Form 8-K IMAGEWARE SYSTEMS INC For: Sep 10
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): September 10, 2018
IMAGEWARE SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
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Delaware
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001-15757
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33-0224167
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(State
or other jurisdiction
of
incorporation)
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(Commission
File No.)
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(IRS
Employer
Identification
No.)
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10815 Rancho
Bernardo Road, Suite 310, San Diego, California
92127
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(Address
of principal executive offices)
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(858)
673-8600
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(Registrant’s
Telephone Number)
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Not
Applicable
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(Former
name or address, if changed since last report)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions (see General Instruction A.2.
below):
☐
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
☐
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
☐
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
☐
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 (17
CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934
(17 CFR 240.12b-2) ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act ☐
Item 1.01 Entry into a Material Definitive Agreement
See
Item 8.01 below.
Item 1.02 Termination of a Material Definitive
Agreement
See
Item 8.01 below.
Item 3.02 Unregistered Sales of Equity Securities
See
Item 8.01 below.
Item 3.03 Material Modifications to Rights of Security
Holders
See
Item 8.01 below.
Item 5.03 Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year
Creation of Series C Convertible Preferred Stock
On September 10, 2018, ImageWare Systems, Inc.
(the “Company”) filed the Certificate of Designations,
Preferences, and Rights of Series C Convertible Preferred Stock
(“Series C
COD”) with the Secretary
of State for the State of Delaware – Division of
Corporations, designating 1,000 shares of the Company’s
preferred stock, par value $0.01 per share, as Series C Convertible
Preferred Stock (“Series C
Preferred”), each share
with a stated value of $10,000 per share (the
“Stated
Value”). Shares of Series
C Preferred accrue dividends
cumulatively and are payable quarterly at a rate of 8% per annum if
paid in cash, or 10% per annum if paid by the issuance of shares of
the Company’s common stock, par value $0.01 per share
(“Common
Stock”)
(“Dividend
Shares”). Shares
of Series C Preferred rank senior to the Company’s Common
Stock and Series A Convertible Preferred Stock (the
“Series A
Preferred”), and junior
to the Company’s Series B Convertible Redeemable Preferred
Stock.
Each share of Series C Preferred has a liquidation
preference equal to the greater of (i) the Stated Value plus all
accrued and unpaid dividends, and (ii) such amount per share as
would have been payable had each share been converted into Common
Stock immediately prior to the occurrence of a Liquidation Event or
Deemed Liquidation Event (as such terms are defined in the Series C
COD) (the “Liquidation Preference
Amount”). Each share of
Series C Preferred is convertible into that number of shares of the
Company’s Common Stock (“Conversion
Shares”) equal to the
Stated Value, divided by $1.00, which conversion rate is subject to
adjustment in accordance with the terms of the Series C COD.
Holders of Series C Preferred may elect to convert shares of Series
C Preferred into Conversion Shares at any time. Holders of the
Series C Preferred may also require the Company to redeem all or
any portion of such holder’s shares of Series C Preferred at
any time from and after the third anniversary of the issuance date
or in the event of the consummation of a Change of Control (as such
term is defined in the Series C COD). Subject to the terms and
conditions set forth in the Series C COD, in the event the
volume-weighted average price of the Company’s Common Stock
is at least $3.00 per share (subject to adjustment in accordance
with the terms of the Series C COD) for at least 20 consecutive
trading days, the Company may convert all, but not less than all,
issued and outstanding shares of Series C Preferred into Conversion
Shares. In addition, in the event of a Change of Control, the
Company will have the option to redeem all, but not less than all,
issued and outstanding shares of Series C Preferred for 115% of the
Liquidation Preference Amount per share. Holders of Series C
Preferred will have the right to vote, on an as-converted basis,
with the holders of the Company’s Common Stock on any matter
presented to the Company’s stockholders for their action or
consideration.
The
foregoing description of the Series C Preferred is qualified, in
its entirety, by the full text of the Series C COD, a copy of which
is attached to this Current Report on Form 8-K as Exhibit 3.1,
and is incorporated by reference herein.
Amendment to Certificate of Designations of Series A Convertible
Preferred Stock
On September 10, 2018, the Company filed an
Amendment to the Certificate of Designations, Preferences, and
Rights of Series A Convertible Preferred Stock
(“Series A
COD”) (the
“Amendment”) with the Secretary of State for the State
of Delaware – Division of Corporations, to increase the
number of shares of Series A Preferred authorized for issuance
thereunder to 38,000 shares, in order to effect the Debt Exchange
(as defined below).
The
foregoing description of the Amendment is qualified, in its
entirety, by the full text of the Amendment, a copy of which is
attached to this Current Report on Form 8-K as Exhibit 3.2,
and is incorporated by reference herein.
Item 8.01 Other Events
Series C Financing
On September 10, 2018, the Company entered into
(i) a Securities Purchase Agreement with certain accredited
investors (the “Investors”), pursuant to which the Company sold, on
September 10, 2018 (the “Closing
Date”), a total of 890
shares of Series C Preferred at a purchase price of $10,000 per
share (the “Series C
Financing”), and (ii) a
Registration Rights Agreement, pursuant to which the Company agreed
to file a registration statement no later than 30 days after the
Closing Date in order to register the Conversion Shares and the
Dividend Shares. The forms of Securities Purchase Agreement and
Registration Rights Agreement are attached hereto as Exhibits 10.1
and 10.2, respectively. The issuance of the shares of Series C
Preferred pursuant to the Securities Purchase Agreement resulted in
gross proceeds to the Company of $8.9 million. The Company expects
to use these proceeds for general working capital
purposes.
Northland Capital Markets
(“Northland”) acted as the Company’s exclusive
placement agent in connection with the Series C Financing, pursuant
to the terms of a Placement Agency Agreement dated September 10,
2018. Under the terms of the Placement Agency Agreement, a copy of
which is attached hereto as Exhibit 10.3, Northland was paid
$712,000, or 8% of the gross proceeds received by the Company on
the Closing Date as compensation for services rendered by Northland
in connection with the Series C Financing. Northland Capital
Markets is the trade name for certain capital markets and
investment banking services of Northland Securities, Inc., member
FINRA/SIPC.
The
shares of Series C Preferred were offered and sold in a transaction
exempt from registration under the Securities Act in reliance on
Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder.
Each Investor represented that it was an “accredited
investor” as defined in Regulation D.
Debt Exchange
On September 10, 2018, the Company entered into
agreements (the “Exchange
Agreements”) with Neal
Goldman and Charles Crocker, pursuant to which Messrs. Goldman and
Crocker agreed to exchange approximately $6.3 million and $0.6
million, respectively, of outstanding debt (including accrued and
unpaid interest) owed under the terms of their respective lines of
credit for an aggregate of 6,896 shares of Series A Preferred (the
“Debt Exchange”). As a result of the Debt Exchange, all
indebtedness, liabilities and other obligations arising under the
respective lines of credit were cancelled and deemed satisfied in
full. A form of Exchange Agreement is attached hereto as Exhibit
10.4.
A
copy of the Company’s press release announcing the Series C
Financing and Debt Exchange is attached to this Current Report on
Form 8-K as Exhibit 99.1.
Declaration of Special Dividend
Concurrently with the Series C Financing, the
Company’s Board of Directors declared a special dividend (the
“Special
Dividend”) for holders of
the Series A Preferred (each a “Holder”), pursuant to which each Holder will
receive a warrant (“Warrant”) to purchase 39.87 shares of Common Stock
for every share of Series A Preferred held, which resulted in the
issuance of Warrants to the Holders as a group to purchase an
aggregate of 1,493,856 shares of Common Stock. Each Warrant has an
exercise price of $0.01 per share, and is exercisable immediately
upon issuance; provided,
however, that a Warrant may
only be exercised concurrently with the conversion of shares
of Series A Preferred held by a Holder into shares of Common Stock.
In addition, each Warrant held by a Holder shall expire on the
earliest to occur of (i) the conversion of all Series A Preferred
held by such Holder into Common Stock, (ii) the redemption by the
Company of all outstanding shares of Series A Preferred held by
such Holder, (iii) the Warrant no longer representing the right to
purchase any shares of Common Stock, and (iv) the tenth anniversary
of the date of issuance. A copy of the form of Warrant is attached
hereto as Exhibit 3.3.
The
foregoing description of the Securities Purchase Agreement,
Registrations Rights Agreement, Placement Agency Agreement,
Exchange Agreement, and Warrant do not purport to be complete, and
are qualified in their entirety by reference to the form of
Securities Purchase Agreement, Registration Rights Agreement,
Placement Agency Agreement, Exchange Agreement and Warrant attached
hereto as Exhibits 10.1, 10.2, 10.3, 10.4 and 3.3,
respectively, each of which are incorporated by reference
herein.
Item 9.01 Financial Statements and Exhibits
See
Exhibit Index.
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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IMAGEWARE SYSTEMS, INC.
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Date:
September 13, 2018
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By:
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/s/
Wayne Wetherell
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Wayne
Wetherell
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Chief
Financial Officer
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EXHIBIT INDEX
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Exhibit Number
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Description
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Certificate of Designations, Preferences, and Rights of Series C
Convertible Preferred Stock of ImageWare Systems, Inc., dated
September 10, 2018
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Amendment to the Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock, dated September 10,
2018
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Form of Warrant
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Form of Securities Purchase Agreement
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Form of Registration Rights Agreement
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Placement Agent Agreement
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Form of Exchange Agreement
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Press
release issued by ImageWare Systems, Inc., dated September 12,
2018
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Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.
The undersigned,
the Chief Executive Officer of ImageWare Systems, Inc., a Delaware
corporation (the “Company”), does hereby certify
that, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Company, as
amended, the following resolution creating a series of Series C
Convertible Preferred Stock, was duly adopted on September 9,
2018.
RESOLVED, that pursuant to the
authority expressly granted to and vested in the Board of Directors
of the Company by provisions of the Certificate of Incorporation of
the Company, as amended (the “Certificate of Incorporation”),
there hereby is created out of the Company’s shares of
Preferred Stock, par value $0.01 per share (the “Preferred Stock”), authorized
for issuance in Section 4(a) of the Company’s Certificate of
Incorporation, a series of Preferred Stock, to be named
“Series C Convertible Preferred Stock,” consisting of
One Thousand (1,000) shares, which series shall have the following
designations, powers, preferences and relative and other special
rights and the following qualifications, limitations and
restrictions:
1.
Designation and Rank.
(a)
The designation of such series of the Preferred Stock
shall be the Series C Convertible
Preferred Stock,
par value $0.01 per share (the “Series C Preferred”). The
maximum number of shares of Series C Preferred shall be One
Thousand (1,000) shares. The Series C Preferred shall rank senior
to the Company’s common stock, par value $0.01 per share (the
“Common
Stock”), Series A Convertible Preferred Stock (the
“Series A
Preferred”) and, except as provided in Section 1(b)
below, to all other classes and series of equity securities of the
Company which by their terms do not expressly provide that such
equity securities rank senior to or on parity with the Series C
Preferred (collectively, “Junior
Stock”).
(b)
The Series C
Preferred shall rank junior to the Company’s Series B
Convertible Redeemable Preferred Stock (“Series B Preferred”) solely with
respect to (i) dividend rights of the Series B Preferred on the
terms expressly provided in paragraph i of Section 4(d) of the
Certificate of Incorporation as in effect as of the Issuance Date
(as defined below) and (ii) distribution rights of the Series B
Preferred upon a liquidation, dissolution or winding up provided in
paragraph ii of Section 4(d) of the Certificate of Incorporation as
in effect as of the Issuance Date; provided, however, that nothing in the Series B
Preferred shall have any effect on the rights of the Series C
Preferred with respect to rights on redemption or conversion. The
date of original issuance of the Series C Preferred is referred to
herein as the “Issuance
Date”.
2.
Dividends.
(a) Payment of
Dividends.
(i) The holders of
record of shares of Series C Preferred shall be entitled to
receive, and the Company shall be required to declare and pay, out
of any assets at the time legally available therefor, cumulative
dividends at the Specified Rate per share per annum, commencing on
the Issuance Date and payable quarterly in arrears on each of March
31, June 30, September 30 and December 31 (each, a
“Dividend Payment
Date”), at the option of the Company in cash or
through the issuance of shares of Common Stock. Dividends on each
outstanding share of Series C Preferred will accrue whether or not
such dividends have been declared and whether or not there are
profits, surplus or other funds of the Company legally available
for the payment of dividends. In the event that the Company elects
(or is deemed to have elected) to pay dividends in shares of Common
Stock, the number of shares of Common Stock to be issued to each
applicable holder shall be determined by dividing the total
dividend then being
-1-
paid to such
holder in shares of Common Stock by the Price Per Share (as defined
below) as of the applicable Dividend Payment Date, and rounding up
to the nearest whole share (the “Dividend Shares”). With
respect to any Dividend Payment Date, to the extent that dividends
on the shares of Series C Preferred are not declared and paid in
cash on any such Dividend Payment Date, the Company shall be deemed
to have elected to declare and pay dividends with respect to such
Dividend Payment Date through the issuance of Dividend Shares on
such Dividend Payment Date. If the Company shall elect to declare
and pay dividends hereunder in a form that consists of a
combination of cash and an issuance of Dividend Shares, each holder
of the Series C Preferred shall receive the same proportion of cash
and Dividend Shares. As used herein, “Price Per Share” means, with
respect to a share of Common Stock, the VWAP (as defined below) for
the five (5) Trading Days (as defined below) immediately preceding
the applicable Dividend Payment Date.
“Specified Rate” means (i)
in the event the Company elects to pay a dividend payable on any
Dividend Payment Date in cash, the cumulative dividend rate of
eight percent (8%) of the Stated Value (as defined in Section 4
hereof) per share per annum, and (ii) in the event the Company
elects, or is deemed to have elected, to pay a dividend payable on
any Dividend Payment Date in Dividend Shares, the cumulative
dividend rate of ten percent (10%) of the Stated Value per share
per annum.
“VWAP”
means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market (defined below), the daily
volume weighted average price of the Common Stock for such date on
the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)),
(b) if the Common Stock is not then listed or quoted for trading on
any Trading Market and if prices for the Common Stock are then
reported on the OTC Bulletin Board or in the “Pink
Sheets” published
by OTC Markets Group, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the daily mean
between the closing bid and asked quotations per share of the
Common Stock so reported, or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Majority
Holders (as defined below) and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
“Trading
Market” means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE MKT, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange, the OTCQX or OTCQB (or any successors to any
of the foregoing).
“Trading
Day” means a day on which the principal Trading Market
is open for trading.
“Majority
Holders” means, as of any date of determination, the
holder or holders of more than fifty percent (50%) of the total
number of issued and outstanding shares of Series C Preferred as of
such date.
(ii) The Company will:
(a) prepare and file with the Securities and Exchange Commission
(the “SEC”),
within thirty (30) days after the Issuance Date, a Form S3
(or, if such form is not available to the Company, a Form S1)
to register under the Securities Act of 1933, as amended (the
“Securities
Act”), the resale, by the holders of shares of Series
C Preferred, of any Conversion Shares (as defined below) and
Dividend Shares issuable hereunder and not otherwise eligible for
resale under Rule 144 promulgated under the Securities Act
(“Rule 144”),
without volume or mannerofsale restrictions or current
public information requirements (the “Registration Statement”).
(b) use its best efforts to cause the Registration Statement to
become effective as soon as practicable after such filing. (c) use
its best efforts to cause the Registration Statement to remain
effective at all times thereafter until the earlier of (i) the date
as of which such holders of Series C Preferred may sell all of such
Conversion Shares and/or Dividend Shares without restriction
pursuant to Rule 144, without volume or mannerofsale
restrictions or current public information requirements, and (ii)
the date when all of the Conversion Shares and Dividend Shares
registered thereunder have been disposed of by such holders of
Series C Preferred. and (d) prepare and file with the SEC such
amendments and supplements to the Registration Statement (including
documents filed pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), and incorporated by reference into the
Registration Statement) and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective for the period specified in this sentence
above.
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(b) In the event of a
Voluntary Conversion (as defined in Section 5(a) below) or
Mandatory Conversion (as defined in Section 5(b) below), all
accrued but unpaid dividends on the Series C Preferred being
converted shall be payable, at the election of the Company, in cash
or shares of Common Stock within five (5) business days after the
Voluntary Conversion Date (as defined in Section 5(c)(i) below) or
Mandatory Conversion Date (as defined in Section 5(c)(ii) below),
as applicable.
(c)
Solong as any shares
of Series C Preferred are outstanding, the Company shall not, and
shall not permit any subsidiary of the Company or any other Person
(as defined below) directly or indirectly controlled by the Company
to, declare, pay or set apart for payment any dividend or make any
distribution (as defined below) on or with respect to the Common
Stock, the Series A Preferred or any other Junior Stock, except
that (i) the Company may pay dividends on the Series A Preferred at
the “Specified Rate” (as defined in the Certificate of
Designations, Preferences and Rights of Series A Convertible
Preferred Stock of Imageware Systems, Inc. (the “Series A Certificate”) as in
effect on the Issuance Date) on the terms expressly set forth in
Section 2 of the Series A Certificate as in effect on the Issuance
Date, and (ii) the Company may pay dividends on the Common Stock
solely in shares of Common Stock. “Person” means an individual,
partnership, corporation, unincorporated organization, joint stock
company, limited liability company, association, trust, joint
venture or any other entity, or a governmental agency or political
subdivision thereof.
