Document:

Exhibit
10.1

 

THE
SECURITIES REPRESENTED BY THIS CONVERTIBLE SUBORDINATED PROMISSORY NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION.
THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT OR ANY STATE SECURITIES LAWS OR
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION AND
ANY APPLICABLE STATE AUTHORITY.

 

CONVERTIBLE SUBORDINATED PROMISSORY NOTE

 

	
  $                       

  	
   

  	
  March       , 2003

  
	
   

  	
   

  	
  San Diego, CA

  

 

For value received, ImageWare Systems, Inc., a
California corporation (“Payor”), hereby promises to
pay to the order of                        
(the “Holder”)
the principal sum of                        
Dollars ($                  )
together with accrued and unpaid interest thereon, each due and payable on the
dates and in the manner set forth below.

 

The term “Note”
and all references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.  This Note
is being issued by Payor along with similar convertible notes designated as
Convertible Subordinated Promissory Notes (together with this Note, the “Notes”).  Holders of the Notes shall collectively be
referred to herein as the “Holders”.

 

1.             Principal and Interest; Pro Rata
Payments; Place and Application of Payments.  Unless this Note has been converted in
accordance with the terms of Section 2 below, the entire outstanding
principal amount of this Note shall be due and payable on April 15, 2005 (the “Maturity Date”).  Payor further promises to pay interest on
the outstanding principal amount hereof from the date hereof until this Note is
converted pursuant to Section 2 below or paid in full (whichever is earlier),
which interest shall be payable at the rate of eight and one-half percent (81⁄2%)
per annum or the maximum rate permissible by law (which under the laws of the
State of California shall be deemed to be the laws relating to permissible
rates of interest on commercial loans), whichever is less.  Interest shall be due and payable
semi-annually in arrears on each April 15th and October 15th
and shall be calculated on the basis of a 365-day year for the actual number of
days elapsed.  All payments of interest
and principal shall be in lawful money of the United States of America and
shall be made pro rata among all Holders of Notes.  All amounts payable hereunder shall be payable at the office of
Holder,                                              ,
unless another place of payment shall be specified in writing by Holder.  Payment on this Note shall be applied first
to accrued interest, and thereafter to the outstanding principal balance
hereof.

 

 

1

 

2.             Conversion.

 

(a)           On or before the
Maturity Date, at the election of the Holder, the principal amount of this Note
(and all accrued and unpaid interest thereon) (the “Conversion Amount”)
may be converted into a number of fully paid and nonassessable shares of
Payor’s common stock (the “Common
Stock”). The number of shares of Common Stock issuable upon
conversion of this Note shall be determined by the following formula:

 

Conversion Amount

Conversion Price (defined below)

 

(b)           Upon conversion of
this Note, the Holder shall surrender or cause to be surrendered this Note,
duly endorsed, as soon as practicable thereafter to Payor. Upon receipt by
Payor of a facsimile copy of this Note from the Holder, Payor shall immediately
send, via facsimile, a confirmation to the Holder stating that this Note has
been received, the date upon which Payor expects to deliver the Common Stock
issuable upon such conversion and the name and telephone number of a contact
person of Payor regarding the conversion. 
Payor shall not be obligated to issue shares of Common Stock upon a
conversion unless either this Note is delivered to Payor, or the Holder
notifies Payor that this Note has been lost, stolen or destroyed and delivers
the documentation to Payor required by Section 6 hereof.

 

(c)           Upon the surrender
of this Note pursuant to subsection (b) above, Payor shall, as soon as
practicable, issue and deliver to the Holder the number of shares of Common
Stock issuable upon conversion of the Note. 
Payor shall deliver to the Holder physical certificates representing the
Common Stock issuable upon conversion.

 

(d)           If the conversion
of this Note would result in the issuance of a fractional share of Common
Stock, such fractional share shall be payable in cash based upon the Conversion
Price, and the number of shares of Common Stock issuable upon conversion of
this Note shall be the next lower whole number of shares.

