Consulting Agreement - John G. Callen and ImageWare Systems Inc.
JOHN G. CALLEN-CONSULTING 121 MONTVALE ROAD - WESTON MA - 02493 PHONE: (781) 642 7997 - FAX: (781) 894 3661 November 14, 2000 Mr. Jim Miller Chairman and CEO ImageWare Systems, Inc. 10883 Thornmint Road San Diego, CA 921217 Dear Jim: John G. Callen - Consulting (JGC) is pleased to present this proposal to assist ImageWare Systems, Inc. (IWS) with the development of a Diversification Strategy, First Draft. AN UNDERSTANDING OF YOUR NEEDS: "JWS develops, sells and supports a suite of modular software products known as C.R.I.M.E.S.(R) used by law enforcement and public safety agencies to manage criminal digital images and data. IWS's software systems and associated hardware allow customers to quickly capture, archive, search, retrieve and share digital photographs and criminal history records. Through its ITC and Goddard subsidiaries, IWS also develops, sells and supports software used to create identification cards and documents." IWS has achieved the leading market position in the law enforcement imaging space and continues to see long term growth opportunities in this vertical market estimated at $1.2 billion in the U.S. Yet, management has determined that in order to grow rapidly and at a more constant rate than is possible in a volatile government contracts sector, IWS must diversify its customer base and corresponding product offerings and penetrate additional imaging markets. Accordingly, the company has recently begun to expand upon its core law enforcement product offerings into identification (ID) imaging markets estimated at $8.5 billion, through its acquisition of ITC and Goddard. Further penetration of ID markets may be achieved through additional acquisitions, strategic partnerships and/or new product development. IWS is well positioned for its diversification from Business to Government (B to G) markets to Business to Business (B to B) markets, based on its proprietary imaging software and competitive ID product offerings. Expansion into Business to Consumer (B to C) markets may present additional growth opportunities and new recurring revenue models. <PAGE> IWS wishes to continue its diversification beyond its core markets and product offerings and is faced with many opportunities to do so. In particular, Web-based imaging applications present many attractive new technological approaches as well as access to millions of potential customers. Yet, this inchoate marketplace is teeming with competitive activity and has yet to demonstrate convincing business models. In its desire to develop and implement a successful diversification strategy, IWS must explore and evaluate its opportunities and is seeking the professional and objective assistance of JGC in doing so. STATEMENT OF WORK: JGC will work closely with IWS management to develop the company's diversification strategy. Work will be undertaken in four basic phases: 1. Examination and evaluation of IWS current condition and core competencies; technology, product, people, market, customers, competition, profitability, growth, etc. 2. Exploration of a broad range of digital imaging market trends; competition, applications, channels, product/technology innovations, foreign markets, etc. 3. Determination of most attractive core-value based diversification directions, opportunities and options, i.e. combine learnings of Phases One and Two. 4. First draft diversification strategy and desired approaches to execution, e.g. product development, licensing, partnering, acquisition, etc. JGC APPROACH TO PROJECT: Upon commencement of the project, JGC will convene a project kick-off conference with key management, outlining and discussing the project approach. Consensus on project objectives and directions will be reached. Tasks will be specified and scheduled. Phase One tasks will be based on individual interviews with key management (CEO, CFO, CTO, Marketing, Sales executives, etc.), key customers, partners, vendors, etc. as deemed appropriate. Phase Two tasks will entail an industry scan, based on secondary research and discreet interviews with key industry sources. IWS management opinions gleaned them Phase One interviews will also be valued. Phase Three will entail a presentation of preliminary findings from Phase One and Two to IWS management in a workshop, during which time a consensus on diversification direction will be reached. Phase Four will require JGC's preparation of a Diversification Strategy - First Draft, in Power Point, suitable for presentation to the Board of Directors if so desired by the CEO. <PAGE> PERIOD OF PERFORMANCE The Diversification Strategy-First Draft will be completed by December 13, 2000, (subject to approval of this proposal by 11/17 and availability to IWS management for interviewing, workshop attendance, etc.) It is anticipated that JGC will spend up to 100 hours working with IWS management towards the development of the Draft. (Based on current availability, appx. 12 days; 11/20, 21, 22, 28, 29, 30, 12/1 in Boston, 12/4-6 in San Diego, 12/11-12 in San Diego.) Project travel will be required to IWS offices in San Diego for the Workshop, w/o 12/4. A second trip will be co-incidental to the IWS Board of Directors meeting w/o 12/11. PAYMENT: JGC will provide the services described herein, at the hourly rate of $300 per hour, on a time and materials basis for a total estimated amount not to exceed $30,000.00, exclusive of any travel cost. For anticipated travel (one trip to San Diego), JGC will require reimbursement from IWS for reasonable out-of-pocket expenses at actual cost. JGC will invoice IWS for an installment of $15,000 on December 1, 2000, such payment due on December 15. This will be followed by a second invoice for the final amount of fees not to exceed an additional $15,000, plus expenses, on December 15, such payment due on January 2, 2001. CHANGES IN WORK SCOPE If IWS or JGC should desire to recommend an addition, modification or change to the services to be provided under this letter, the party desiring the addition, modification or change shall submit a request for it in writing to the other party. The request will describe in reasonable detail the addition, modification or change. Promptly following receipt of the request, IWS and JGC will seek in good faith for a reasonable period of time (not to exceed 5 days) to reach agreement on an amendment to this letter based upon the request. If agreement is reached, the change will be reflected in an amendment to this letter (signed by the parties) which will specify the changes to this letter. JGC QUALIFICATIONS AND DISCLOSURES JGC is well known to IWS management as a professional independent business strategy consultant and digital imaging industry expert. He currently serves on IWS's Board of Directors and was engaged by IWS in prior consulting capacities in 1997 and 1998. He served as Polaroid's Director of Entertainment Imaging until 1997 and briefly worked for Polaroid as a consultant on Internet strategy in July 2000. He is the owner of the Internet domain names "Picturevault.com" and "ePicture.com" and owns the concept business and ITU trademark filing for "ePicture." He serves as an Advisor to the Internet PhotoBooth company, Photerra, Inc. He worked as a contract consultant to PricewaterhouseCoopers primarily for their client, the United States Postal Services, from 1997 through June 2000. <PAGE> MISCELLANEOUS This letter may be terminated by either party without cause upon 10 days advanced written notice to the other party. Please indicate your agreement with this letter by signing in the space provided below and returning to my attention the additional copy I have included. I am grateful that you have chosen JGC and look forward to working with you on this important endeavor. Sincerely, John G. Callen - Consulting By /s/ John G. Callen ------------------ Name: John G. Callen Title: Principal Agreed and accepted as of the date of this letter: ImageWare Systems, Inc. By /s/ Jim Miller -------------- Name: Jim Miller Title: Chairman and CEO