(d)
In the event of a
Liquidation Event (as defined below) or a Deemed Liquidation Event
(as defined below), all accrued and unpaid dividends on the Series
C Preferred shall be payable in cash on the day immediately
preceding the date of payment of the Liquidation Preference Amount
payable to the holders of Series C Preferred, in accordance with
Section 4 below. In the event of the Company’s exercise of
its optional redemption right set forth in Section 7(b) below, all
accrued and unpaid dividends on the Series C Preferred shall be
payable in cash on the day immediately preceding the date of such
redemption.
(e)
For purposes
hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash,
property, securities, indebtedness, obligations or any other thing
of value, whether by way of dividend or otherwise, on or with
respect to, or the purchase, redemption, retirement or other
acquisition of, shares of the Company (other than repurchases of
Common Stock held by employees or consultants of the Company upon
termination of their employment or services pursuant to agreements
providing for such repurchase or upon the cashless exercise of
options held by employees or consultants) for cash, property,
securities, indebtedness, obligations or any other thing of
value.
3.
Voting Rights.
On any matter
presented to the stockholders of the Company for their action or
consideration at any meeting of stockholders of the Company (or by
written consent of stockholders in lieu of meeting), each holder of
outstanding shares of Series C Preferred shall be entitled to cast
the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series C Preferred held by such
holder are convertible as of the record date for determining
stockholders entitled to vote on such matter, or if no record date
is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as provided by law or
by Sections 9 and 10 below, holders of Series C Preferred shall
vote together with the holders of Common Stock, and with the
holders of any other series of Preferred Stock the terms of which
so provide, as a single class.
-3-
4.
Liquidation, Dissolution, WindingUp or
Distribution.
(a) In the event of
the liquidation, dissolution, winding up of the affairs of the
Company or any other event that causes the Company to make a
distribution (as such term is used in Section 2(e) above), whether
voluntary or involuntary (each, a “Liquidation Event”) or a Deemed
Liquidation Event, the holders of shares of the Series C Preferred
then outstanding shall be entitled to receive, out of the assets of
the Company available for distribution to its stockholders, before
any payment shall be made or any assets distributed to the holders
of the Common Stock or any other Junior Stock, an amount equal to
the greater of (i) $10,000 per share (such amount, subject to
appropriate adjustment in the event of any stock split, combination
or other similar recapitalization affecting the shares of Series C
Preferred, the “Stated
Value”) plus all accrued and unpaid dividends, and
(ii) such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 5
immediately prior to such Liquidation Event or Deemed Liquidation
Event (the amount payable pursuant to the foregoing is referred to
herein as the “Liquidation
Preference Amount”). If the assets of the Company are
not sufficient to pay in full the Liquidation Preference Amount
payable to the holders of outstanding shares of Series C Preferred
and any other series of Preferred Stock ranking on a parity with
the Series C Preferred as to distribution rights upon a Liquidation
Event or Deemed Liquidation Event (“Parity Stock”), then all of said
assets will be distributed among the holders of the Series C
Preferred and the holders of the Parity Stock, if any, ratably in
accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. The
payment with respect to each outstanding fractional share of Series
C Preferred shall be equal to a ratably proportionate amount of the
payment with respect to each whole outstanding share of Series C
Preferred. All payments for which this Section 4(a) provides shall
be in cash, property (valued at its fair market value as determined
reasonably and in good faith by the Board of Directors of the
Company) or a combination thereof. provided, that, in the case of a
payment consisting of a combination of cash and property, the
holders of the Series C Preferred and the holders of any Parity
Stock shall each receive the same proportion of cash and property;
and provided, further, that no cash shall be paid to
holders of Junior Stock unless each holder of the outstanding
shares of Series C Preferred has been paid in cash the full
Liquidation Preference Amount to which such holder is entitled, as
provided herein. After payment of the full Liquidation Preference
Amount to which each holder is entitled, such holders of shares of
Series C Preferred will not be entitled to any further
participation on account of such shares in any distribution of the
assets of the Company.
(b) Written notice of
any Liquidation Event or Deemed Liquidation Event, stating a
payment date and the place where the distributable amounts shall be
payable, shall, to the extent possible, be given by mail, postage
prepaid, no less than twenty (20) days prior to the payment date
stated therein, to the holders of record of the Series C Preferred
at their respective addresses as recorded on the books of the
Company.
(c) Nothing contained
in this Section 4 shall limit the right of the holder of any shares
of Series C Preferred to convert such shares of Series C Preferred
pursuant to and in accordance with Section 5
hereof.
5.
Conversion.
(a) Voluntary
Conversion. At any time on or after the Issuance Date, the holder
of any shares of Series C Preferred may, at such holder's option,
elect to convert (a “Voluntary Conversion”) all or
any portion of the shares of Series C Preferred held by such holder
into a number of fully paid and nonassessable shares of Common
Stock equal to the quotient of (i) the Stated Value of the shares
of Series C Preferred being converted, divided by (ii) the
Conversion Price (as defined in Section 5(d) below) in effect as of
the date the holder delivers to the Company its notice of election
to convert (the “Conversion
Shares”). In the event the Company issues a notice of
redemption pursuant to Section 7 hereof, the rights of the holders
of Series C Preferred to elect a Voluntary Conversion pursuant to
this Section 5(a) (“Conversion Rights”) shall
terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not
paid on such redemption date, in which case the Conversion Rights
for all shares of Series C Preferred shall continue until the
redemption price is paid in full. In the event of such a
redemption, the Company shall provide to each holder of shares of
Series C Preferred notice of such redemption, which notice shall
(i) be given at least fifteen (15) days prior to the termination of
the Conversion Rights and (ii) state the amount per share of Series
C Preferred that will be paid or distributed on such
redemption.
-4-
(b) Mandatory
Conversion. If (i) the Common Stock is registered pursuant to
Section 12(b) or (g) under the Exchange Act. (ii) there are
sufficient authorized but unissued shares of Common Stock (which
have not otherwise been reserved or committed for issuance) to
permit the issuance of all Conversion Shares issuable upon
conversion of all outstanding shares of Series C Preferred. (iii)
upon issuance, the Conversion Shares will be either (A) covered by
an effective registration statement under the Securities Act, which
is then available for the immediate resale of such Conversion
Shares by the recipients thereof, and the Board of Directors
reasonably believes that such effectiveness will continue
uninterrupted for the foreseeable future, or (B) freely tradable
without restriction pursuant to Rule 144 promulgated under the
Securities Act without volume or mannerofsale
restrictions or current public information requirements, as
determined by the counsel to the Company as set forth in a written
opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the affected holders. and (iv) the VWAP of the
Common Stock is at least $3.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares) for a period of twenty (20) consecutive Trading Days ending
on the Trading Day immediately preceding the day on which the
Company delivers the Mandatory Conversion Notice (as defined
below), then the Company shall have the right, subject to the terms
and conditions of this Section 5, to convert (a “Mandatory Conversion”) all, but
not less than all, of the issued and outstanding shares of Series C
Preferred into Conversion Shares.
(c) Mechanics of
Conversion. Conversions of Series C Preferred shall be conducted in
the following manner:
(i) Voluntary
Conversion. To convert Series C Preferred into Conversion Shares on
any date (the “Voluntary
Conversion Date”), the holder thereof shall transmit
by facsimile or electronic mail (or otherwise deliver), for receipt
on or prior to 5:00 p.m., New York time on such date, a copy of a
fully executed notice of conversion in the form attached hereto as
Exhibit I (the “Conversion
Notice”), to the Company. As soon as practicable
following such Voluntary Conversion Date, the holder shall
surrender to a common carrier for delivery to the Company the
original certificates representing the shares of Series C Preferred
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
“Preferred Stock
Certificates”) and the originally executed Conversion
Notice.
(ii)
Mandatory
Conversion. In the event the Company elects to convert outstanding
shares of Series C Preferred into Conversion Shares pursuant to
Section 5(b) above, the Company shall give written notice (the
“Mandatory Conversion
Notice”) to all holders of the Series C Preferred of
its intention to require the conversion of all of the shares of
Series C Preferred. The Mandatory Conversion Notice shall set forth
the number of Series C Preferred being converted (which shall be
all, and not less than all, issued and outstanding shares of Series
C Preferred), the date on which such conversion shall be effective
(the “Mandatory Conversion
Date”), and shall be given to the holders of the
Series C Preferred not less than fifteen (15) days prior to the
Mandatory Conversion Date. The Mandatory Conversion Notice shall be
delivered to each holder at its address as it appears on the stock
transfer books of the Company. In order to receive the Conversion
Shares into which the Series C Preferred is convertible pursuant to
Section 5(b), each holder of the Series C Preferred shall surrender
to the Company at the place designated in the Mandatory Conversion
Notice the Preferred Stock Certificates(s) representing the shares
of Series C Preferred owned by such holder. Upon the Mandatory
Conversion Date, such converted Series C Preferred shall no longer
be deemed to be outstanding, and all rights of the holder with
respect to such shares shall immediately terminate, except the
right to receive (x) the shares of Common Stock into which the
shares of Series C Preferred are convertible pursuant to Section
5(b), (y) all accrued and unpaid dividends on such shares of Series
C Preferred pursuant to Section 2(b), and (z) any cash in lieu of a
fractional share of Common Stock pursuant to Section
2(j).
-5-
(iii)
Company's
Response. Upon receipt by the Company of a copy of the fully
executed Conversion Notice or upon giving a Mandatory Conversion
Notice, the Company or its designated transfer agent (the
“Transfer
Agent”), as applicable, shall within five (5) business
days following the date of receipt by the Company of a copy of the
fully executed Conversion Notice or the Mandatory Conversion Date,
as the case may be, issue and deliver to the Depository Trust
Company (“DTC”) account on each applicable
holder's behalf via the Deposit Withdrawal Agent Commission System
(“DWAC”) as
specified in the Conversion Notice or, in the case of a Mandatory
Conversion, as otherwise provided to the Company or the Transfer
Agent by (or on behalf of) a holder, registered in the name of each
such holder or its designee, for the number of Conversion Shares to
which such holder shall be entitled. Notwithstanding the foregoing
to the contrary, the Company or its Transfer Agent shall only be
required to issue and deliver the Conversion Shares to DTC on a
holder's behalf via DWAC if (i) the Conversion Shares may be issued
without restrictive legends and (ii) the Company and the Transfer
Agent are participating in DTC through the DWAC system. If any of
the conditions set forth in clauses (i) and (ii) above are not
satisfied, the Company shall deliver physical certificates to each
such holder or its designee. In the case of a Voluntary Conversion,
if the number of shares of Series C Preferred represented by the
Preferred Stock Certificate(s) submitted for conversion is greater
than the number of shares of Series C Preferred being converted,
then the Company shall, as soon as practicable and in no event
later than five (5) business days after receipt of the Preferred
Stock Certificate(s) and at the Company's expense, issue and
deliver to the applicable holder a new Preferred Stock Certificate
representing the number of shares of Series C Preferred not
converted. For purposes of this Section 5(c)(iii), the term
“Conversion Shares” shall include any shares of Common
Stock which the Company elects to issue, pursuant to Section 2(b),
as payment of accrued and unpaid dividends on shares of Series C
Preferred being converted.
(iv)
Dispute
Resolution. In the case of a dispute as to the arithmetic
calculation of the number of Conversion Shares to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly
issue to the holder the number of Conversion Shares that is not
disputed and shall submit the arithmetic calculations to the holder
via electronic mail or facsimile as soon as possible, but in no
event later than two (2) business days after receipt of such
holder's Conversion Notice. If such holder and the Company are
unable to agree upon the arithmetic calculation of the number of
Conversion Shares to be issued within two (2) business days of such
disputed arithmetic calculation being submitted to the holder, then
the Company shall, within two (2) business days, submit via
electronic mail or facsimile the disputed arithmetic calculation of
the number of Conversion Shares to be issued to the Company's
independent, outside accountant (the “Accountant”). The Company shall
cause the Accountant to perform the calculations and notify the
Company and the holder of the results no later than five (5)
business days from the time it receives the disputed calculations.
The Accountant's calculation shall be binding upon all parties
absent manifest error. The reasonable expenses of such Accountant
in making such determination shall be paid by the Company. The
period of time in which the Company is required to effect
conversions under this Certificate of Designations shall be tolled
with respect to the subject conversion pending resolution of any
dispute by the Company made in good faith and in accordance with
this Section 5(c)(iv).
(v) Record Holder. The
person or persons entitled to receive Conversion Shares shall be
treated for all purposes as the record holder or holders of such
Conversion Shares as of the close of business on the Voluntary
Conversion Date or Mandatory Conversion Date, as
applicable.
(d)
Conversion Price.
(i) The term
“Conversion
Price” shall mean $1.00 per share, subject to
adjustment under Section 5(e) hereof.
(ii) Notwithstanding
the foregoing to the contrary, if during any period (a
“BlackOut
Period”), a holder of Series C Preferred is unable to
trade any Conversion Shares immediately because the Company has
informed such holder that an existing prospectus cannot be used at
that time in the sale or transfer of such Conversion Shares
(provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within
the control of the holder of Series C Preferred) such holder of
Series C Preferred shall have the option but not the obligation on
any Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, within ten (10) Trading Days following the expiration
of the BlackOut Period of using the Conversion Price
applicable on such Voluntary Conversion Date or Mandatory
Conversion Date, as applicable, or any Conversion Price selected by
such holder of Series C Preferred that would have been applicable
had such Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, been at any earlier time during the BlackOut
Period.
-6-
(e)
Adjustments
of Conversion Price.
(i) Adjustments for
Stock Splits and Combinations. If the Company shall at any time or
from time to time after the Issuance Date, effect a stock split of
its outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine its outstanding
shares of Common Stock, the Conversion Price shall be
proportionately increased. Any adjustments under this Section
5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.
(ii) Adjustments for
Certain Dividends and Distributions. If the Company shall at any
time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the Conversion
Price shall be decreased as of the time of such issuance or, in the
event such record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Price
then in effect by a fraction:
(1) the numerator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date. and
(2) the denominator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date, plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution. provided,
however, that no such
adjustment shall be made if the holders of Series C Preferred
simultaneously receive a dividend or other distribution of shares
of Common Stock in a number equal to the number of shares of Common
Stock as they would have received if all outstanding shares of
Series C Preferred had been converted into Conversion Shares on the
date of such event.
(iii) Adjustment for
Other Dividends and Distributions. If, subject to Section 2(c), the
Company shall at any time or from time to time after the Issuance
Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in securities, cash, indebtedness, or other
property (other than a dividend or distribution of shares of Common
Stock referred to in Section 5(e)(ii)), then, and in each event, on
the same date on which holders of Common Stock receive such
dividend or other distribution, the holders of Series C Preferred
shall receive the number or amount of securities, cash,
indebtedness, or other property which they would have received had
their Series C Preferred been converted into Conversion Shares
immediately prior to such event.
(iv)
Adjustments for
Reclassification, Exchange or Substitution. If the Conversion
Shares issuable upon conversion of the Series C Preferred at any
time or from time to time after the Issuance Date shall be changed
to the same or different number of shares of any class or classes
of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 5(e)(i) and
(ii), an Organic Change (as defined below) provided for in Section
5(e)(v) or a Liquidation Event or Deemed Liquidation Event), then,
and in each event, an appropriate revision to the Conversion Price
shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of
Series C Preferred shall have the right thereafter to convert such
share of Series C Preferred into the kind and amount of shares of
stock and other securities receivable upon such reclassification,
exchange, substitution or other change, by holders of the number of
Conversion Shares into which such share of Series C Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
-7-
(v)
Adjustments for
Organic Changes. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization, merger or
consolidation of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided
for in Sections 5(e)(i) and (ii), or a reclassification, exchange,
substitution or change of shares provided for in Section 5(e)(iv),
or a Liquidation Event or Deemed Liquidation Event), and the
Company is not the surviving, acquiring or resulting entity in any
such merger, consolidation or other reorganization (any such
merger, consolidation or other reorganization, a
“Organic
Change”), then lawful and adequate provision shall be
made so that each share of Series C Preferred outstanding
immediately prior to the consummation or effectiveness of such
Organic Change shall be converted into, or exchanged for, a
security of the surviving, acquiring or resulting entity of such
Organic Change having preferences, rights, and privileges that are
equivalent to such share of Series C Preferred (any such security,
a “New
Security”), except that in lieu of being able to
convert into shares of Common Stock or shares of common stock of
the surviving, acquiring or resulting entity of such Organic
Change, the holders of such New Securities shall thereafter be
entitled to receive upon conversion of such New Securities the
shares of capital stock, securities, cash, assets or other property
to which a holder of the number of shares of Common Stock into
which a share of Series C Preferred would have been convertible
immediately prior to such Organic Change would have been entitled
to receive upon the consummation or effectiveness of such Organic
Change. In any such case, appropriate provisions shall be made with
respect to the rights of the holders of such New Security to the
end that the provisions of this Section 5 (including, without
limitation, provisions for adjustment of the Conversion Price)
shall thereafter be applicable, as nearly as may be, with respect
to any shares of capital stock, securities, cash, assets or other
property to be deliverable thereafter upon the conversion of such
New Security.