 

(e)           The Conversion
Price shall initially be $1.90, and shall be subject to adjustment from time to
time as follows:

 

(i)            If, at any time
after the date of issuance of this Note (the “Issue Date”), the number of outstanding
shares of Common Stock is increased by a stock split, stock dividend,
combination, reclassification or other similar event, the Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased.  In such
event, Payor shall notify Payor’s transfer agent of such change on or before
the effective date thereof.

 

(ii)           If, at any time
after the Issue Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of Payor with
any other entity (other than a merger in which Payor is the surviving or
continuing entity and its capital stock is unchanged), (iii) any sale or
transfer of all or substantially all of the assets of Payor or (iv) any

 

2

 

share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property (each of (i) - (iv) above being a “Corporate Change”),
then appropriate provisions (in form and substance reasonably satisfactory to
the Holders of a majority of the principal amount of the Notes then
outstanding) shall be made with respect to the rights and interests of the
Holders of the Notes to the end that the economic value of the Notes are in no
way diminished by such Corporate Change and that the provisions hereof
(including, without limitation, in the case of any such consolidation, merger
or sale in which the successor entity or purchasing entity is not Payor, an
immediate adjustment of the Conversion Price so that the Conversion Price
immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity’s common stock that existed
between the Conversion Price and the value of the Common Stock immediately
prior to such Corporate Change) shall thereafter be applicable, as nearly as
may be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof.

 

(iii)         Upon the occurrence
of each adjustment or readjustment of the Conversion Price pursuant to this
Section 2 amounting to a more than a $.01 change in such Conversion Price,
Purchaser, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.

 

3.             In the event of
any default hereunder, Payor shall pay all reasonable attorneys’ fees and court
costs incurred by the Holder in enforcing and collecting this Note.

 

4.             Payor may prepay
this Note without penalty, in whole or in part, at any time prior to the
Maturity Date upon five (5) business days notice to Holder at the address set
forth in Section 1 above.

 

5.             If there shall be
any Event of Default hereunder, at the option and upon the declaration of the Holder
of this Note and upon written notice to Payor, this Note shall accelerate and
all principal and unpaid accrued interest shall become due and payable. The
occurrence of any one or more of the following shall constitute an Event of
Default:

 

(a)           Payor fails to pay
any of the principal amount due under this Note or any accrued interest or
other amounts due and payable under this Note, in each case within five
business days after written notice from Holder that such payment is due and
payable;

 

(b)           Payor files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or makes any assignment for the benefit of
creditors or takes any corporate action in furtherance of any of the foregoing;
or

 

(c)           An involuntary
petition is filed against Payor (unless such petition is dismissed or
discharged within ninety (90) days under any bankruptcy statute now or
hereafter in effect, or a custodian, receiver, trustee, assignee for the
benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Payor.

 

3

 

6.             Upon receipt by
Payor of (i) evidence of the loss, theft, destruction or mutilation of any Note
and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to Payor, or (z) in the case of mutilation, upon surrender and
cancellation of any Note, Payor shall execute and deliver a new Note of like
tenor and date.

 

7.             This Note shall
be governed by construed under the laws of the State of California, as applied
to agreements among California residents, made and to be performed entirely
within the State of California, without giving effect to conflicts of laws
principles.  This Note and the
Registration Rights Agreement, dated March     , 2003, by
and among the Payor and the Holders constitute the full and entire
understanding and agreement between Payor and Holder with regard to the subject
matter hereof, and supersede any other agreements or promises between or made
by Payor or Holder to each other, whether oral or written, including but not
limited to that certain document entitled “JMR, Inc. Summary of Terms/Private
Placement” dated January 29, 2003.  No
party shall be liable or bound to any other in any manner by any oral or
written representations, warranties, covenants and agreements except as
specifically set forth herein and therein. 
Each party expressly represents and warrants that it is not relying on
any oral or written representations, warranties, covenants or agreements
outside of this Note and the Registration Rights Agreement.

 

8.             The indebtedness
evidenced by this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of the Senior Indebtedness.

