Document:

Exhibit 10.3

 

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:
  [            ]

  	
   

  	
  Initial Exercise Date: March 26, 2008

  
	
   

  	
   

  	
  Issuance Date: September 25, 2007

  

 

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 after March 26, 2008 (the “Initial Exercise Date”) and on or prior
to the close of business on the five year anniversary of the Initial Exercise
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 Initial Exercise 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

1

 

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 $1.67, subject to adjustment hereunder (the “Exercise
Price”).

c)             Cashless
Exercise.  If at any time after the
later of 6 months from the date of the Purchase Agreement 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 the Purchase Agreement), 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

  

 

2

 

	
  (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 the Company’s Transfer Agent setting forth the number of shares of
Common Stock

 

3

 

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 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.

 

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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 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

 

5

 

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 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

 

6

 

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.

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

 

7

 

(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 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

 

8

 

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. 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

 

9

 

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 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

 

10

 

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 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

 

11

 

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

 

12

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.

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

 

13

 

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:

  	
   

  	
  /s/ Wayne G.
  Wetherell

  
	
   

  	
   

  	
   

  	
  Name: Wayne G.
  Wetherell

  
	
   

  	
   

  	
   

  	
  Title: SVP &
  CFO, Secretary

  

 

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 4.(a)(ii)

FIRST
AMENDMENT TO THE

J. L. HALSEY CORPORATION

2005 EQUITY BASED COMPENSATION PLAN

THIS
FIRST AMENDMENT is effective May 6, 2005, and is made by
J. L. Halsey Corporation, a Delaware corporation (the “Company”).

W I T N E S S E T H:

WHEREAS, on May 6, 2005, the board of directors of the Company (the “Board”)
adopted the J. L. Halsey Corporation 2005 Equity-Based Compensation Plan (the “Plan”);

WHEREAS, Section 3(a) of the Plan provides that the committee designated by the
Board to administer the Plan (the “Committee”) shall administer the Plan except
to the extent the Board elects to administer the Plan;

WHEREAS, Section 2(j) of the Plan defines the “Committee” as:

[A] committee of two or more directors designated by
the Board to administer this Plan; provided, however, that unless otherwise
determined by the Board, the Committee shall consist solely of two or more
directors, each of whom shall be (i) a “nonemployee director” within the
meaning of Rule 16b-3 under the Exchange Act, and (ii) an “outside director” as
defined under section 162(m) of the Code, unless administration of this Plan by
“outside directors” is not then required in order to qualify for tax
deductibility under section 162(m) of the Code.

WHEREAS, notwithstanding Section 2(j), the Board previously designated a single
member of the Board to administer the Plan and the Plan has at all times been
administered by such single person Committee; and

WHEREAS, the Board desires to amend the Plan, effective May 6, 2005, to clarify
that the Committee may consist of a single member of the Board.

NOW, THEREFORE, Section 2(j) of the Plan
is hereby amended in its entirety, effective May 6, 2005, to read as follows:

“Committee”
means a committee of one or more directors designated by the Board to
administer this Plan.

NOW, THEREFORE, be it further
provided that, except as provided above, the Plan shall continue to be read in
its current state.

   
 

IN WITNESS WHEREOF, this First Amendment has been executed by a
duly authorized officer of the Company as of the date specified below and
effective as set forth herein.

	
   

  	
  J. L. HALSEY CORPORATION,

  	 

	
   

  	
  a Delaware corporation

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By:

  	
  /s/ David
  R. Burt

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  David R. Burt

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Title:

  	
  President, Chief
  Executive Officer, Secretary and Treasurer

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
  Date:

  	
   

  	 

					

 

 2

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