(f) No Impairment. The
Company shall not, by amendment of 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 to be observed or performed
hereunder by the Company, but will at all times in good faith,
assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the
holders of the Series C Preferred against impairment. In the event
a holder shall elect to convert any shares of Series C Preferred as
provided herein, the Company cannot refuse conversion based on any
claim that such holder or any one associated or affiliated with
such holder has been engaged in any violation of law, unless (i) an
order from the Securities and Exchange Commission prohibiting such
conversion or (ii) an injunction from a court, on notice,
restraining and/or enjoining conversion of all or of said shares of
Series C Preferred shall have been issued and the Company posts a
surety bond for the benefit of such holder in an amount equal to
100% of the Liquidation Preference Amount of the Series C Preferred
such holder has elected to convert, which bond shall remain in
effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such holder
in the event it obtains judgment.
(g) Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of
the Conversion Price or number of Conversion Shares issuable upon
conversion of the Series C Preferred pursuant to this Section 5,
the Company at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to
each holder of such Series C Preferred a certificate setting forth
such adjustment and readjustment, showing in detail the facts upon
which such adjustment or readjustment is based. The Company shall,
upon written request of any holder of Series C Preferred at any
time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the
Conversion Price in effect at the time, and the number of
Conversion Shares and the amount, if any, of other shares of
capital stock, securities, cash, assets or other property which at
the time would be received upon the conversion of a share of Series
C Preferred.
(h) Issue Taxes. The
Company shall pay any and all issue, stock transfer, documentary
stamp and other taxes, excluding federal, state or local income
taxes, that may be payable in respect of any issue or delivery of
the Series C Preferred, Conversion Shares, Dividend Shares or
shares of Common Stock or other securities issued on account of
Series C Preferred pursuant hereto or certificates representing
such shares or securities. provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer of
Conversion Shares requested by any holder to a person other than
such holder, but only to the extent such transfer taxes exceed the
transfer taxes that would have been payable had the Conversion
Shares been delivered to such holder.
-8-
(i) Notices. All
notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, by electronic mail,
by facsimile or three (3) business days following being mailed by
certified or registered mail, postage prepaid, returnreceipt
requested, addressed to the holder of record at its address
appearing on the books of the Company. The Company will give
written notice to each holder of Series C Preferred at least thirty
(30) days prior to the date on which the Company closes its books
or takes a record (i) with respect to any dividend or distribution
upon the Common Stock, (ii) with respect to any pro rata
subscription offer to holders of Common Stock or (iii) for
determining rights to vote with respect to any Organic Change,
Liquidation Event or Change of Control and in no event shall such
notice be provided to such holder prior to such information being
made known to the public. The Company will also give written notice
to each holder of Series C Preferred at least twenty (20) days
prior to the date on which any Organic Change, Liquidation Event or
Change of Control will take place and in no event shall such notice
be provided to such holder prior to such information being made
known to the public.
(j) Fractional Shares.
No fractional shares of Common Stock shall be issued upon
conversion of the Series C Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by
the average of the closing sales price of the Common Stock, as
reported on the applicable Trading Market for the five (5)
consecutive Trading Days immediately preceding the Voluntary
Conversion Date or Mandatory Conversion Date, as
applicable.
(k) Reservation of
Common Stock. The Company shall, so long as any shares of Series C
Preferred are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series C Preferred and paying
dividends on the Series C Preferred (assuming the Company elects to
pay all dividends in shares of Common Stock), such number of shares
of Common Stock as shall from time to time be sufficient to effect
the conversion of all of the Series C Preferred then outstanding
and payment of dividends hereunder (assuming the Company elects to
pay all dividends in shares of Common Stock). provided that the number of shares of
Common Stock so reserved shall at no time be less than 100% of the
number of shares of Common Stock for which the shares of Series C
Preferred are at any time convertible. The initial number of shares
of Common Stock reserved as Conversion Shares and each increase in
the number of shares so reserved shall be allocated pro rata among
the holders of the Series C Preferred based on the number of shares
of Series C Preferred held by each holder of record at the time of
issuance of the Series C Preferred or increase in the number of
reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series C
Preferred, each transferee shall be allocated a pro rata portion of
the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain
allocated to any Person which does not hold any shares of Series C
Preferred shall be allocated to the remaining holders of Series C
Preferred, pro rata based on the number of shares of Series C
Preferred then held by such holder. If at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then-outstanding shares
of Series C Preferred and payment of dividends on the Series C
Preferred (assuming the Company elects to pay all dividends in
shares of Common Stock), the Company shall take such corporate
action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(l) Retirement of
Series C Preferred. Conversion of shares of Series C Preferred
shall be deemed to have been effected on the Voluntary Conversion
Date or Mandatory Conversion Date, as applicable. In the case of a
Voluntary Conversion, upon conversion of only a portion of the
number of shares of Series C Preferred represented by a certificate
surrendered for conversion, the Company shall issue and deliver to
such holder, at the expense of the Company, a new certificate
covering the number of shares of Series C Preferred representing
the unconverted portion of the certificate so surrendered as
required by Section 5(c)(i).
(m)
Regulatory Compliance. If any shares of Common Stock to be reserved
as Conversion Shares or Dividend Shares require registration or
listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Company shall, at its sole cost and
expense, in good faith and as expeditiously as possible, endeavor
to secure such registration, listing or approval, as the case may
be.
(n) Validity of
Shares. All Series C Preferred, Conversion Shares, Dividend Shares
and shares of Common Stock or other securities issued on account of
Series C Preferred pursuant hereto or certificates representing
such shares or securities will, upon issuance by the Company, be
validly issued, fully paid and nonassessable and free from all
taxes, liens or charges with respect thereto.
-9-
6 . No
Preemptive Rights. Except as provided in Section 5 hereof, no
holder of the Series C Preferred shall be entitled to rights to
subscribe for, purchase or receive any part of any new or
additional shares of any class, whether now or hereinafter
authorized, or of bonds or debentures, or other evidences of
indebtedness convertible into or exchangeable for shares of any
class, but all such new or additional shares of any class, or any
bond, debentures or other evidences of indebtedness convertible
into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms (subject to Section 9 hereof)
and for such consideration (to the extent permitted by law), and to
such person or persons as the Board of Directors in their absolute
discretion may deem advisable.
7 .
Redemption.
(a) Redemption at Option of Holders. At any time
and from time to time from and after the third (3rd) anniversary of
the Issuance Date, or in the event of the consummation of a Change
of Control (as defined in Section 7(c) below), if any shares of
Series C Preferred are outstanding, then each holder of Series C
Preferred shall have the right (the “Holder Redemption
Right”), at such
holder’s option, to require the Company to redeem all or any
portion of such holder’s shares of Series C Preferred at the
Liquidation Preference Amount per share of Series C Preferred, plus
an amount equal to all accrued but unpaid dividends, if any, on the
Holder Redemption Date (as defined below) (such price, the
“Holder Redemption
Price”), which
Holder Redemption Price shall be paid in
cash.
(b) Redemption Option
Upon Change of Control. In addition to any other rights of the
Company or the holders of Series C Preferred contained herein,
simultaneous with the occurrence of a Change of Control, the
Company, at its option, shall have the right to redeem all, but not
less than all, of the outstanding Series C Preferred in cash at a
price per share of Series C Preferred equal to 115% of the
Liquidation Preference Amount plus all accrued and unpaid
dividends, if any, as of the date of delivery of the Notice of
Redemption at Option of Company Upon Change of Control (as defined
below) (the “Change of
Control Redemption Price”). Notwithstanding the
foregoing to the contrary, the Company may effect a redemption
pursuant to this Section 7(b) only if the Company is in material
compliance with the terms and conditions of this Certificate of
Designations.
(c) “Change of
Control”. “Change of
Control” shall mean any of the following occurring
after the Issuance Date:
(i)
a sale, conveyance
or disposition of all or substantially all of the assets of the
Company and any direct and/or indirect subsidiaries of the Company,
taken as a whole (including by or through the sale, conveyance or
other disposition of the capital stock of, or reorganization,
merger, share exchange, consolidation or other business combination
involving, any direct and/or indirect subsidiary or subsidiaries of
the Company, if substantially all of the assets of the Company and
any direct and/or indirect subsidiaries of the Company, taken as a
whole, are held by such subsidiary or
subsidiaries);
(ii)
a reorganization,
merger, share exchange, consolidation or other business combination
of the Company with or into any other entity in which transaction
the Persons who hold more than fifty percent (50%) of the total
voting power of the voting securities of the Company (or, if the
Company is not the acquiring, resulting or surviving entity in such
transaction, such acquiring, resulting or surviving entity)
immediately after such transaction are not Persons who, immediately
prior to such transaction, held more than fifty percent (50%) of
the total voting power of the voting securities of the Company;
or
(iii)
an
acquisition (in one transaction or a series of related
transactions) of voting securities of the Company representing in
the aggregate more than fifty percent (50%) of the total voting
power of the voting securities of the Company (after giving effect
to such acquisition) by any Person or “group” (as such
term is used in Section 13(d)(3) of the Exchange Act) of Persons;
provided, however, that any transaction pursuant to
which Neal Goldman, on his own and not part of a group, acquires
more than fifty percent (50%) of the total voting power of the
voting securities of the Company (after giving effect to such
acquisition) shall not constitute a “Change of Control”
hereunder.
Any Change of
Control shall be deemed a Liquidation Event hereunder (a
“Deemed Liquidation
Event”), unless such treatment is waived in writing by
the Majority Holders, and in the event of any such Deemed
Liquidation Event, each holder of Series C Preferred shall receive
payment of the Liquidation Preference Amount in accordance with
Section 4.
-10-
(d) Mechanics of
Redemption at Option of Company Upon Change of Control. At any time
within ten (10) days prior to the consummation of a Change of
Control, the Company may elect to redeem, effective immediately
prior to the consummation of such Change of Control, all (but not
less than all) of the Series C Preferred then outstanding by
delivering written notice thereof via facsimile and overnight
courier (“Notice of
Redemption at Option of Company Upon Change of
Control”) to each holder of Series C Preferred, which
Notice of Redemption at Option of Company Upon Change of Control
shall indicate (i) the number of shares of Series C Preferred that
the Company is electing to redeem from such holder (which shall not
be less than all of the shares of Series C Preferred owned by such
holder) and (ii) the Change of Control Redemption Price, as
calculated pursuant to Section 7(b) above. The Change of Control
Redemption Price shall be paid in cash in accordance with Section
7(b) of this Certificate of Designations. On or prior to the Change
of Control, the holders of Series C Preferred shall surrender to
the Company the certificate or certificates representing such
shares, in the manner and at the place designated in the Notice of
Redemption at Option of Company Upon Change of Control. The Company
shall deliver the Change of Control Redemption Price immediately
prior to or simultaneously with the consummation of the Change of
Control. provided that a
holder's Preferred Stock Certificates shall have been so delivered
to the Company (or an indemnification undertaking with respect to
such Preferred Stock Certificates in the event of their loss, theft
or destruction). From and after the Change of Control transaction,
unless there shall have been a default in payment of the Change of
Control Redemption Price, all rights of the holders of Series C
Preferred as a holder of such Series C Preferred (except the right
to receive the Change of Control Redemption Price without interest
upon surrender of their certificate or certificates) shall cease
with respect to shares of Series C Preferred, and such shares shall
not thereafter be transferred on the books of the Company or be
deemed to be outstanding for any purpose whatsoever.
Notwithstanding the foregoing to the contrary, nothing contained
herein shall limit a holder’s ability to convert its shares
of Series C Preferred following the receipt of the Notice of
Redemption at Option of Company Upon Change of Control and prior to
the consummation of the Change of Control
transaction.
(e) Mechanics of
Redemption at Option of Holders Upon Change of Control. From and after the third (3rd)
anniversary of the Issuance Date or at any time within ten (10)
days prior to, or at any time after, the consummation of a Change
of Control, any holder of Series C Preferred may elect to exercise
its Holder Redemption Right by delivering a written notice (a
“Holder Redemption
Notice”) to the Company of such election. The date
upon which such Holder Redemption Notice is delivered to the
Company is the “Holder
Redemption Notice Date”. The Company shall, on the
date proposed in the Holder Redemption Notice for the redemption of
the Series C Preferred (which date shall not be less than ten (10)
days after the Holder Redemption Notice Date, except that if a
Holder Redemption Notice is delivered in connection with and prior
to the consummation of a Change of Control, then such date shall be
the date on which such Change of Control is consummated) (the
“Holder Redemption
Date”), redeem each outstanding share of Series C
Preferred set forth in the Holder Redemption Notice at the Holder
Redemption Price. The Holder Redemption Price for each share of
Series C Preferred owned by a holder who has exercised its Holder
Redemption Right shall be paid to such holder by delivering a check
or by wire transfer of immediately available funds to such holder
at the address or in accordance with the wire transfer instructions
(as applicable) of such holder as set forth in the Holder
Redemption Notice.
8 . Inability
to Fully Convert.
(a) Holder's Option if
Company Cannot Fully Convert. In addition to any other right that a
holder of Series C Preferred might have, if, upon the Company's
receipt of a Conversion Notice, the Company cannot issue Conversion
Shares issuable pursuant to such Conversion Notice because the
Company (x) notwithstanding Section 5(k), does not have a
sufficient number of shares of Common Stock authorized and
available or (y) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer
quotation system or other selfregulatory organization with
jurisdiction over the Company or its securities from issuing all of
the Conversion Shares to be issued to a holder of Series C
Preferred pursuant to a Conversion Notice, then the Company shall
issue as many Conversion Shares as it is able to issue in
accordance with such holder's Conversion Notice and pursuant to
Section 5(c)(iii) above and, with respect to the unconverted Series
C Preferred, the holder, solely at such holder's option, can elect,
within five (5) business days after receipt of an Inability to
Fully Convert Notice (as defined below) from the Company thereof
to:
-11-
(i) if the Company's
inability to fully convert Series C Preferred is pursuant to
Section 8(a)(y) above, require the Company to issue restricted
shares of Common Stock in accordance with such holder's Conversion
Notice and pursuant to Section 5(c)(iii) above.
or
(ii)
void its Conversion Notice with respect to all or a portion of the
Conversion Shares covered by such Conversion Notice and retain or
have returned, as the case may be, the shares of Series C Preferred
that were to be converted pursuant to such holder's Conversion
Notice (provided that a holder's voiding its Conversion Notice
shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such
notice).
(b)
Mechanics
of Fulfilling Holder's Election. The Company shall promptly send
via electronic mail or facsimile to a holder of Series C Preferred,
upon receipt of electronic mail or facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as
described in Section 8(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the
“Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such holder's Conversion Notice, and (ii) the number of shares of
Series C Preferred which cannot be converted. Such holder shall
notify the Company of its election pursuant to Section 8(a) above
by delivering written notice via electronic mail or facsimile to
the Company (“Notice in
Response to Inability to
Convert”).
(c)
ProRata
Conversion. In the event the Company receives a Conversion Notice
from more than one holder of Series C Preferred on the same day and
the Company can convert some, but not all, of the Series C
Preferred pursuant to this Section 8, the Company shall convert
from each holder of Series C Preferred electing to have Series C
Preferred converted at such time an amount equal to such holder's
prorata amount (based on the number of shares of Series C
Preferred held each such holder who desires to convert such shares
on such date relative to the total number of shares of Series C
Preferred held by all such holders who desire to convert such
shares on such date) of all shares of Series C Preferred being
converted at such time.
9 .
Protective Provisions. Notwithstanding anything herein to the
contrary, the Company shall not, without obtaining the approval (by
vote or written consent) of the Majority
Holders:
(a)
create, or
authorize the creation of, any class or series of shares of capital
stock or other securities, or issue, or authorize the issuance of,
any class or series of shares of capital stock or other securities
that ranks senior to or on a parity with the Series C Preferred in
any respect;
(b) amend, supplement
or otherwise modify any class or series of shares of capital stock
or other securities so that such shares or securities, after giving
effect to such amendment, supplement or modification, rank senior
to or on a parity with the Series C Preferred in any
respect;
(c) issue, or
authorize the issuance of, any additional shares of Series B
Preferred, or amend, supplement or otherwise modify any of the
powers, designations, preferences, privileges, rights, terms or
conditions of the Series B Preferred;
(d) permit any
subsidiary of the Company to issue any shares of capital stock or
other securities, other than issuances of shares of capital stock
or other securities to the Company or to a wholly-owned subsidiary
of the Company;
(e) sell, lease or
otherwise dispose of intellectual property rights owned by or
licensed to the Company or any subsidiary of the Company;
and
(f) create, or
authorize the creation of, or incur, or authorize the incurrence
of, any Indebtedness, other than Permitted Indebtedness, or permit
any subsidiary of the Company to take any such
action.