 

“Senior
Indebtedness” shall mean, unless expressly subordinated
to or made on a parity with the amounts due under this Note, the principal of,
unpaid interest on and amounts reimbursable, fees, expenses, costs of
enforcement and other amounts due in connection with (a) indebtedness of Payor
to banks or commercial finance or other lending institutions regularly engaged
in the business of lending money (including venture capital, investment banking
or similar institutions and their affiliates which sometimes engage in lending
activities but which are primarily engaged in investments in equity
securities), whether or not secured, and (b) any such indebtedness or any
debentures, notes or other evidence of indebtedness issued in exchange for such
Senior Indebtedness, or any indebtedness arising from the satisfaction of such
Senior Indebtedness by a guarantor.

 

(a)           Insolvency Proceedings.  If there shall occur any receivership,
insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation, or any other marshaling of the assets and
liabilities of Payor, (a) no amount shall be paid by Payor in respect of the
principal of, interest on or other amounts due with respect to this Note at the
time outstanding, unless and until the principal of and interest on the Senior
Indebtedness then outstanding shall be paid in full, and (b) no claim or proof
of claim shall be filed by or on behalf of Holder which shall assert any right
to receive any payments in respect of the principal of and interest on this
Note except subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding.

 

(b)           Default on Senior Indebtedness.  If there shall occur an event of default
which has been declared in writing with respect to any Senior Indebtedness, as
defined therein,

 

4

 

or in the instrument under
which it is outstanding, permitting the holder to accelerate the maturity thereof
and Holder shall have received written notice thereof from the holder of such
Senior Indebtedness, then, unless and until such event of default shall have
been cured or waived or shall have ceased to exist, or all Senior Indebtedness
shall have been paid in full, no payment shall be made in respect of the
principal of or interest on this Note unless within one hundred eighty (180)
days after the happening of such event of default the maturity of such Senior
Indebtedness shall not have been accelerated.  Not more than one notice may be given to Holder pursuant to the
terms of this Section 8(b)
during any 360 day period.

 

(c)           Further Assurances.  By acceptance of this Note, Holder agrees to
execute and deliver customary forms of subordination agreement requested from
time to time by the holders of Senior Indebtedness and, as a condition to
Holder’s rights hereunder, Payor may require that Holder execute such forms of
subordination agreement, provided that such forms shall not impose on Holder
terms less favorable than those provided herein.

 

(d)           No Impairment.  Nothing contained in this Section 8 shall impair the Holder’s
right to convert the principal and interest of this Note into equity securities
of Payor.

 

(e)           Lien Subordination.  Any lien or security interest of Holder,
whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of Payor or any proceeds or revenues therefrom
which Holder may have at any time as security for any amounts due and obligations
under this Note, shall be subordinate to all liens or security interests now or
hereafter granted to a holder of Senior Indebtedness by Payor or by law
notwithstanding the date, order or method of attachment or perfection of any
such lien or security interest or the provisions of any applicable law.

 

(f)            Applicability of Priorities.  The priority of the holder of the Senior
Indebtedness provided for herein with respect to security interests and liens
are applicable only to the extent that such security interests and liens are
enforceable and perfected and have not been avoided; if a security interest or
lien is judicially determined to be unenforceable or unperfected or is
judicially avoided with respect to any claim of the holder of the Senior
Indebtedness or any part thereof, the priority provided for herein shall not be
available to such security interest or lien to the extent that it is avoided or
determined to be unenforceable or unperfected. 
The foregoing notwithstanding, Holder covenants and agrees that it shall
not challenge, attack or seek to avoid any security interest or lien to the
extent that it secures any holder of the Senior Indebtedness.  Nothing in this Section 8(f) affects the operation of any subordination of
indebtedness or turnover of payment provisions hereof, or of any other
agreements among any of the parties hereto.

 

(g)           Reliance of Holders of Senior
Indebtedness.  Holder,
by its acceptance hereof, shall be deemed to acknowledge and agree that the
foregoing subordination provisions are, and are intended to be, an inducement
to and a consideration of each holder of Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and each such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and holding, or in continuing to hold, such Senior
Indebtedness.

