand and agree that, because of the unique nature of the Confidential Information and the other items protected under this Agreement, the Company will suffer irreparable harm if I fail to comply with any of my obligations under this Agreement, and monetary damages will be inadequate to compensate the Company for such breach. 

Accordingly, I agree that the Company shall, in addition to any other remedies available to it at law or in equity, be entitled to injunctive relief to enforce the terms of this Agreement, without the necessity of posting a bond or undertaking.

 

20.

Governing Law. This Agreement is made in San Diego, California upon acceptance of the Company and shall be construed and interpreted in accordance with the internal laws of the State of California without resort to California's conflict of laws provisions. Any controversy or claim arising out of or relating to this Agreement or the breach thereof, whether involving remedies at law or in equity, shall be adjudicated in San Diego, California. 

11

21.

Attorneys' Fees. In any controversy or claim arising out of or relating to this Agreement or the breach thereof, which results in a legal action, proceeding or arbitration, the prevailing party in such action, as determined by the court or arbitrator, shall be entitled to recover reasonable attorneys' fees and costs of such action. 

22.

Entire Agreement. This Agreement constitutes the entire agreement between the parties with regard to this subject and may be waived, modified or amended only by an agreement in writing signed by the undersigned and the CFO.

 

23.

Severability. I recognize that the state and interpretation of the law with respect to protection of Confidential Information and other provisions of this Agreement may change from time to time, from place to place and court to court. If any provision in this Agreement is determined by any court of competent jurisdiction or arbitrator to be invalid or unenforceable for any reason, including without limitation by reason of such provision extending for too long a period or over too large a geographical area, or by reason of its being too extensive in any other respect, such provision to the specified extent that it is unenforceable shall be interpreted to extend only over the maximum period of time or geographic area, and to the maximum extent in all other respects, as to which it is valid and enforceable, thereby effectuating the parties' intent to the greatest extent possible. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 

24. 

Waiver.  No covenant, term or condition of this Agreement or breach thereof shall be deemed waived unless the waiver is in writing, signed by the party against whom enforcement is sought, and any waiver shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant, term or condition. 

25.

Attorney Consultation. Each party has been informed of his/her/its right to consult with his/her/its attorney prior to signing this Agreement and has either done so or has considered the matter and has decided not to do so. 

26.

Interpretation. As each party has had opportunity to consult independent legal counsel, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 

27.

Counterparts. This Agreement is executed in original or faxed counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[Signature Page Follows]

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I have carefully read this entire Agreement, have received a copy of it, and fully understand it.

 

IN WITNESS WHEREOF, this Agreement was executed on December 31 , 2007 but it shall be effective as of the earlier of: (i) the date of this Agreement, or (ii) the first day of my employment or retention by the Company, or (iii) the date on which I first learned any Confidential Information. 

APPROVED AND ACCEPTED: 

			
	         

	Duska Therapeutics, Inc.,

	 
	 a Nevada corporation

	 
	 
	 

	 
	By:  

	/s/ Amir Pelleg, Ph.D.

	 
	 
	Amir Pelleg, Ph.D.

24 Dartmouth Lane

Haverford. PA 19041

	 
	 

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Exhibit A

To: Duska Therapeutics, Inc. 

1.

The following is a complete list of all innovations, inventions or improvements relevant to the subject matter of my employment or retention by Duska Therapeutics, Inc. (the "Company"), that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my employment or retention by the Company, which I desire to remove from the operation of the Company's Proprietary Information and Innovations 

Agreement: 

			
	 
	X

	No innovations, inventions or improvements. 

	 
	 
	Additional sheets attached.

2.

I propose to bring to my employment the following materials and documents of a former employer or client:

			
	 
	X

	No materials or documents

	 
	 
	See below: 

		
	/s/ Amir Pelleg, Ph.D.

	 

	Amir Pelleg, Ph.D.

	 

	Printed Name

	 

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