-12-
“Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in
excess of $500,000 in the aggregate for all such liabilities and
amounts (other than trade accounts payable incurred in the ordinary
course of business) and (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others,
whether or not the same are or should be reflected in the Company's
consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
“Permitted
Indebtedness” means all indebtedness of the Company
outstanding on the Issuance Date and set forth on the
“Disclosure Schedule” to the Securities Purchase
Agreement, dated as of the Issuance Date, by and among the Company
and the initial purchasers of the Series C
Preferred.
10 . Vote to
Change the Terms of or Issue Preferred Stock. The affirmative vote
at a meeting duly called for such purpose, or the written consent
without a meeting, of the Majority Holders shall be required for
any amendment, supplement, modification or other change
(including any amendment,
supplement, modification, alteration, repeal or other change
that is made pursuant to or in
connection with a merger, consolidation or other business
combination of or involving the Company) to (i) the
Company's Certificate of Incorporation which would amend, alter,
change or repeal, or otherwise adversely affect, any of the powers,
designations, preferences, privileges and rights of the Series C
Preferred or (ii) this Certificate of Designations (including any
amendment, supplement, modification or other change that results in
the authorization, creation or designation of additional shares of
Series C Preferred).
11. Lost or Stolen
Certificates. Upon receipt by the Company of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series C
Preferred, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company (in form
and substance satisfactory to the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date. provided, however, the
Company shall not be obligated to reissue Preferred Stock
Certificates if the holder contemporaneously requests the Company
to convert such shares of Series C Preferred into Common Stock and
complies with its obligations to issue Conversion Shares set forth
herein.
12. Remedies,
Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available
under this Certificate of Designations, at law or in equity
(including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of
this Certificate of Designations. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the
holder thereof and shall not, except as expressly provided herein,
be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the
holders of the Series C Preferred and that the remedy at law for
any such breach may be inadequate. The Company therefore agrees
that, in the event of any such breach, the holders of the Series C
Preferred shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach or the Series C
Preferred holders' reasonable perception of a threatened breach by
the Company of the provisions of this Certificate of Designations,
without the necessity of showing economic loss and without any bond
or other security being required.
13. Specific Shall Not
Limit General. Construction. No specific provision contained in
this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company
and all initial purchasers of the Series C Preferred and shall not
be construed against any person as the drafter
hereof.
14. Failure or
Indulgence Not Waiver. No failure or delay on the part of a holder
of Series C Preferred in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any
other right, power or privilege.
-13-
IN WITNESS
WHEREOF, the undersigned has executed and subscribed this
Certificate of Designations and does affirm the foregoing as true
this 10th day of September, 2018.
IMAGEWARE SYSTEMS,
INC.
By: /s/ S. James
Miller, Jr.
S. James Miller,
Jr. Chief Executive Officer
-14-
EXHIBIT
I
IMAGEWARE SYSTEMS,
INC. CONVERSION NOTICE
Reference is made
to the Certificate of Designations, Preferences and Rights of the
Series C Convertible Preferred Stock (“Series C Preferred”) of
ImageWare Systems, Inc. (the “Certificate of Designations”).
In accordance with and pursuant to the Certificate of Designations,
the undersigned hereby elects to convert the number of shares of
Series C Preferred, par value $0.01 per share (the
“Preferred
Shares”), of ImageWare Systems, Inc., a Delaware
corporation (the “Company”), indicated below into
shares of Common Stock, par value $0.01 per share (the
“Common
Stock”), of the Company, by tendering the stock
certificate(s) representing the share(s) of Series C Preferred
specified below as of the date specified below.
Date of
Conversion:
Number of shares
of Series C Preferred to be converted:
Stock certificate
no(s). of Series C Preferred to be converted:
Please confirm the
following information: Conversion Price:
Number of shares
of Common Stock to be issued:
Number of shares
of Common Stock beneficially owned or deemed beneficially owned by
the Holder on the Date of Conversion:
Please issue the
Common Stock into which the shares of Series C Preferred are being
converted and, if applicable, any check drawn on an account of the
Company in the following name and to the following
address:
Issue
to:
Facsimile
Number:
Name of
bank/broker due to receive the underlying Common
Stock:
Bank/broker's
fourdigit “DTC” participant number (obtained from
the receiving bank/broker): Authorization:
By:
Title:
Dated:
-15-
Exhibit
3.2
AMENDMENT
TO THE
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF THE SERIES A CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.,
A Delaware corporation
Pursuant to Section 228(a) of the
Delaware General Corporation Law
On behalf of ImageWare Systems, Inc., a Delaware
corporation (the “Company”), in accordance with the
provisions of the Delaware General Corporation Law (the
“DGCL”),
the Company’s Board of Directors (the
“Board”) and
the holders of two-thirds (2/3rds) of the issued and outstanding
shares of Company’s Series A Convertible Preferred Stock (the
“Series
A Preferred”) have duly
approved and adopted the following resolution amending the
Certificate of Designations, Preferences and Rights of the Series A
Convertible Preferred Stock (the “Certificate
of Designation”):
RESOLVED, that, pursuant to the
authority granted to and vested in the Board by the provisions of
the Certificate of Incorporation of the Company, as amended (the
“Certificate of
Incorporation”):
1.
Sections 1(a) and
1(b) of the Certificate of Designation shall be deleted in their
entirety and replaced with the following:
1.
Designation and
Rank.
(a) The designation of
such series of the Preferred Stock shall be the Series A
Convertible Preferred Stock, par value $0.01 per share (the
“Series A
Preferred”). The maximum number of shares of Series A
Preferred shall be Thirty Eight Thousand (38,000) shares. The
Series A Preferred shall rank senior to the Company’s common
stock, par value $0.01 per share (the “Common Stock”), and except as
provided in Section 1(b) below, to all other classes and series of
equity securities of the Company which by their terms rank junior
to the Series A Preferred (“Junior Stock”).
(b) The Series A
Preferred shall be subordinate to and rank junior to the
Company’s Series B Preferred Stock (“Series B Preferred”), Series C
Convertible Preferred Stock (“Series C Preferred”), and all
indebtedness of the Company now or hereafter outstanding. The date
of original issuance of the Series A Preferred is referred to
herein as the “Issuance
Date”.
-1-
IN WITNESS
WHEREOF, the undersigned have
duly signed this Amendment to the Certificate of Designation as of
this 10th day of September 2018.
|
ImageWare Systems, Inc.
|
|
|
|
/s/ S. James
Miller, Jr.
|
|
By: S. James Miller, Jr.
|
|
Title: Chief Executive Officer and
Director
|
-2-
Exhibit
3.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
|
Dated:
________, 2018
|
Warrant Number: CSW-___
|
WARRANT TO PURCHASE
COMMON STOCK
OF
IMAGEWARE SYSTEMS, INC.
This
certifies that ___________________________,
or its permitted assigns (each a “Holder”), for value received, is
entitled to purchase, at an exercise price equal to $0.01 per share
(the “Exercise
Price”) from IMAGEWARE SYSTEMS, INC., a Delaware
corporation (the “Company”), up to
_______________________ (_____) shares of fully paid and
nonassessable shares of the Company’s Common Stock, par value
$0.01 per share (“Common
Stock”). This Warrant is being issued as a special
dividend to the holders of the Company’s Series A Convertible
Preferred Stock, par value $0.01 per share (“Series A Preferred”), of record
as of [_____], 2018.
This
Warrant shall be exercisable from time to time, commencing on the
date hereof (the “Issuance
Date”) and ending on the Expiration Date (as defined
below), upon surrender to the Company at its principal office (or
at such other location as the Company may advise the Holder in
writing) of this Warrant properly endorsed with (i) the Notice
of Exercise attached hereto duly completed and executed and
(ii) payment of the aggregate Exercise Price for the number of
shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. Any such exercise of this
Warrant shall be subject to all of the terms, conditions and
limitations set forth herein.
1. Exercise
of Warrant. This Warrant may only be exercised by the Holder
concurrently with the conversion of shares of Series A Preferred
held by the Holder into shares of Common Stock (whether such
conversion is voluntary or mandatory), such exercise to be made for
[___] shares of Common Stock for each share of Series A Preferred
that is converted by the Holder (such number of shares of Common
Stock per share of Series A Preferred, as adjusted pursuant to
Section 4 hereof, the “Conversion Rate”). Except as set
forth in the immediately preceding sentence, the Holder shall not
be entitled to exercise this Warrant at other any time or under any
other circumstances. If the Holder fails to exercise this Warrant
concurrently with the conversion of any shares of Series A
Preferred held by the Holder into shares of Common Stock, then the
number of shares of Common Stock issuable upon exercise of this
Warrant shall be reduced by a number of shares of Common Stock
equal to the product of the Conversion Rate and the number of
shares of Series A Preferred so converted, such reduction to occur
concurrently with such conversion of such shares of Series A
Preferred without any further action on the part of, or notice to,
any person or entity. The Holder shall not receive any payment,
distribution or any other amount in respect of any such reduction
of the number of shares of Common Stock issuable upon exercise of
this Warrant contemplated by the immediately preceding sentence.
Shares of Common Stock issuable upon conversion of the
Holder’s shares of Series A Preferred are referred to herein
as “Conversion
Shares.” For the avoidance of doubt, the Holder may
not elect to exercise this Warrant except in connection with the
Holder’s simultaneous conversion of Series A Preferred into
Conversion Shares.
1.1 Method
of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the Form
of Subscription attached hereto duly completed and executed) at the
principal office of the Company, and by the payment to the Company
of an amount of consideration therefor equal to the Exercise Price
in effect on the date of such exercise multiplied by the number of
shares of Common Stock with respect to which this Warrant is then
being exercised, payable at such Holder’s election by
certified or official bank check or by
wire transfer to an account designated by the Company. If
this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the right of the Holder to
purchase the balance of the shares of Common Stock purchasable
hereunder (subject to any reduction in the number of shares of
Common Stock purchasable hereunder contemplated in the immediately
preceding paragraph).
-1-
2. Term
of Warrant. This Warrant shall expire upon the earliest to
occur of (i) the conversion of all Series A Preferred held by the
Holder into Conversion Shares, (ii) the redemption by the Company
of all shares of Series A Preferred held by the Holder, (iii) this
Warrant no longer representing the right to purchase any shares of
Common Stock (including as a result of a reduction of the number of
shares of Common Stock issuable upon exercise of this Warrant
contemplated in Section 1 or Section 2.1), and (iv) [______], 2028
(the “Expiration
Date”). Upon expiration of this Warrant, all of the
Holder’s rights hereunder shall terminate.
2.1 Effect
of Redemption by the Company of Series A Preferred. In the
event the Company exercises its right to redeem any shares of
Series A Preferred held by the Holder pursuant to Section 7 of the
Certificate of Designations, Preferences and Rights of Series A
Preferred (the “Certificate
of Designations”), then the number of shares of Common
Stock issuable upon exercise of this Warrant shall be reduced by a
number of shares of Common Stock equal to the product of the
Conversion Rate and the number of shares of Series A Preferred so
redeemed, such reduction to occur concurrently with such redemption
of such shares of Series A Preferred without any further action on
the part of, or notice to, any person or entity. The Holder shall
not receive any payment, distribution or any other amount in
respect of any such reduction of the number of shares of Common
Stock issuable upon exercise of this Warrant contemplated by the
immediately preceding sentence.
3.
Shares to be Fully Paid;
Reservation of Shares. The Company covenants and agrees that
all shares of Common Stock which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free
from all preemptive rights of any shareholder and free of all
taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, for the
purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued shares of Common Stock.
4.
Adjustment of Conversion
Rate and Number of Shares. The Conversion Rate and the
number of shares of Common Stock purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon
the occurrence of certain events described in this Section
4.
4.1
Subdivision or Combination
of Stock. In case the Company shall at any time subdivide
its outstanding shares of Common Stock into a greater number of
shares, then each of the Conversion Rate and the number of shares
of Common Stock purchasable upon the exercise of this Warrant, each
in effect immediately prior to such subdivision, shall be
proportionately increased. In case the Company shall combine its
outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then each of the Conversion Rate and the number of
shares of Common Stock purchasable upon the exercise of this
Warrant, each in effect immediately prior to such subdivision,
shall be proportionately decreased.
4.2
Reclassification.
If any reclassification of the capital stock of the Company shall
be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, or other assets or property,
then, as a condition of such reclassification, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of
the Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of
stock, securities or other assets or property as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby. In any
reclassification described above, appropriate provision shall be
made with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without
limitation, provisions for adjustments of the Conversion Rate and
of the number of shares purchasable and receivable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
-2-
4.3
Notice of
Adjustment. Upon any adjustment of the Conversion Rate or
any increase or decrease in the number of shares purchasable upon
the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as
shown on the books of the Company. The notice shall be signed by
the Company’s chief financial officer and shall state the
Conversion Rate resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
4.4
Other Notices. If
at any time:
(1)
the Company shall declare any cash dividend upon its Common
Stock;
(2)
there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
(3)
the Company elects to redeem all or a portion of the Series A
Preferred in accordance with Section 7 of the Certificate of
Designations (a “Redemption”);
then,
in any one or more of said cases, the Company shall give, either by
electronic mail or by first class mail, postage prepaid, addressed
to the Holder of this Warrant at the address of such Holder as
shown on the books of the Company, (a) at least twenty (20) days
prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, (b) in
the case of a dissolution, liquidation or winding-up, at least ten
(10) days prior written notice of the date when the same shall take
place or (c) in the case of a Redemption, at least ten (10) days
prior written notice of the date when the same shall take place;
provided, however, that the
Holder shall make a best efforts attempt to respond to such notice
as early as possible after the receipt thereof. Any notice given in
accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, the date on which the holders of Common
Stock shall be entitled thereto. Any notice given in accordance
with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
dissolution, liquidation, winding-up, or conversion, as the case
may be. Any notice given in accordance with the foregoing clause
(c) shall also specify the date on which such Redemption shall take
place, the number of shares of Series A Preferred to be redeemed,
and the corresponding number of Warrants to be terminated at the
time of such Redemption.
5.
No Voting or Dividend
Rights. Nothing contained in this Warrant shall be construed
as conferring upon the Holder hereof the right to vote or to
consent to receive notice as a shareholder of the Company or any
other matters or any rights whatsoever as a shareholder of the
Company. No dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the
shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised.
-3-
6.
Transfer of
Warrants. If the Holder shall sell, assign or otherwise
transfer any shares of Series A Preferred held by the Holder, then
a portion of this Warrant representing the right to purchase a
number of shares of Common Stock equal to the product of the
Conversion Rate and the number of shares of Series A Preferred so
sold, assigned or transferred shall be transferred to the
purchaser, assignee or transferee of such shares of Series A
Preferred Stock. Any such transfer of this Warrant (or the
applicable portion hereof) described in the immediately preceding
sentence shall occur concurrently with the sale, assignment or
other transfer of the applicable shares of Series A Preferred,
without any further action on the part of, or notice to, any person
or entity. Except for an assignment of this Warrant (or any portion
hereof) contemplated by this Section 6, this Warrant shall not be
assigned, pledged, sold, encumbered, transferred or otherwise
disposed of by the Holder, either voluntarily or by operation of
law, and any such attempted assignment, pledge, sale, encumbrance,
transfer or other disposition of this Warrant, other than in
accordance with the terms set forth in this Section 6, shall be
null and void, and of no effect.
7.
Lost Warrants. Upon
receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an
indemnity reasonably satisfactory to the Company, or in the case of
any such mutilation upon surrender and cancellation of this
Warrant, the Company, at its expense, will make and deliver a new
Warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant.
8.
Modification and
Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant 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 Holder hereof. Any amendment or waiver affected in
accordance with this Section 8 shall be binding upon the Company
and the Holder.
9.
Notices. All
notices and other communications from the Company to the Holder, or
vice versa, shall be deemed delivered and effective when given
personally, delivered via electronic mail or mailed by first-class
registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company or the Holder, as the case
may be, in writing by the Company or such holder from time to
time.
10.
Titles and Subtitles;
Governing Law; Venue. The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered
in construing or interpreting this Warrant. This Warrant is to be
construed in accordance with and governed by the internal laws of
the State of California without giving effect to any choice of law
rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of
California to the rights and duties of the Company and the Holder.
All disputes and controversies arising out of or in connection with
this Warrant shall be resolved exclusively by the state and federal
courts located in San Diego in the State of California, and each of
the Company and the Holder hereto agrees to submit to the
jurisdiction of said courts and agrees that venue shall lie
exclusively with such courts.
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-4-
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized as of the date
first above written.
ImageWare Systems,
Inc.
By:
S.
James Miller
Chief
Executive Officer
[Signature
Page To Warrant]
-5-
FORM OF SUBSCRIPTION
(To be
signed only upon exercise of Warrant)
To:
IMAGEWARE SYSTEMS, INC.