 

5

 

9.             Any term of this
Note may be amended or waived with the written consent of Payor and the Holders
of a majority of the then-outstanding principal amount of all Notes.  Upon the effectuation of such waiver or
amendment in conformance with this Section
9, Payor shall promptly give written notice thereof to the record
holders of the Notes who have not previously consented thereto in writing.

 

 

	
   

  	
  ImageWare Systems, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Acknowledged and
  Agreed:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  	
   

  
								

 

6Exhibit
10.2

 

IMAGEWARE SYSTEMS, INC. 

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (the
“Agreement”) is entered into as of the 13th day of March, 2003, by and among ImageWare Systems, Inc., a California corporation (the “Company”) and the individuals and
entities listed on the signature pages hereto, referred to hereinafter as the
“Investors” and each individually as an “Investor.”

 

Recitals

 

Whereas, the Investors are
holders of those certain Convertible Subordinated Promissory Notes (the
“Notes”) issued by the Company in March 2003; and

 

Whereas, in connection with the
issuance of the Notes, the parties desire to enter into this Agreement in order
to grant registration rights to the Investors as set forth below.

 

Now, Therefore, in consideration
of the premises and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree hereto as
follows:

 

SECTION 1.                            GENERAL.

 

1.1          Definitions.  As used in this Agreement the following terms
shall have the following respective meanings:

 

(a)           “Exchange
Act”  means the Securities
Exchange Act of 1934, as amended.

 

(b)           “Form
S-3”  means such form
under the Securities Act as in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC
which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.

 

(c)           “Holder”  means any person
owning of record Registrable Securities that have not been sold to the public.

 

(d)           “Register,”
“registered,” and “registration”  refer to a registration effected by preparing and
filing a registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.

 

(e)           “Registrable
Securities”  means
(a) Common Stock of the Company issuable or issued upon conversion of the
Notes and (b) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in

 

1

 

replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities (i) sold by a person to the public
either pursuant to a registration statement or Rule 144, or (ii) held by a
Holder if all shares of Common Stock of the Company issuable or issued upon
conversion of the Notes held by such Holder may be sold pursuant to Rule 144
during any ninety (90) day period.

 

(f)            “Registrable
Securities then outstanding”  shall be the number of shares of the Company’s Common
Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then convertible Notes.

 

(g)           “Registration
Expenses”  shall
mean all expenses incurred by the Company in complying with Section 2.1
and Section 2.2 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).

 

(h)           “SEC”
or “Commission”  means
the Securities and Exchange Commission.

 

(i)            “Securities
Act”  shall mean the
Securities Act of 1933, as amended.

 

(j)            “Selling
Expenses”  shall
mean all underwriting discounts and selling commissions applicable to the sale.

 

(k)           “Special
Registration Statement” shall mean (i) a registration statement relating to any
employee benefit plan or (ii) with respect to any corporate reorganization or
transaction under Rule 145 of the Securities Act, including any
registration statements related to the issuance or resale of securities issued
in such a transaction.

 

SECTION 2.                            REGISTRATION.

 

2.1          Form
S-3 Registration.  The
Company shall use commercially reasonable efforts to prepare promptly and file
with the SEC as soon as practicable, but in no event later than May 12, 2003
[60 days following issuance of the last Note] a Registration Statement on Form
S-3 covering the resale of all of the Registrable Securities; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.1:

 

(a)           if
Form S-3 is not available for such offering by the Holders; or

 

(b)           if
the Company shall furnish to the Holders a certificate signed by the Chairman
of the Board of Directors of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3
registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after the date of such
notice; or

 

2

 

(c)           if
the Company shall have included, pursuant to Section 2.2, all Registrable
Securities under a previously filed registration statement; or

 

(d)           in
any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.

 

2.2          Piggyback
Registrations.  To the extent the Company shall not
have previously registered Registrable Securities under a registration
statement filed pursuant to Section 2.1, the Holders shall have the rights set
forth in this Section 2.2.  The Company
shall notify all Holders of Registrable Securities in writing at least fifteen
(15) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding Special Registration
Statements) and will afford each such Holder an opportunity, subject to the
rights of other holders of registration rights granted by the Company also
participating in such offering, to include in such registration statement all
or part of such Registrable Securities held by such Holder.  Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. 
Such notice shall state the intended method of disposition of the
Registrable Securities by such Holder. 
If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.