The
undersigned, the holder of a right to purchase shares of Common
Stock of ImageWare Systems, Inc. (the “Company”) pursuant to that
certain Warrant to Purchase Common Stock of ImageWare Systems, Inc.
number _____ (the “Warrant”), dated as of
____________ hereby irrevocably elects to exercise the purchase
right represented by such Warrant for, and to purchase thereunder,
__________________________ (_________) shares of Common Stock of
the Company and herewith makes payment of ________________________
Dollars ($__________) therefor in cash.
The
undersigned represents that it is acquiring such securities for its
own account for investment and not with a view to or for sale in
connection with any distribution thereof.
DATED:
________________
____________________________
By:
Name:
Its:
-6-
ACKNOWLEDGMENT
To:
HOLDER
The
undersigned hereby acknowledges that as of the date hereof,
__________________ (___________) shares of Common Stock remain
subject to the right of purchase in favor of _____________ pursuant
to that certain Warrant to Purchase Common Stock of ImageWare
Systems, Inc., number ___ dated as of ____________.
DATED:
________________
ImageWare
Systems, Inc.
By:
Name:
Its:
-7-
Warrant Receipt
The
undersigned, ___________________, does hereby acknowledge receipt
of Warrant number _____ dated, ________________, representing
_____________ (________) shares of the Common Stock Warrants of
ImageWare Systems, Inc.
IN
WITNESS WHEREOF, the undersigned has executed this Receipt as of
the date set forth below.
Type:
Common Stock
Warrants
Warrant Number:
______
Number
of Shares:
Name:
Date:
-8-
Exhibit 10.1
IMAGEWARE SYSTEMS, INC.
SECURITIES PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of
September 10, 2018, is made by and among ImageWare Systems, Inc., a
corporation organized under the laws of the State of Delaware (the
“Company”), and
each of the purchasers (individually, a “Purchaser” and collectively the
“Purchasers”)
set forth on the signature pages hereto (each, a
“Signature
Page” and collectively the “Signature Pages”).
RECITALS
WHEREAS, the Company and the Purchasers
are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the provisions
of Regulation D (“Regulation
D”), as promulgated by the United States Securities
and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended (including the rules and regulations promulgated
thereunder, the “Securities
Act”);
WHEREAS, upon satisfaction of certain
conditions, the Purchasers, severally and not jointly, desire to
purchase, and the Company desires to issue and sell to the
Purchasers, upon the terms and subject to the conditions set forth
in this Agreement, an aggregate of One Thousand, (1,000) shares of
the Company’s Series C Convertible Preferred Stock, par value
$0.01 per share (the “Preferred Stock”), for $10,000
per share, which Preferred Stock shall have the rights, preferences
and privileges set forth in the Company’s Certificate of
Designations, Preferences and Rights of Series C Convertible
Preferred Stock (the “Certificate of Designation”)
filed with the Secretary of State for the State of Delaware on
September 10, 2018, in the form of Exhibit A attached
hereto;
WHEREAS, the shares of common stock of
the Company, par value $0.01 per share (the “Common Stock”), issuable upon
conversion of the Preferred Stock are referred to herein as the
“Conversion
Shares”. The Preferred Stock and the Conversion Shares
are collectively referred to herein as the “Securities” and each of them may
individually be referred to herein as a “Security”, and the shares of
Common Stock issued or issuable to the holders of Preferred Stock
as dividends in accordance with the terms and conditions set forth
in the Certificate of Designation are referred to herein as
“Dividend
Shares”;
WHEREAS, in connection with the
execution of this Agreement, the parties hereto will execute and
deliver a Registration Rights Agreement, in the form attached
hereto as Exhibit B
(the “Registration Rights
Agreement”), pursuant to which the Company has agreed
to provide certain registration rights under the Securities Act and
the rules and regulations promulgated thereunder, and applicable
state securities laws; and
WHEREAS, in connection with the
execution of this Agreement, the Company has entered into an Escrow
Agreement, dated as of August 29, 2018 (an executed copy of which
is attached hereto as Exhibit C, the
“Escrow
Agreement”), with Northland Securities, Inc., a
Minnesota corporation, and Midwest Bank, a Minnesota banking
corporation (the “Escrow
Agent”), pursuant to which the Escrow Agent will act
as Escrow Agent with respect to the transactions contemplated by
this Agreement. This Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Escrow Agreement are
collectively referred to herein as the “Transaction
Documents.”
NOW, THEREFORE, in consideration of the
premises and mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers hereby agree as
follows:
-1-
1. PURCHASE AND SALE OF
SECURITIES.
(a) Purchase and Sale of
Securities. Subject to the terms and conditions hereof, at
the Closing (as defined in Section 1(b) below), the Company shall
issue and sell to each Purchaser, and each Purchaser, severally and
not jointly, shall purchase from the Company, such number of shares
of Preferred Stock as is set forth on such Purchaser’s
Signature Page, for a purchase price (as to each Purchaser, the
“Purchase
Price”) equal to $10,000 per share of Preferred
Stock.
(b) The Closing. Closing of the
transactions contemplated hereby (the “Closing”) shall occur on the date
on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto in connection with the
Closing, and all conditions precedent to (i) the Purchasers’
obligation to deliver the Purchase Price of the Preferred Stock to
the Escrow Agent, as set forth in Section 7, and (ii) the
Company’s obligations to deliver the Preferred Stock set
forth in Section 6, in each case, have been satisfied or waived.
The day on which the Closing occurs shall be the
“Closing
Date”.
2. PURCHASER’S REPRESENTATIONS AND
WARRANTIES.
Each
Purchaser, severally, but not jointly, represents and warrants to
the Company as follows:
(a) Purchase for Own Account, Etc.
Such Purchaser is purchasing the Securities for such
Purchaser’s own account for investment purposes only and not
with a view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under
the Securities Act. Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company, and is capable of
evaluating the merits and risks of its investment in the Company.
Such Purchaser understands that it must bear the economic risk of
this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities
or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of
registering the resale of any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the
representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act.
(b) Accredited Investor Status.
Such Purchaser is an “Accredited Investor”, as that
term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such
Purchaser understands that the Securities are being offered and
sold to such Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws, and that the Company is relying upon the truth and
accuracy of, and such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility
of such Purchaser to acquire the Securities.
(d) Information. All materials
relating to the business, finances and operations of the Company
(including the Company’s most recent Annual Report on Form
10-K and most recent Quarterly Report on Form 10-Q) and materials
relating to the offer and sale of the Securities which have been
specifically requested by such Purchaser or its counsel have been
made available to such Purchaser and its counsel, if any. Neither
such inquiries nor any other investigation conducted by such
Purchaser or its counsel or any of such Purchaser’s
representatives shall modify, amend or affect such
Purchaser’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Such
Purchaser understands that its investment in the Securities
involves a high degree of risk, including the risk of loss of its
entire investment in the Securities.
-2-
(e) Governmental Review. Such
Purchaser understands that no United States federal or state agency
or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the
Securities.
(f) Transfer or Resale. Such
Purchaser understands that (i) except as provided in the
Registration Rights Agreement, the sale or resale of the Securities
have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be
transferred unless (A) the transfer is made pursuant to and as set
forth in an effective registration statement under the Securities
Act covering the Securities; or (B) such Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall
be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (C) sold under and in
compliance with Rule 144 promulgated under the Securities Act
(including any successor rule, “Rule 144”); or (D) sold or
transferred to an affiliate of such Purchaser that agrees to sell
or otherwise transfer the Securities only in accordance with the
provisions of this Section 2(f) and that is an Accredited Investor;
and (ii) neither the Company nor any other person is under any
obligation to register the Securities under the Securities Act or
any state securities laws (other than pursuant to the terms of the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin
account or other lending arrangement, provided such pledge is
consistent with applicable laws, rules and
regulations.
(g) [Reserved].
(h) Authorization; Enforcement.
This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered on behalf of such
Purchaser and are valid and binding agreements of such Purchaser
enforceable against such Purchaser in accordance with their terms,
except as such enforceability may be limited by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of creditors’ rights and
remedies.
(i) Residency. Such Purchaser is a
resident of the jurisdiction set forth under such Purchaser’s
name on the Signature Page hereto executed by such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
Except
as set forth on the Disclosure Schedule attached to this Agreement
(the “Disclosure
Schedule”), the Company represents and warrants to
each Purchaser as follows:
(a) Organization and Qualification;
Subsidiaries. The Company and each of its subsidiaries
(collectively, the “Subsidiaries”) is a corporation
duly organized and validly existing in good standing under the laws
of the jurisdiction in which it is incorporated or organized, and
has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company and each
of its Subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have, or would
reasonably be expected to result in, a Material Adverse Effect. For
purposes of this Agreement, “Material Adverse Effect” means
any material adverse effect on (i) the Securities or the Dividend
Shares, (ii) the ability of the Company to perform its obligations
under this Agreement or the other Transaction Documents or (iii)
the business, operations, properties, prospects, condition
(financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole. Other than the Subsidiaries
set forth on the Disclosure Schedule, the Company has no
subsidiaries.
-3-
(b) Authorization; Enforcement. (i)
The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the
other Transaction Documents, to issue and sell the Preferred Stock
in accordance with the terms hereof, to issue the Conversion Shares
upon conversion of the Preferred Stock in accordance with the terms
thereof and to issue the Dividend Shares in accordance with the
Certificate of Designation and the Company’s Certificate of
Incorporation as in effect on the date hereof (“Certificate of Incorporation”); (ii) the
execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Preferred Stock and the
issuance and reservation for issuance of the Conversion Shares and
the Dividend Shares) have been duly authorized by the
Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, any committee
of the Board of Directors or any of the stockholders of the Company
is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the other Transaction
Documents, such Transaction Documents will constitute, valid and
binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may
be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement
of creditors’ rights and remedies. Neither the execution,
delivery or performance by the Company of its obligations under
this Agreement or the other Transaction Documents, nor the
consummation by it of the transactions contemplated hereby or
thereby (including, without limitation, the issuance of the
Preferred Stock, or the issuance or reservation for issuance of the
Conversion Shares and the Dividend Shares) requires any consent or
authorization of the Company’s stockholders.
(c) Capitalization. The
capitalization of the Company as of the date hereof, including the
authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company’s stock option plans, all
securities exercisable or exchangeable for, or convertible into,
any shares of capital stock of the Company (“Convertible Securities”), the
number of shares issuable and reserved for issuance pursuant to
Convertible Securities, any shares of capital stock and the number
of shares reserved for issuance upon conversion of the Preferred
Stock, is set forth in Section 3(c) of the Disclosure Schedule. All
of such outstanding shares of capital stock have been, or upon
issuance in accordance with the terms of any such Convertible
Securities will be, validly issued, fully paid and non-assessable.
No shares of capital stock of the Company (including the Conversion
Shares and the Dividend Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any
liens or encumbrances. Except as set forth in Section 3(c) of the
Disclosure Schedule, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, nor are any such issuances or
arrangements contemplated, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities
under the Securities Act (except the Registration Rights
Agreement); (iii) there are no outstanding securities or
instruments of the Company which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company is or may become bound to
redeem any security of the Company; and (iv) the Company does not
have any shareholder rights plan, “poison pill” or
other anti-takeover plans or similar arrangements. Section 3(c) of
the Disclosure Schedule sets forth all of the securities or
instruments issued by the Company or any of its Subsidiaries that
contain anti-dilution or similar provisions that will be triggered
by, and all of the resulting adjustments that will be made to such
securities and instruments as a result of, the issuance of the
Securities and the Dividend Shares in accordance with the terms of
this Agreement or the Certificate of Designation. The Company has
no knowledge of any voting agreements, buy-sell agreements, option
or right of first purchase agreements or other agreements of any
kind among any of the security holders of the Company relating to
the securities of the Company held by them. The Company can
furnish, upon request, true and correct copies of the
Company’s Certificate of Incorporation, the Company’s
Bylaws as in effect on the date hereof (the “Bylaws”), and all other
instruments and agreements governing any Convertible Securities.
The Company or one of its Subsidiaries has the unrestricted right
to vote, and (subject to limitations imposed by applicable law) to
receive dividends and distributions on, all capital securities of
its Subsidiaries as owned by the Company or any such
Subsidiary.
-4-
(d) Issuance of Securities. The
Preferred Stock is duly authorized and, upon issuance in accordance
with the terms of this Agreement and the Certificate of
Designation, (i) will be validly issued and free from all taxes,
liens, claims, transfer restrictions, and encumbrances (other than
restrictions on transfer contained in this Agreement or the
Certificate of Designation), (ii) will not be subject to preemptive
rights, rights of first refusal or other similar rights of
stockholders of the Company or any other Person (as defined below)
and (iii) will not impose personal liability on any holder thereof.
The Conversion Shares and the Dividend Shares are duly authorized
and reserved for issuance, and, upon issuance of the Dividend
Shares or conversion of the Preferred Stock, in each case in
accordance with the terms of the Certificate of Designation, (x)
will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims, transfer restrictions, and
encumbrances (other than restrictions on transfer contained in this
Agreement), (y) will not be subject to preemptive rights, rights of
first refusal or other similar rights of stockholders of the
Company or any other Person and (z) will not impose personal
liability upon any holder thereof. Except for the filing of any
notice prior or subsequent to the Closing Date that may be required
under applicable state and/or federal securities laws (or
comparable laws of any other jurisdiction), no authorization,
consent, approval, license, exemption of or filing or registration
with any court or governmental department, commission, board,
bureau, agency, instrumentality or other third party, is or will be
necessary for, or in connection with, the execution and delivery by
the Company of this Agreement, the offer, issue, sale, execution or
delivery of the Securities and the Dividend Shares, or the
performance by the Company of its obligations under this Agreement.
No “bad actor” disqualifying event described in Rule
506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is
applicable to the Company or, to the Company’s knowledge, any
Person listed in the first paragraph of Rule 506(d)(1), except for
a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or
(d)(3), is applicable. “Person” means an individual,
partnership, corporation, unincorporated organization, joint stock
company, limited liability company, association, trust, joint
venture or any other entity, or a governmental agency or political
subdivision thereof.
(e) No Conflicts. Except as set
forth in Section
3(e) of the Disclosure Schedule, the execution, delivery and
performance of this Agreement and the other Transaction Documents
by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Stock, and the issuance
and reservation for issuance of the Conversion Shares and the
Dividend Shares) will not (i) result in a violation of the
Certificate of Incorporation or Bylaws, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party, (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including United
States federal and state securities laws, rules and regulations and
rules and regulations of any self-regulatory organizations to which
either the Company or its securities are subject) applicable to the
Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or
affected, or (iv) result in the imposition of a mortgage, pledge,
security interest, encumbrance, charge or other lien on any asset
of the Company or any Subsidiary.
(f) Compliance. Neither the Company
nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred that with notice or lapse of time or both
would put the Company or any of its Subsidiaries in default) under,
nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party. The businesses of the Company and its Subsidiaries are not
being conducted, and shall not be conducted so long as any
Purchaser (or any of its respective affiliates) owns any of the
Securities or Dividend Shares, in violation of any law, ordinance
or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the
aggregate have not had and would not materially affect the Company
or any of its Subsidiaries. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any Subsidiary has, in
the course of his actions for, or on behalf of, the Company, used
any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee. The
Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state,
-5-
provincial or
foreign governmental or regulatory authorities that are material to
the conduct to their business, and neither the Company nor any of
its Subsidiaries has received any notice of proceeding relating to
the revocation or modification of any such certificate,
authorization or permit. The Company has complied in all material
respects with and is not in default or violation in any material
respect of, and is not, to the Company’s knowledge, under
investigation with respect to or has not been, to the knowledge of
the Company, threatened to be charged with or given notice of any
violation of, any applicable federal, state, local or foreign law,
statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any federal,
state, local or foreign governmental or regulatory authority.
Except for statutory or regulatory restrictions of general
application, no federal, state, local or foreign governmental or
regulatory authority has placed any material restriction on the
business or properties of the Company or any of its
Subsidiaries.
(g) SEC Documents, Financial
Statements. The Company has timely filed (within applicable
extension periods) all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to
the Securities Act and/or the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated
thereunder, the “Exchange
Act”) (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference
therein, the “SEC
Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date
hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto.
Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”), consistently applied,
during the periods involved (except as may be otherwise indicated
in such financial statements or the notes thereto or, in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of
unaudited statements, to immaterial year-end audit adjustments).
Except as set forth in the financial statements of the Company
included in the Select SEC Documents (as defined below), the
Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent
to the date of such financial statements and (ii) obligations under
contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such
financial statements, which liabilities and obligations referred to
in clauses (i) and (ii), individually or in the aggregate, are not
material to the financial condition or operating results of the
Company. For purposes of this Agreement, “Select SEC Documents” means the
Company’s (A) Annual Report on Form 10-K for the fiscal year
ended December 31, 2017, (B) Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2018, and (C) all Current Reports on
Form 8-K filed since August 9, 2018.
(h) Absence of Certain Changes.
Since June 30, 2018, (i) there has not been any change in the
capital stock (other than pursuant to the Company’s stock
plans pursuant to the Company’s Approved Share Plan (as
defined below), pursuant to the conversion or exercise of
outstanding securities that are convertible into or exercisable for
Common Stock, or pursuant to publicly disclosed equity or debt
financings) or long-term debt of the Company, or any dividend or
distribution of any kind declared, set aside for payment, paid or
made by the Company on any class of capital stock; (ii) neither the
Company nor any of its Subsidiaries has entered into any
transaction or agreement that is material to the Company or any of
its Subsidiaries taken as a whole or incurred any liability or
obligation, direct or contingent, that is material to the Company
or any of its Subsidiaries and, except as contemplated by this
Agreement, has made any material change or amendment to a material
contract or arrangement by which the Company or any of its
Subsidiaries or any of their respective assets or properties is
bound or subject; (iii) neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor disturbance or
dispute or any action, order or decree of any court or arbitrator
or governmental or regulatory authority; and (iv)
-6-
there
has been no material adverse change and no material adverse
development in the business, properties, operations, prospects,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole. Neither the Company
nor any of its Subsidiaries has taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to
any bankruptcy or receivership law, nor does the Company or any of
its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings
with respect to the Company or any of its Subsidiaries. For
purposes of this Section 3(h), “Approved Share Plan” shall mean
the Company’s Amended and Restated 1999 Stock Award
Plan.
(i) Transactions With Affiliates.
None of the officers, directors, or employees of the Company or any
of its Subsidiaries, or any of their family members, is presently a
party to any transaction with the Company or any of its
Subsidiaries (other than for ordinary course services solely in
their capacity as officers, directors or employees), including,
without limitation, any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director, employee
or family member or any corporation, partnership, trust or other
entity in which any such officer, director, employee or family
member has an ownership interest of five percent or more or is an
officer, director, trustee or partner.
(j) Absence of Litigation. Except
as disclosed in the Select SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body
(including, without limitation, the SEC) pending or affecting the
Company, any of its Subsidiaries, or any of their respective
directors or officers in their capacities as such. To the knowledge
of the Company or any of its Subsidiaries, there are no actions,
suits, proceedings, inquiries or investigations before or by any
court, public board, government agency, self-regulatory
organization or body (including, without limitation, the SEC)
threatened against the Company, any of its Subsidiaries, or any of
their respective directors or officers in their capacities as such,
which, if determined adversely, could, either individually or in
the aggregate, be material to the Company or any of its
Subsidiaries. There are no facts which, if known by a potential
claimant or governmental authority, could give rise to a claim or
proceeding which, if asserted or conducted with results unfavorable
to the Company or any of its Subsidiaries, could reasonably be
expected to be material to the Company or any of its
Subsidiaries.
(k) Intellectual Property. Each of
the Company and its Subsidiaries owns or is duly licensed (and, in
such event, has the unfettered right to grant sublicenses) to use
all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries,
processes, scientific, technical, engineering and marketing data,
object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, “Intellectual Property”) used in
or necessary for the conduct of its business as now being conducted
and as presently contemplated to be conducted in the future
(collectively, the “Company
Intellectual Property”). Section 3(k) of the
Disclosure Schedule sets forth a list of all material Company
Intellectual Property owned and/or used by the Company or any of
its Subsidiaries in its business. Except as set forth on the
Disclosure Schedule, there are no rights of third parties to any of
the Company Intellectual Property except through licensing
agreements. Except as set forth on the Disclosure Schedule, there
are no outstanding options, licenses or agreements of any kind
relating to the Company Intellectual Property, nor is the Company
or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual
Property of any other Person (collectively, the “Third Party License Agreements”) other than
such licenses or agreements arising from the purchase of generally
available products, as to which the aggregate consideration paid by
or due from the Company or any of its Subsidiaries does not exceed
$25,000 in value, or “off the shelf” products. All of
the Third Party License Agreements are valid, binding and in full
force and effect in all material respects and to the
Company’s knowledge enforceable by the Company or its
applicable Subsidiary in accordance with their respective terms in
all material respects, subject to general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors’ rights and remedies. Neither
the Company nor any of its Subsidiaries is in material breach of
any such Third Party License Agreements. To the Company’s
knowledge, no other party to any of the Third Party License
Agreements is in material default thereunder. Neither the Company
nor any Subsidiary of the Company infringes or is in conflict with
any right of any other Person with respect to any third party
Intellectual Property. Neither the Company nor any of its
Subsidiaries has received written notice of any
pending
-7-
conflict with or
infringement upon any third party Intellectual Property. There is
no pending or, to the Company’s knowledge, threatened action,
suit, proceeding or claim by others challenging the Company’s
or any of its Subsidiaries’ ownership of or licensing rights
in or to any Company Intellectual Property. Neither the Company nor
any of its Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or
its Subsidiaries’ ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such
claim to be successful. The rights of the Company and its
Subsidiaries in the Company Intellectual Property are valid and
enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its
Subsidiaries have taken all reasonable steps required to perfect
their ownership of and interest in the Company Intellectual
Property and has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of the Company
Intellectual Property. The Company and its Subsidiaries have
complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company
Intellectual Property used pursuant to licenses. No Person is
infringing on or violating the Company Intellectual Property owned
or used by the Company or its Subsidiaries. The Company and its
Subsidiaries have used Company IP Counsel (as defined below) for
all Intellectual Property matters since December 31, 2011 and,
since such date, neither the Company nor any of its Subsidiaries
has consulted any other counsel with respect to any Intellectual
Property matters.
(l) Title. The Company and its
Subsidiaries have good and marketable title in fee simple to all
real property and good and merchantable title to all personal
property owned by them that is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(m) Tax Status. Except as set forth
in Section 3(m) of the Disclosure Schedule, the Company and each of
its Subsidiaries has made or filed all foreign, U.S. federal,
state, provincial and local income and all other tax returns,
reports and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company and each
of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments
and charges due and owing, except those being contested in good
faith and has set aside on its books provisions reasonably adequate
for the payment of all taxes for periods subsequent to the periods
to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the
assessment or collection of any foreign, federal, state, provincial
or local tax. None of the Company’s tax returns is presently
being audited by any taxing authority.
(n) Key Employees. Each of the
Company’s and its Subsidiaries’ directors and officers
and any Key Employee (as defined below) is currently serving the
Company or its Subsidiaries in the capacity disclosed in the Select
SEC Documents. No Key Employee is, or is now expected to be, in
violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each Key
Employee does not subject the Company or any of its Subsidiaries to
any material liability with respect to any of the foregoing
matters. No Key Employee has, to the knowledge of the Company and
its Subsidiaries, any intention to terminate or limit his
employment with, or services to, the Company or any of its
Subsidiaries, nor is any such Key Employee subject to any
constraints which would cause such employee to be unable to devote
his full time and attention to such employment or services. For
purposes of this Agreement, “Key Employee” means the persons
listed in Section 3(n) of the Disclosure Schedule and any
individual who assumes or performs any of the duties of a Key
Employee.
-8-
(o) Employee Relations. (i) No
application or petition for certification of a collective
bargaining agent is pending and none of the employees of Company or
any of its Subsidiaries are or have been represented by any union
or other bargaining representative and no union has attempted to
organize any group of the Company's or any of its
Subsidiaries’ employees, and no group of the Company's or any
of its Subsidiaries’ employees has sought to organize
themselves into a union or similar organization for the purpose of
collective bargaining. The Company and its Subsidiaries believe
that their relations with their employees are good. No executive
officer (as defined in Rule 501(f) of the Securities Act) has
notified the Company or any of its Subsidiaries that such officer
intends to leave the Company or any of its Subsidiaries or
otherwise terminate such officer’s employment with the
Company or any of its Subsidiaries. The Company and its
Subsidiaries are in compliance with all federal, state and local
laws and regulations and, to the Company’s knowledge, all
foreign laws and regulations, in each case respecting employment
and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, be material to the
Company or any of its Subsidiaries.
(p) Insurance. The Company and each
of its Subsidiaries has in force fire, casualty, product liability
and other insurance policies, with extended coverage, sufficient in
amount to allow it to replace any of its material properties or
assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company or any of its Subsidiaries may
reasonably become subject, and such types and amounts of other
insurance with respect to its business and properties, on both a
per occurrence and an aggregate basis, as are customarily carried
by Persons engaged in the same or similar business as the Company
and its Subsidiaries. No default or event has occurred that could
give rise to a default under any such policy.
(q) Environmental Matters. The
Company and each of its Subsidiaries is in compliance with all
foreign, federal, state and local rules, laws and regulations
relating to the use, treatment, storage and disposal of Hazardous
Substances (as defined below) and protection of health and safety
or the environment which are applicable to its business. There is
no environmental litigation or other environmental proceeding
pending or threatened by any governmental or regulatory authority
or others with respect to the current or any former business of the
Company or any of its Subsidiaries or any partnership or joint
venture currently or at any time affiliated with the Company or any
of its Subsidiaries. No state of facts exists as to environmental
matters or Hazardous Substances that involves the reasonable
likelihood of a material capital expenditure by the Company or any
of its Subsidiaries. No Hazardous Substances have been treated,
stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by the Company or any of its
Subsidiaries or by any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries in
violation of any applicable environmental laws. The environmental
compliance programs of the Company and each of its Subsidiaries
comply in all respects with all environmental laws, whether
foreign, federal, state, provincial or local, currently in effect.
For purposes of this Agreement, “Hazardous Substances” means any
substance, waste, contaminant, pollutant or material that has been
determined by any governmental authority to be capable of posing a
risk of injury to health, safety, property or the
environment.
(r) Listing. The Company is not in
violation of the listing requirements of the OTCQB Marketplace
(the “OTCQB”)
on which it trades, does not reasonably anticipate that the Common
Stock will be delisted by the OTCQB for the foreseeable future, and
has not received any notice regarding the possible delisting of the
Common Stock from the OTCQB. The issuance and sale of the Preferred
Stock and the transactions contemplated by the Transaction
Documents do not contravene the rules and regulations of the
OTCQB.
(s) No General Solicitation or Integrated
Offering. Neither the Company nor any Person acting for the
Company has conducted any “general solicitation” (as
such term is defined in Regulation D) with respect to any of the
Securities and/or Dividend Shares being offered hereby. Neither the
Company nor any of its affiliates, nor any Person acting on its or
their behalf, has directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities
and/or Dividend Shares being offered hereby under the Securities
Act or cause this offering of Securities and/or Dividend Shares to
be integrated with any prior offering of securities of the Company
for purposes of the Securities Act, which result of such
integration would require registration under the Securities Act, or
any applicable stockholder approval provisions.
-9-
(t) No Brokers. Other than the fees
and expenses of Northland Securities, Inc., no brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other third party with respect to the transactions contemplated by
the Transaction Documents. The Purchasers shall have no obligation
with respect to any fees or with respect to any claims made by or
on behalf of other third parties for fees of a type contemplated in
this Section 3(t) that may be due in connection with the
transactions contemplated by the Transaction
Documents.
(u) Acknowledgment Regarding
Securities. The number of Conversion Shares issuable upon
conversion of the Preferred Stock may increase in certain
circumstances. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities
being sold hereunder. The Company acknowledges that its obligation
to issue (i) Conversion Shares upon conversion of the Preferred
Stock and (ii) the Dividend Shares, in each case, in accordance
with the Certificate of Designation, is absolute and unconditional,
regardless of the dilution that such issuance may have on the
ownership interests of other stockholders and the availability of
remedies provided for in this Agreement relating to a failure or
refusal to issue Conversion Shares and Dividend Shares to the
extent required by the Certificate of Designation. Taking the
foregoing into account, the Company’s Board of Directors has
determined in its good faith business judgment that the issuance of
the Preferred Stock hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the
Company and its stockholders.
(v) Internal Control over Financial
Reporting. The Company maintains a system of internal
control over financial reporting (as such term is defined in Rule
13a-15(f) of the Exchange Act) that complies with the requirements
of the Exchange Act and has been designed by the Company’s
principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
The Company does not have any material weaknesses in its internal
control over financial reporting. Since the date of the latest
audited financial statements included in the Select SEC Documents,
there has been no change in the Company’s internal control
over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(w) Disclosure Controls and
Procedures. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange
Act. Such disclosure controls and procedures have been designed to
ensure that material information relating to the Company is
accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and
principal financial officer, by others within those
entities.
(x) Sarbanes-Oxley Compliance. The
Company and the Company’s directors and officers, in their
capacities as such, are in compliance with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith (“SOX”), including Section 402
related to loans and Sections 302 and 906 related to
certifications, and neither the Company nor any of its officers has
received notice from any governmental entity questioning or
challenging the accuracy, completeness, content, form or manner of
filing or submission of such certifications. The Company has no
reasonable basis to believe that it will not continue to be in
compliance with SOX as in effect on the Closing Date (including,
without limitation, the requirements of Section 404
thereof).
(y) Disclosure. All information
relating to or concerning the Company and/or any of its
Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or otherwise by the
Company in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or
its Subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a registration
statement filed on the date hereof by the Company under the
Securities Act with respect to a primary issuance of the
Company’s securities.
-10-
(z) Absence of Indebtedness. On the
Closing Date, as a result of the transactions contemplated by this
Agreement, neither the Company nor any Subsidiary shall have any
indebtedness for borrowed money that would be required to be
disclosed by the Company on a balance sheet prepared in accordance
with GAAP. Section 3(z) of the Disclosure Schedule sets for the
indebtedness for borrowed money of the Company and its Subsidiaries
as of immediately prior to the Closing Date.
(aa) No
Registration. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 2 hereof, it
is not necessary, in connection with the issuance and sale of the
Preferred Stock to the Purchasers, the issuance of the Conversion
Shares upon conversion of the Preferred Stock or the issuance of
the Dividend Shares pursuant to the terms of the Certificate of
Designation and the Certificate of Incorporation, in each case in
the manner contemplated by this Agreement and the other Transaction
Documents, to register the Preferred Stock, the Conversion Shares
or the Dividend Shares under the Securities Act, except for any
registration that is required under the terms of the Registration
Rights Agreement.
(bb) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions
contemplated thereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and
any advice given by any Purchaser or any of its representatives or
agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation of the transactions
contemplated hereby by the Company and its
representatives.
(cc) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and acknowledged by the Company that: (i) none of
the Purchasers has been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including,
without limitation, short sales or “derivative”
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, and (iii) each
Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may
engage in hedging activities at various times during the period
that the Securities are outstanding, and (z) such hedging
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction
Documents.
4. COVENANTS.
(a) Form D: Blue Sky Laws. The
Company shall timely file with the SEC a Form D with respect to the
Securities as required under Regulation D and provide a copy
thereof to any Purchaser promptly upon request of such Purchaser.
The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify
the Securities for sale to each Purchaser pursuant to this
Agreement under applicable securities or “blue sky”
laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken
to each Purchaser on or prior to the Closing Date. Within four
business days after the Closing Date, the Company shall file a Form
8-K with the SEC concerning this Agreement and the transactions
contemplated hereby, which Form 8-K shall attach this Agreement and
its Exhibits as exhibits to such Form 8-K (the “8-K Filing”). The Company shall
provide the Purchasers with a copy of the 8-K Filing at least two
(2) business days prior to the filing of the 8-K Filing for the
Purchasers’ review and comment, it being understood that
nothing contained herein shall prevent the Company from filing such
8-K Filing within four (4) business days after the Closing Date.
The Company shall consider in good faith the comments received
by
-11-
the
Purchasers or their counsel to the 8-K Filing and shall incorporate
the same into the 8-K Filing unless the Company, acting in good
faith, has a reasonable basis for not incorporating any such
comments, in which case the Company shall consult with the
Purchasers or their counsel with respect to such comments.
Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the SEC or any regulatory agency or
trading market (including, without limitation, on any signature
page to any Transaction Document), without the prior written
consent of such Purchaser, except (i) as required by federal
securities law in connection with any registration statement
contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law, in which case the
Company shall provide the applicable Purchaser(s) with prior notice
of such disclosure permitted under this clause (ii). From and after
the 8-K Filing, the Company hereby represents and acknowledges to
the Purchasers that no Purchaser shall be in possession of any
material nonpublic information received from the Company, any of
its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. In
addition, effective upon the 8-K Filing, the Company acknowledges
and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers,
directors, agents, employees or affiliates on the one hand, and any
of the Purchasers or any of their affiliates on the other hand,
shall terminate. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers,
directors, employees and agents not to, provide any Purchaser with
any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the 8-K Filing without the express
written consent of such Purchaser. The Company understands and
confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company. To
the extent that the Company delivers any material non-public
information to a Purchaser without such Purchaser’s express
written consent, the Company hereby covenants and agrees that such
Purchaser shall not have any duty of confidentiality to the
Company, any of its Subsidiaries or affiliates, or any of their
respective officers, directors, agents or employees or affiliates,
or a duty to the Company, any of its Subsidiaries or affiliates or
any of their respective officers, directors, agents or employees
not to trade on the basis of, such material non-public information,
provided that the Purchaser
shall remain subject to applicable law. To the extent that any
notice provided pursuant to any Transaction Document constitutes,
or contains, material non-public information regarding the Company
or any of its Subsidiaries or affiliates, the Company shall
simultaneously file such notice with the SEC pursuant to a Current
Report on Form 8-K. The Company understands and confirms that each
Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company or its
affiliates.