 

(a)           Underwriting.  If the registration
statement under which the Company gives notice under this Section 2.2 is
for an underwritten offering, the Company shall so advise the Holders of
Registrable Securities.  In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.2 shall be conditioned upon such Holder’s participation in such
underwriting and the inclusion of such Holder’s Registrable Securities in the
underwriting to the extent provided herein. 
All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company.  Notwithstanding any other
provision of this Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be underwritten,
the number of shares that may be included by Holders in the underwriting may be
reduced to zero.  If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement.  Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration.

 

(b)           Right
to Terminate Registration.  The
Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 2.2 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities in
such registration.

 

3

 

2.3          Expenses
of Registration.  Except
as specifically provided herein, all Registration Expenses incurred in
connection with the registration, qualification or compliance pursuant to
Section 2.1 or any registration under Section 2.2 shall be borne by the
Company.  All Selling Expenses incurred
in connection with any registrations hereunder, shall be borne by the holders
of the securities so registered pro rata on the basis of the number of
shares so registered.

 

2.4          Obligations
of the Company.  Whenever
required to effect the registration of Registrable Securities, the Company
shall, as expeditiously as reasonably possible:

 

(a)           Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use all reasonable efforts to cause such registration statement
to become effective and, in the case of a registration effected pursuant to
Section 2.1, keep such registration statement effective until such date as is
the earlier of (i) the date on which all of the Registrable Securities covered
thereby have been sold, (i) the date on which all of the Registrable Securities
covered thereby may be immediately sold to the public without registration or
restriction pursuant to Rule 144(k) under the Securities Act or any successor
provision, or (iii) the date that is two (2) years after the date on which such
registration statement is declared effective by the SEC; provided, however,
that at any time, upon written notice to the Holders and for a period not to
exceed sixty (60) days
thereafter (a “Suspension Period”), the Company may delay the filing or
effectiveness of the registration statement or suspend the use or effectiveness
of the registration statement (and the Holders hereby agree not to offer or
sell any Registrable Securities pursuant to such registration statement during
the Suspension Period) if the Company reasonably believes that the Company may,
in the absence of such delay or suspension hereunder, be required under state
or federal securities laws to disclose any corporate development the disclosure
of which could reasonably be expected to have an adverse effect upon the
Company, its shareholders, a potentially significant transaction or event
involving the Company, or any negotiations, discussions, or proposals directly
relating thereto.  In the event that the
Company shall exercise its right to delay or suspend the filing or
effectiveness of the registration hereunder, the applicable time period during
which the registration statement is to remain effective shall be extended by a
period of time equal to the duration of the Suspension Period.  The Company may extend the Suspension Period
for an additional consecutive sixty
(60)  days with the consent of the holders of a majority  of the Registrable
Securities registered under the registration statement, which consent shall not
be unreasonably withheld. If so directed by the Company, all Holders
registering shares under such registration statement shall use their best
efforts to deliver to the Company (at the Company’s expense) all copies, other
than permanent file copies then in such Holders’ possession, of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.

 

(b)           Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in subsection (a) above.

 

(c)           Furnish
to the Holders such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other

 

4

 

documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.

 

(d)           Use
its reasonable efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.

 

(e)           Notify
each Holder of Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing. The Company will
use reasonable efforts to amend or supplement such prospectus in order to cause
such prospectus not to include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

 

(f)            Use
its reasonable efforts to furnish, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and (ii) a letter, dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering addressed
to the underwriters.

 

2.5          Delay
of Registration; Furnishing Information.

 

(a)           No
Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Section 2.

 

(b)           It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Section 2.1 or Section 2.2 that the selling Holders
shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of such
securities as shall be required to effect the registration of their Registrable
Securities.

 

2.6          Termination of Registration Rights.  All registration rights granted under this
Section 2 shall terminate and be of no further force and effect as of the earlier
of (i) April 16, 2005 or (ii) the date on which there are no Registrable
Securities then outstanding.