(b) Reporting Status. So long as
any Purchaser (or any of its affiliates) beneficially owns any of
the Securities or Dividend Shares, the Company covenants to
maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act even
if the Company is not then subject to the reporting requirements of
the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all
actions necessary to meet the “registrant eligibility”
requirements set forth in the general instructions to Form S-1 or
any successor form thereto, to continue to be eligible to register
the resale of its Common Stock on a registration statement on Form
S-1 under the Securities Act.
(c) Use of Proceeds. The Company
shall use the proceeds from the sale and issuance of the Preferred
Stock for general corporate purposes and working capital;
provided that such proceeds
shall not be used to (i) pay dividends, except for dividends paid
or payable to holders of the Company’s Series B Convertible
Redeemable Preferred Stock; (ii) purchase debt or equity securities
of any entity (including redeeming the Company’s own
securities), except for (A) evidences of indebtedness issued or
fully guaranteed by the United States of America and having a
maturity of not more than one year from the date of acquisition,
(B) certificates of deposit, notes, acceptances and repurchase
agreements having a maturity of not more than one year from the
date of acquisition issued by a bank organized in the United
States, (C) the highest-rated commercial paper having a maturity of
not more than one year from the date of acquisition, and (D)
“Money Market” fund shares, or money market accounts
fully insured by the Federal Deposit Insurance Corporation and
sponsored by banks and other financial institutions, provided that
the investments consist principally of the types of investments
described in clauses (A), (B), or (C) above; or (iii) make any
investment not directly related to the current business of the
Company.
-12-
(d) Listing. The Company shall
maintain, so long as any Purchaser (or any of its affiliates)
beneficially owns any Securities or Dividend Shares, the listing of
all Dividend Shares, if any, and Conversion Shares from time to
time issuable upon conversion of the Preferred Stock on each
national securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are
currently listed. The Company will use its best efforts to continue
the listing and trading of its Common Stock on the OTCQB, the
NASDAQ Capital Market (“NASDAQ”) or the NYSE MKT Exchange
(“NYSE MKT”),
as applicable.
(e) Corporate Existence. So long as
any Purchaser (or any of its affiliates) beneficially owns any
Securities or Dividend Shares, the Company shall maintain its
corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company’s assets, the
Company shall ensure that the surviving or successor entity in such
transaction and, if an entity different from the successor or
acquiring entity, the entity whose securities into which the Common
Stock shall become convertible or exchangeable in such transaction
(i) expressly assumes in writing, for the benefit of the
Purchasers, the Company’s obligations under this Agreement
and the other Transaction Documents and the agreements and
instruments entered into in connection herewith and therewith
regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the conversion of all the
Preferred Stock outstanding as of the date of such transaction and
(ii) except in the event of a merger, consolidation of the Company
into any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor
entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Common Stock
shall become convertible or exchangeable in such transaction, is a
publicly traded corporation whose common stock is listed for
quotation or trading on the OTCQB, NASDAQ or NYSE MKT.
(f) No Integrated Offerings. The
Company shall not make any offers or sales of any security (other
than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of the Securities
to be integrated with any other offering of securities by the
Company for purposes of any stockholder approval provision
applicable to the Company or its securities.
(g) Legal Compliance. The Company
shall conduct its business and the business of its Subsidiaries in
compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to
do so would not be material to the Securities, the Dividend Shares
or the business, operations, properties, prospects, condition
(financial or otherwise) or results of operations of the Company
and its Subsidiaries.
(h) Press
Release. Neither the Purchasers
nor the Company may issue any press release (whether or not
included in the 8-K Filing) relating to the transactions
contemplated by this Agreement or any other Transaction Document
without the prior written approval of the Purchasers, in the case
of a press release issued by the Company, or the Company, in the
case of a press release issued by any Purchaser, in each case, such
approval not to be withheld, conditioned or delayed by any such
Person.
(i) Legends. Each Purchaser agrees
to the imprinting, so long as is required by this Section 4(i), of a legend on
any of the Securities or Dividend Shares in the following
form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE 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 FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE
SECURITIES REPRESENTED HEREBY MAY BE PLEDGED IN ACCORDANCE WITH THE
TERMS OF THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER
10, 2018, IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LENDING ARRANGEMENT WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
-13-
The
Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities and/or Dividend Shares to a financial
institution that is an “accredited investor” as defined
in Rule 501(a) under the Securities Act and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or
secured Securities and/or Dividend Shares to the pledgees or
secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. The Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities and/or
Dividend Shares may reasonably request in connection with a pledge
or transfer of the Securities and/or Dividend Shares, including, if
the Securities and/or Dividend Shares are subject to registration
pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3)
under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling
stockholders thereunder.
Instruments
(including statements related to book-entry accounts), whether
certificated or uncertificated, evidencing the Securities and/or
Dividend Shares shall not contain any legend (including the legend
set forth above in this Section 4(i)), and the Company
shall take all actions that are necessary to remove any such
legend, (i) while a registration statement (including, without
limitation, the registration statement contemplated by the
Registration Rights Agreement) covering the resale of such
Securities and/or Dividend Shares is effective under the Securities
Act, (ii) following any sale of such Securities and/or Dividend
Shares pursuant to Rule 144, (iii) if such Securities and/or
Dividend Shares are eligible for sale under Rule 144 (whether or
not such Securities and/or Dividend Shares are being sold under
Rule 144 at the applicable time), without the requirement for the
Company to be in compliance with the current public information
required under Rule 144 as to such Securities and/or Dividend
Shares and without volume or manner-of-sale restrictions, (iv) the
holder of any such Securities and/or Dividend Shares provides the
Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to
the effect that a public sale or transfer of such Security and/or
Dividend Share may be made without registration under the
Securities Act; or (v) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC).
Promptly after such time as such legend is no longer required, the
Company shall cause its counsel to issue a legal opinion to its
transfer agent if required by the transfer agent to effect the
removal of the legend hereunder, or to a Purchaser upon request.
The Company agrees that following such time as such legend is no
longer required, it will, no later two (2) business days following
the delivery by a Purchaser to the Company or its transfer agent of
an instrument (including statements related to book-entry
accounts), whether certificated or uncertificated, representing
Securities and/or Dividend Shares, as the case may be, issued with
(or subject to) a restrictive legend, deliver or cause to be
delivered to such Purchaser an instrument (including statements
related to book-entry accounts), whether certificated or
uncertificated, representing such Securities and/or Dividend Shares
that is free from all restrictive and other legends.
(j) Shareholder Rights Plan. No
claim will be made or enforced by the Company or, with the consent
of the Company, any other Person, that any Purchaser is an
“acquiring person” under any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities and/or Dividend
Shares under the Transaction Documents or under any other agreement
between the Company and the Purchasers.
-14-
5. TRANSFER AGENT
INSTRUCTIONS.
(a) Upon conversion of
the Preferred Stock by any Person or the issuance of any Dividend
Shares, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to
electronically transmit all Conversion Shares and/or Dividend
Shares, as applicable, by crediting the account of such Person or
its nominee with the Depository Trust Company (“DTC”) through its Deposit
Withdrawal Agent Commission system; or (ii) if the DTC Transfer
Conditions are not satisfied, the Company shall issue and deliver,
or instruct its transfer agent to issue and deliver, certificates
or statements related to book-entry accounts (subject to the legend
and other applicable provisions hereof and the Certificate of
Designation), registered in the name of such Person or its nominee,
representing the Conversion Shares and/or the Dividend Shares, as
applicable. Even if the DTC Transfer Conditions are satisfied, any
Person effecting a conversion of Preferred Stock or receiving
Dividend Shares may instruct the Company to deliver to such Person
or its nominee physical certificates representing the Conversion
Shares and/or Dividend Shares, as applicable, in lieu of delivering
such shares by way of DTC transfer. For purposes of this Agreement,
“DTC Transfer
Conditions” means that (A) the Company’s
transfer agent is participating in the DTC Fast Automated
Securities Transfer program and (B) the certificates for the
Conversion Shares and/or Dividend Shares, as applicable, required
to be delivered are not required to bear a legend pursuant to
Section 4(i) and the Person effecting such conversion or exercise
is not then required to return such certificate for the placement
of a legend thereon.
(b) The Company
warrants that no instruction other than such instructions referred
to in this Section 5, and stop transfer instructions to give effect
to Section 2(f) hereof in the case of the transfer of the
Conversion Shares and/or Dividend Shares prior to registration of
the Conversion Shares and/or Dividend Shares under the Securities
Act or without an exemption therefrom, shall be given by the
Company to its transfer agent and that the Conversion Shares and/or
Dividend Shares shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section shall affect in any way the
Purchasers’ obligations and agreement set forth in Section
4(i) hereof to resell the Securities and/or Dividend Shares
pursuant to an effective registration statement or under an
exemption from the registration requirements of applicable
securities law.
(c) If any Purchaser
provides the Company and the transfer agent with an opinion of
counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions,
to the effect that the Securities and/or Dividend Shares to be sold
or transferred may be sold or transferred pursuant to an exemption
from registration, or any Purchaser provides the Company with
reasonable assurances that such Securities and/or Dividend Shares
may be sold under Rule 144 (whether or not such Securities and/or
Dividend Shares are actually being sold at the applicable time),
the Company shall permit the transfer and, in the case of the
Conversion Shares and/or Dividend Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchasers. Nothing in
this Section 5(c) shall alter, modify, reduce, supersede or
otherwise change the obligations of the Company under Section
4(i).
6. CONDITIONS TO THE COMPANY’S
OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Preferred
Stock to each Purchaser is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions,
provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole
discretion:
(a) Each Purchaser
shall have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which such
Purchaser is a party and delivered the same to the
Company.
(b) Each Purchaser
shall have delivered to Escrow Agent the full amount of such
Purchaser’s applicable Purchase Price on the Closing Date in
accordance with Section 1(b) hereof and the wire transfer
instructions set forth on Exhibit D.
-15-
(c) The Company and
Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have
delivered a joint written notice to the Escrow Agent notifying the
Escrow Agent that the conditions precedent to the Closing have been
satisfied or waived and instructing the Escrow Agent to release and
disburse the Escrow Funds (as defined in the Escrow Agreement) to
the Company.
(d) The representations
and warranties of each Purchaser shall be true and correct as of
the date when made and on the Closing Date as though made at that
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
and correct as of such date), and such Purchaser shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to
be performed, satisfied or complied with by such Purchaser on or
prior to the Closing Date.
(e) No statute, rule,
regulation, executive order, decree, ruling, injunction, action or
proceeding shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO THE PURCHASER’S
OBLIGATION TO PURCHASE.
The
obligation of each Purchaser hereunder to purchase the Preferred
Stock on the Closing Date is subject to the satisfaction of each of
the following conditions, provided that such conditions are for
each Purchaser’s individual and sole benefit and may be
waived by such Purchaser at any time in such Purchaser’s sole
discretion:
(a) The Company shall
have executed such Purchaser’s Signature Page to this
Agreement and each other Transaction Document to which the Company
is a party and delivered executed originals of the same to such
Purchaser.
(b) All consents,
approvals and waivers required for the consummation of the
transactions contemplated hereby shall have been
obtained.
(c) The Company shall
have delivered to such Purchaser (i) duly executed certificates
(or, if the shares of Preferred Stock are not represented by
certificates, duly executed statements related to book-entry
accounts) representing the Preferred Stock for the number of shares
of Preferred Stock being purchased by such Purchaser on the Closing
Date, registered in such Purchaser’s name, and (ii) evidence
of the filing and acceptance of the Certificate of Designation from
the Secretary of State of Delaware.
(d) The Common Stock
shall be authorized for quotation and listed on the OTCQB and
trading in the Common Stock (or on the OTCQB generally) shall not
have been suspended by the SEC or the OTCQB.
(e) The representations
and warranties of the Company shall be true and correct as of the
date when made and as of the Closing Date as though made at that
time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company on or prior to
the Closing Date. In connection with the issuance of the Preferred
Stock on the Closing Date, such Purchaser shall have received a
certificate, executed by the Chief Executive Officer of the Company
after reasonable investigation, dated as of the Closing Date to the
foregoing effect.
(f) No statute, rule,
regulation, executive order, decree, ruling, injunction, action or
proceeding shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which questions the validity
of, challenges or prohibits the consummation of, any of the
transactions contemplated by this Agreement.
-16-
(g) Such Purchaser
shall have received an opinion of the Company’s counsel,
Disclosure Law Group, a professional corporation, dated as of the
Closing Date, addressed to such Purchaser in form and substance
reasonably satisfactory to Stroock & Stroock & Lavan LLP,
as counsel to certain Purchasers.
(h) Such Purchaser
shall have received an opinion of the Company’s intellectual
property counsel, San Diego IP Law Group LLP (“Company IP Counsel”), dated as of
the Closing Date, addressed to such Purchaser in form and substance
reasonably satisfactory to Stroock & Stroock & Lavan LLP,
as counsel to certain Purchasers.
(i) There shall have
been no material adverse changes and no material adverse
developments in the business, properties, operations, prospects,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, since the date
hereof, and no information that is materially adverse to the
Company and of which such Purchaser is not currently aware shall
come to the attention of such Purchaser.
(j) Such Purchaser
shall have received a copy of resolutions, duly adopted by the
Board of Directors of the Company, which shall be in full force and
effect at the time of the Closing, authorizing the execution,
delivery and performance by the Company of this Agreement and the
other Transaction Documents and the consummation by the Company of
the transactions contemplated hereby and thereby, certified as such
by the Secretary or Assistant Secretary of the Company on or before
the Closing Date, and such other documents they reasonably request
in connection with the issuance of the Preferred Stock on the
Closing Date.
(k) The Company shall
have paid (or shall pay concurrently with the Closing) the
reasonable fees and disbursements of Stroock & Stroock &
Lavan LLP, as counsel to certain Purchasers.
(l) The aggregate
Purchase Price for all the Preferred Stock purchased by other
Purchasers who are not affiliates of such Purchaser shall have
been, or concurrently with the Closing will be, delivered to the
Escrow Agent by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth in
Exhibit
D.
(m) The Company and
Northland Securities, Inc., with the written consent of the
Required Purchasers (which consent may be via e-mail), shall have
delivered a joint written notice to the Escrow Agent notifying the
Escrow Agent that the conditions precedent to the Closing have been
satisfied or waived and instructing the Escrow Agent to release and
disburse the Escrow Funds to the Company.
(n) The transactions
contemplated by (i) that certain Exchange Agreement, dated
September 10, 2018, by and between the Company and Charles Crocker
and (ii) that certain Exchange Agreement, dated September 10, 2018,
by and between the Company and Neal Goldman shall have occurred, or
concurrently with the Closing, will occur.
(o) The Amendment No. 1
to the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock in the form of Exhibit E attached hereto shall
have been duly executed by the Company and duly filed with the
Secretary of State of Delaware, and the Purchasers shall have
received evidence of such execution and filing, and no other
amendments, supplements or other modifications to the
Company’s Certificate of Incorporation shall have been made
since February 9, 2018.
8. GOVERNING LAW;
MISCELLANEOUS.
(a) Governing Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Company and each
Purchaser irrevocably consent to the exclusive jurisdiction of the
United States federal courts and the state courts located in the
County of New York, State of New York, in any suit or proceeding
based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company
mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Purchaser
to serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful
manner.
-17-
(b) Counterparts. This Agreement
may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission or
electronic mail of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.
(c) Construction. Whenever the
context requires, the gender of any word used in this Agreement
includes the masculine, feminine or neuter, and the number of any
word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to
articles and sections of this Agreement, and all references to
schedules are to schedules attached hereto, each of which is made a
part hereof for all purposes. The descriptive headings of the
several articles and sections of this Agreement are inserted for
purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.
(d) Severability. If any provision
of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect
the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments.
This Agreement and the other Transaction Documents (including any
schedules and exhibits hereto and thereto) contain the entire
understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived other
than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and
each Purchaser.
(f) Notices. Any notices required
or permitted to be given under the terms of this Agreement shall be
sent by certified or registered mail (return receipt requested) or
delivered personally, by responsible overnight carrier or by
confirmed facsimile or by electronic mail (“e-mail”), and shall be
effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by
responsible overnight carrier or confirmed facsimile, or when sent
if sent by e-mail, in each case addressed to a party. The initial
addresses for such communications shall be as follows, and each
party shall provide notice to the other parties of any change in
such party’s address:
(i) If to the
Company:
ImageWare Systems,
Inc.
10815
Rancho Bernardo Road
Suite
310
San
Diego, California 92127
E-mail:
[email protected]
Attention: Chief
Financial Officer
with a
copy simultaneously transmitted by like means (which transmittal
shall not constitute notice hereunder) to:
Disclosure Law
Group, a professional corporation
600
West Broadway, Suite 700
San
Diego, CA 92101
Telephone: (619)
272-7062
Facsimile: (619)
330-2101
E-Mail:
[email protected]
Attention: Daniel
W. Rumsey, Esq.
(ii) If
to any Purchasers, to the address set forth under such
Purchaser’s name on the Signature Page hereto executed by
such Purchaser.