 

2.7          Indemnification.  In the event any
Registrable Securities are included in a registration statement under
Sections 2.1 or 2.2:

 

5

 

(a)           To
the extent permitted by law, the Company will indemnify and hold harmless each
Holder, the partners, members, officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a “Violation”) by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement or incorporated reference therein, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) 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, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, member, officer, director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity
agreement contained in this Section 2.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, member, officer, director,
underwriter or controlling person of such Holder.

 

(b)           To
the extent permitted by law, each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration
qualifications or compliance is being effected, indemnify and hold harmless the
Company, each of its directors, its officers and each person, if any, who controls
the Company within the meaning of the Securities Act, any underwriter and any
other Holder selling securities under such registration statement or any of
such other Holder’s partners, directors or officers or any person who controls
such Holder, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling
person, underwriter or other such Holder, or partner, director, officer or
controlling person of such other Holder may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any of the following statements: (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement or incorporated reference therein, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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, or (iii) any violation or alleged
violation by the Company of the Securities Act 
(collectively, a “Holder Violation”), in each case to the extent (and only
to the extent) that such Holder Violation occurs in reliance upon and in
conformity with written information furnished by such Holder under an
instrument

 

6

 

duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or other Holder, or partner,
officer, director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Holder Violation; provided,
however, that the indemnity agreement contained in this Section
2.7(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided
further, that in no event shall any indemnity under this Section 2.7
exceed the net  proceeds
from the offering received by such Holder.

 

(c)           Promptly
after receipt by an indemnified party under this Section 2.7 of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain
its own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.7, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.7.

 

(d)           If
the indemnification provided for in this Section 2.7 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid
or payable by such indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the Violation(s) or Holder Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations.  The relative
fault of the indemnifying party and of the indemnified party shall be
determined by a court of law by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission; provided,
that in no event shall any contribution by a Holder hereunder exceed the net
proceeds from the offering received by such Holder.

 

7

 

(e)           The
obligations of the Company and Holders under this Section 2.7 shall survive
completion of any offering of Registrable Securities in a registration
statement and the termination of this Agreement.  No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.

 

2.8          Amendment
of Registration Rights.  Any
provision of this Section 2 may be amended and the observance thereof may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Holders of at least  a
majority of the Registrable Securities then outstanding.  Any amendment or waiver effected in
accordance with this Section 2.8 shall be binding upon each Holder and the
Company.  By acceptance of any benefits
under this Section 2, Holders of Registrable Securities hereby agree to be
bound by the provisions hereunder.

 

2.9          “Market
Stand-Off” Agreement.  Each
Holder hereby agrees that such Holder shall not sell, transfer, make any short
sale of, grant any option for the purchase of, or enter into any hedging or
similar transaction with the same economic effect as a sale, any Common Stock
(or other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided that
all officers and directors of the Company enter into similar agreements.

 

2.10        Agreement
to Furnish Information. 
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter that are consistent
with the Holder’s obligations under Section 2.9 or that are necessary to give
further effect thereto.  In addition, if
requested by the Company or the representative of the underwriters of Common
Stock (or other securities) of the Company, each Holder shall provide, within
ten (10) days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed
under the Securities Act.  The
obligations described in Section 2.9 shall not apply to a Special
Registration Statement.  The Company may
impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction until the end of
said one hundred eighty (180) day period. 
Each Holder agrees that any transferee of any shares of Registrable
Securities shall be bound by Sections 2.9 and 2.10.  The underwriters of the Company’s stock are
intended third party beneficiaries of Sections 2.9 and 2.10 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.

 

SECTION 3.                            MISCELLANEOUS.

 

3.1          Governing
Law.  This Agreement
shall be governed by and construed under the laws of the State of California  in all respects as such laws
are applied to agreements among California
residents entered into and to be performed entirely within California. The parties agree that any
action brought by either party under or in relation to this Agreement,
including without 

 

8

 

limitation to interpret or enforce any provision of this Agreement,
shall be brought in, and each party agrees to and does hereby submit to the
jurisdiction and venue of, any state or federal court located in the County of
San Diego, California.

 

3.2          Successors
and Assigns.  Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the benefit of, and be binding upon, the parties hereto and their respective
successors, assigns, heirs, executors, and administrators and shall inure to
the benefit of and be enforceable by each person who shall be a holder of
Registrable Securities from time to time; provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares
in its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.

 

3.3          Entire
Agreement.  This
Agreement and the Notes constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and supersede
any other agreements or promises between or made by the parties to each other,
whether oral or written, including but not limited to that certain document
entitled “JMR, Inc. Summary of Terms/Private Placement” dated January 29, 2003.  No party shall be liable or bound to any
other in any manner by any oral or written representations, warranties,
covenants and agreements except as specifically set forth herein and
therein.  Each party expressly
represents and warrants that it is not relying on any oral or written representations,
warranties, covenants or agreements outside of the Notes and this Agreement.

 

3.4          Severability.  In the event one or more
of the provisions of this Agreement should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.

 

3.5          Amendment
and Waiver.

 

(a)           Except
as otherwise expressly provided, this Agreement may be amended or modified only
upon the written consent of the Company and the holders of at least a majority of the then-outstanding
Registrable Securities.

 

(b)           Except
as otherwise expressly provided, the obligations of the Company and the rights
of the Holders under this Agreement may be waived only with the written consent
of the holders of at least a majority
of the then-outstanding Registrable Securities.

 

(c)           For
the purposes of determining the number of Holders or Investors entitled to vote
or exercise any rights hereunder, the Company shall be entitled to rely solely
on the list of record holders of its stock as maintained by or on behalf of the
Company.

 

3.6          Delays
or Omissions.  It is
agreed that no delay or omission to exercise any right, power, or remedy
accruing to any party, upon any breach, default or noncompliance by another
party under this Agreement shall impair any such right, power, or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence

 

9

 

therein, or of any similar breach, default or noncompliance thereafter
occurring.  It is further agreed that
any waiver, permit, consent, or approval of any kind or character on any
party’s part of any breach, default or noncompliance under the Agreement or any
waiver on such party’s part of any provisions or conditions of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing.  All remedies,
either under this Agreement, by law, or otherwise afforded to any party, shall
be cumulative and not alternative.

 

3.7          Notices.  All notices required or
permitted hereunder shall be in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified, (b) when sent
by confirmed electronic mail or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (c) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All
communications shall be sent to the party to be notified at the address as set
forth on the signature pages hereof or Exhibit A hereto or at such other
address or electronic mail address as such party may designate by ten (10) days
advance written notice to the other parties hereto.

 

3.8          Attorneys’
Fees.  In the event
that any suit or action is instituted under or in relation to this Agreement,
including without limitation to enforce any provision in this Agreement, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.

 

3.9          Titles
and Subtitles.  The
titles of the sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.

 

3.10        Additional
Investors. 
Notwithstanding anything to the contrary contained herein, if the
Company shall issue additional Notes, any purchaser of such Notes shall become
a party to this Agreement by executing and delivering an additional counterpart
signature page to this Agreement and shall be deemed an “Investor,” a “Holder” and a party hereunder.

 

3.11        Counterparts.  This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.

 

3.12        Aggregation
of Stock.  All shares of Registrable Securities held or
acquired by affiliated entities or persons or persons or entities under common
management or control shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.

 

3.13        Pronouns.  All pronouns contained herein, and any
variations thereof, shall be deemed to refer to the masculine, feminine or
neutral, singular or plural, as to the identity of the parties hereto may
require.

 

[THIS SPACE INTENTIONALLY
LEFT BLANK]

 

10

 

In Witness Whereof, the parties
hereto have executed this Registration Rights Agreement
as of the date set forth in the first paragraph hereof.

 

 

	
  COMPANY:

  	
  INVESTORS:

  
	
   

  	
   

  
	
  ImageWare Systems, Inc.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
							

 

11

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}]]