-18-
(g) Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. Except as
provided herein, the Company shall not assign this Agreement or any
rights or obligations hereunder. Any Purchaser may assign or
transfer the Securities pursuant to the terms of this Agreement and
of such Securities. Any Purchaser may assign such Purchaser’s
rights and obligations hereunder or thereunder to any Person to
whom such Purchaser assigns or transfers any Securities and/or
Dividend Shares (any such assignee thereafter becoming a
“Purchaser” hereunder). In addition, and
notwithstanding anything to the contrary contained in this
Agreement or the other Transaction Documents, the Securities may be
pledged and all rights of any Purchaser under this Agreement or any
other Transaction Document may be assigned, without further consent
of the Company, to a bona fide pledgee in connection with such
Purchaser’s margin or brokerage account or any other lending
arrangement with a financial institution that is an
“accredited investor” as defined in Rule 501(a) under
the Securities Act.
(h) Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any
other Person, except that each Indemnitee that is not a party to
this Agreement shall be a third party beneficiary of Section
8(k).
(i) Survival. The representations
and warranties of the Company and the agreements and covenants set
forth in Sections 2, 3, 4, 5 and 8 hereof shall survive the Closing
Date notwithstanding any due diligence investigation conducted by
or on behalf of, or any knowledge of, any Purchaser, and such
representations, warranties, agreements and covenants are part of
the basis of the bargain contemplated by this Agreement. Moreover,
none of the representations and warranties made by the Company
herein shall act as a waiver of any rights or remedies any
Purchaser may have under applicable U.S. federal or state
securities laws.
(j) Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
(k) Indemnification. In
consideration of each Purchaser’s execution and delivery of
this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the
other Transaction Documents, from and after the Closing Date, the
Company shall defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and/or Dividend
Shares and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of
the foregoing Persons’ agents or other representatives,
including, without limitation, those retained in connection with
the transactions contemplated by this Agreement (collectively, the
“Indemnitees”),
from and against any and all actions, causes of action, suits,
judgments, claims, losses, costs, penalties, fees, liabilities,
amounts paid in settlements, and damages (including diminution in
value of the Securities and Dividend Shares), and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to any action for which indemnification hereunder is
sought), whether or not involving a third party claim, and
including reasonable attorneys’ fees and disbursements (the
“Indemnified
Liabilities”), incurred by any Indemnitee as a result
of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in
this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, any other Transaction Document
or any other certificate, instrument or document contemplated
hereby or thereby or (iii) any cause of action, suit or claim
brought or made against such Indemnitee by any Person (including
for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (A) the execution,
delivery, performance or enforcement of this Agreement, any other
Transaction Document or any other certificate, instrument or
document contemplated hereby or thereby, (B) any transaction
financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance and sale of the
Securities, or (C) the status of such Purchaser or holder of the
Securities and/or Dividend Shares as an investor in the Company,
and shall reimburse each such Indemnitee for the reasonable costs
and expenses as they are incurred in connection with investigating,
monitoring, responding to or defending any of the foregoing. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable
law.
-19-
(l) Joint Participation in
Drafting. Each party to this Agreement has participated in
the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this
Agreement.
(m) Knowledge. As used in this
Agreement, the term “knowledge” of any Person shall
mean and include (i) with respect to the Company, the actual
knowledge of any of the Company’s officers or directors and
(ii) that knowledge which a reasonably prudent business person
could have obtained in the management of his or her business
affairs after making due inquiry and exercising due diligence which
a prudent business person should have made or exercised, as
applicable, with respect thereto.
(n) Exculpation Among Purchasers.
The Company acknowledges that the obligations of each Purchaser
under this Agreement and each of the other Transaction Documents
are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the
Transaction Documents. Each Purchaser acknowledges that it has
independently evaluated the merits of the transactions contemplated
by this Agreement and the other Transaction Documents, that it has
independently determined to enter into the transactions
contemplated hereby and thereby, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is
not acting in concert with any other Purchaser in making its
purchase of securities hereunder or in monitoring its investment in
the Company. The Purchasers and the Company agree that no action
taken by any Purchaser pursuant hereto or the other Transaction
Documents shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Purchasers are in any way
acting in concert or would deem such Purchasers to be members of a
“group” for purposes of Section 13(d) of the Exchange
Act, and the Purchasers have not agreed to act together for the
purpose of acquiring, holding, voting or disposing of equity
securities of the Company. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or
requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way
creates a presumption that the Purchasers are in any way acting in
concert or as a “group” for purposes of Section 13(d)
of the Exchange Act with respect to the Transaction Documents or
the transactions contemplated hereby or thereby. Each Purchaser
acknowledges that it has been represented by its own separate legal
counsel in their review and negotiation of the Transaction
Documents. It is expressly understood and agreed that each
provision contained in this Agreement is between the Company and a
Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.
(o) Business Days and Trading Days.
For purposes of this Agreement, the term “business day”
means any day other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or
obligated by law, regulation or executive order to close, and the
term “trading day” means any day on which the OTCQB or,
if the Common Stock is not then traded on the OTCQB, the principal
national securities exchange, automated quotation system or other
trading market where the Common Stock is then listed, quoted or
traded, is open for trading.
(p) Termination. This Agreement may
be terminated at any time prior to the Closing by the written
notice of the Required Purchasers to the Company if the Closing
shall not have occurred on or before September 11, 2018. Any such
termination shall be effective immediately upon delivery of such
notice to the Company, unless such notice provides for a different
time for termination. If this Agreement is terminated prior to the
Closing, then the Company shall promptly (but in no event later
than one (1) business day after the date of such termination)
deliver written notice to the Escrow Agent that the
“Termination Date” (as defined in the Escrow Agreement)
has occurred and instruct the Escrow Agent to, and otherwise cause
the Escrow Agent to, refund to the Purchasers all amounts deposited
into the Escrow Account (as defined in the Escrow Agreement) by the
Purchasers in accordance with the terms of the Escrow Agreement.
The Company shall not amend or permit any other Person to amend the
Escrow Agreement without the prior written consent of the Required
Purchasers. “Required
Purchasers” shall mean the Purchasers who have agreed
to purchase at least a majority of the Securities to be sold
hereunder.
-20-
(q) Fees and Expenses. Except as
expressly set forth in the Transaction Documents to the contrary
(including the requirement of the Company to pay the reasonable
fees and disbursements of Stroock & Stroock & Lavan LLP, as
counsel to certain Purchasers as set forth in Section 7(k) above),
each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and
other taxes and duties levied in connection with the delivery of
any Securities and/or Dividend Shares to the
Purchasers.
(r) Specific Performance. The
Company and each of the Purchasers acknowledge and agree that (a)
irreparable damage would occur in the event that any of the
provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, and (b) remedies at
law would not be adequate to compensate the non-breaching party.
Accordingly, the Company and each of the Purchasers agree that each
of them shall have the right, in addition to any other rights and
remedies existing in its favor, to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
its rights and obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief. The right to
equitable relief, including specific performance or injunctive
relief, shall exist notwithstanding, and shall not be limited by,
any other provision of this Agreement. The Company and each of the
Purchasers hereby waives any defense that a remedy at law is
adequate and any requirement to post bond or other security in
connection with actions instituted for injunctive relief, specific
performance or other equitable remedies.
[REMAINDER
OF PAGE LEFT BLANK INTENTIONALLY]
-21-
IN
WITNESS WHEREOF, the Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above
written.
IMAGEWARE SYSTEMS, INC.
By:
Name:
Title:
PURCHASER:
(Print
or Type Name of Purchaser)
By:
Name:
Title:
ADDRESS:
Telephone:
Facsimile:
E-Mail:
Attention:
AGGREGATE
SUBSCRIPTION AMOUNT:
Number of shares of
Preferred
Stock:
Purchase Price
($10,000 per share of Preferred
Stock):
-22-
EXHIBIT A
Certificate of Designations
-23-
EXHIBIT B
Registration Rights Agreement
-24-
EXHIBIT C
Escrow Agreement
-25-
EXHIBIT D
Wire Instructions
-26-
Exhibit
10.2
REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (the “Agreement”) is made and entered
into as of this 10th day of September, 2018 by and among ImageWare
Systems, Inc., a Delaware corporation (the “Company”), and the
“Purchasers”
named in that certain Securities Purchase Agreement by and among
the Company and the Purchasers (the “Purchase Agreement”). Capitalized
terms used herein have the respective meanings ascribed thereto in
the Purchase Agreement unless otherwise defined
herein.
The
parties hereby agree as follows:
1.
Certain
Definitions.
As used
in this Agreement, the following terms shall have the following
meanings:
“Affiliate”
means, with respect to any Person, any other Person that (either
directly or indirectly) controls, is controlled by, or is under
common control with the specified Person, and shall also include
any Related Fund of such Person. The term “control” includes the
possession, directly or indirectly, of the power to direct the
management or policies of a Person, whether through the ownership
of securities, by contract or otherwise.
“Common
Stock” means the Company’s common stock, par
value $0.01 per share, and any securities into which such Common
Stock may hereinafter be reclassified.
“Conversion
Shares” means the shares of Common Stock issuable upon
conversion of the Preferred Stock issued pursuant to the Purchase
Agreement.
“Person”
means an individual, partnership, corporation, unincorporated
organization, joint stock company, limited liability company,
association, trust, joint venture or any other entity, or a
governmental authority.
“Prospectus”
means (i) the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including
post-effective amendments and all material incorporated by
reference in such prospectus, and (ii) any “free writing prospectus” as
defined in Rule 405 under the 1933 Act.
“Purchasers”
means the Purchasers identified in the Purchase Agreement and any
Affiliate or permitted transferee of any Purchaser who is a
subsequent holder of any Registrable Securities.
“Register,”
“registered”
and “registration”
refer to a registration made by preparing and filing a Registration
Statement or similar document in compliance with the 1933 Act (as
defined below), and the declaration or ordering of effectiveness of
such Registration Statement or document.
“Registrable
Securities” means the (i) Conversion Shares and any
other securities issued or issuable with respect to or in exchange
for Registrable Securities, whether by merger, charter amendment or
otherwise, and (ii) shares of Common Stock issuable as dividends
payable with respect to the Preferred Stock; provided, that, a security shall cease
to be a Registrable Security upon sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act.
-1-
“Registration
Statement” means any registration statement of the
Company filed under the 1933 Act that covers the resale of any of
the Registrable Securities pursuant to the provisions of this
Agreement, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration
Statement.
“Related
Fund” means, with respect to any Person, any fund,
account or investment vehicle that is controlled or managed by (i)
such Person, (ii) an Affiliate of such Person or (iii) the same
investment manager, advisor or subadvisor as such Person or an
Affiliate of such investment manager, advisor or
subadvisor.
“Required
Purchasers” means, as of any date of determination,
the Purchasers holding a majority of the Registrable Securities as
of such date.
“SEC”
means the U.S. Securities and Exchange Commission.
“1933
Act” means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
“1934
Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated
thereunder.
2.
Registration.
(a) Registration
Statements.
(i) No
later than 30 days from the date of this Agreement (the
“Filing
Deadline”), the Company
shall prepare and file with the SEC one Registration Statement (the
“Initial Registration
Statement”) covering the
resale of all of the Registrable Securities on a continuous basis
pursuant to Rule 415 of the Securities Act. The Initial
Registration Statement filed hereunder shall be on Form S-3;
provided, that if Form S-3 is not available for the
registration of the resale of Registrable Securities hereunder, the
Company shall (x) register the resale of the Registrable Securities
on another appropriate form and (y) undertake to register the
resale of Registrable Securities on Form S-3 as soon as such form
is available, provided, that the Company shall maintain the
effectiveness of the Registration Statement then in effect until
such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the staff of
the SEC. No Purchaser shall be named as an
“underwriter” in the Initial Registration Statement
without such Purchaser’s prior written consent. Such Initial
Registration Statement also shall cover, to the extent allowable
under the 1933 Act and the rules promulgated thereunder (including
Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities. Such
Initial Registration Statement shall not include any shares of
Common Stock or other securities for the account of any other
Person (including the Company) without the prior written consent of
the Required Purchasers. The Initial Registration Statement (and
each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided in
accordance with Section 3(c) to the Purchasers and their counsel
prior to its filing or other submission. If (i) the Initial
Registration Statement covering the Registrable Securities is not
filed with the SEC on or prior to the Filing Deadline, or (ii)
prior to the effective date of the Initial Registration Statement,
the Company shall fail to file any pre-effective amendment to the
Initial Registration Statement required to be filed by the SEC or
otherwise respond to comments from the SEC within 15 days from the
date of receipt of such comments (a “Response
Failure”), the Company
will make payments to each Purchaser, as liquidated damages and not
as a penalty, in an amount equal to 1.0% of the aggregate Purchase
Price paid by such Purchaser for its Preferred Stock on the Closing
Date pursuant to the Purchase Agreement (such amount, with respect
to each Purchaser, the “Investment
Amount”) for the first
30-day period or pro rata for any portion thereof following the
Filing Deadline for which no Initial Registration Statement is
filed with respect to the Registrable Securities, or following a
Response Failure, as the case may be, and 1.5% of such
Purchaser’s Investment Amount for each 30-day period
thereafter or pro rata for any portion thereof for which no Initial
Registration Statement is filed with respect to the Registrable
Securities, or following a Response Failure, as the case may
be; provided, that the maximum payments to any Purchaser
pursuant to this Section 2(a)(i) shall not exceed 12.0% of such
Purchaser’s Investment Amount. Such payments shall constitute
the Purchasers’ exclusive monetary remedy for such events,
but shall not affect the right of the Purchasers to seek injunctive
relief.
-2-
(b) Expenses.
The Company will pay all expenses associated with each Registration
Statement (whether or not such Registration Statement becomes
effective), including filing and printing fees, the Company’s
counsel and accounting fees and expenses, costs associated with
clearing the Registrable Securities for sale under applicable state
securities laws, listing fees, and the reasonable fees and expenses
of counsel to, (i) with respect to the Initial Registration
Statement, the Required Purchasers, (ii) with respect to a Demand
Registration, the Requesting Holders and (iii) with respect to any
Piggyback Registration, Purchasers that at the relevant time hold
at least a majority of the Registrable Securities held by all
Purchasers to be included in such Piggyback
Registration.
(c) Effectiveness
of Registration Statements.
(i) The
Company shall use its best efforts to have the Initial Registration
Statement declared effective as soon as practicable, but in no
event later than ninety (90) days after the date of this Agreement.
The Company shall notify the Purchasers by facsimile or e-mail as
promptly as practicable, and in any event, within twenty-four (24)
hours, after any Registration Statement is declared effective and
shall simultaneously provide the Purchasers with copies of any
related Prospectus to be used in connection with the sale or other
disposition of the securities covered thereby. If (A) the Initial
Registration Statement covering the Registrable Securities is not
declared effective by the SEC prior to the earlier of (i) five (5)
Business Days after the SEC shall have informed the Company that no
review of the Initial Registration Statement will be made or that
the SEC has no further comments on the Registration Statement and
(ii) the 90th
day after the date hereof; (B) after
the Initial Registration Statement has been declared effective by
the SEC, sales cannot be made pursuant to such Initial Registration
Statement for any reason (including without limitation by reason of
a stop order, the Company’s failure to update the Initial
Registration Statement or on account of any event described in
Section 3(h)) or the inability of any Purchaser to sell the
Registrable Securities covered thereby due to market conditions; or
(C) the Initial Registration Statement ceases to remain
continuously effective as to all Registrable Securities included
thereunder, then the Company will make payments to each Purchaser,
as liquidated damages and not as a penalty, in an amount equal to
1.0% of such Purchaser’s Investment Amount for the first
30-day period or pro rata for any portion thereof following the
date by which such Initial Registration Statement should have been
effective and 1.5% of such Purchaser’s Investment Amount for
each 30-day period thereafter or pro rata for any portion thereof
for which such Initial Registration Statement should have been
effective (the “Blackout
Period”);
provided, that the maximum payments to any Purchaser
pursuant to this Section 2(c) shall not exceed 16.0% of such
Purchaser’s Investment Amount. Such payments shall constitute
the Purchasers’ exclusive monetary remedy for such events,
but shall not affect the right of the Purchasers to seek injunctive
relief.
(d) Rule
415; Cutback If at any time the
SEC takes the position that the offering of some or all of the
Registrable Securities in any Registration Statement filed pursuant
to the terms and conditions of this Agreement is not eligible to be
made on a delayed or continuous basis under the provisions of Rule
415 under the 1933 Act or requires any Purchaser to be named as an
“underwriter”, the Company shall use its best efforts
to persuade the SEC that the offering contemplated by such
Registration Statement is a valid secondary offering and not an
offering “by or on behalf of the issuer” as defined in
Rule 415 and that none of the Purchasers is an
“underwriter”. The Purchasers shall have the right to
participate or have their counsel participate in any meetings or
discussions with the SEC regarding the SEC’s position and to
comment or have their counsel comment on any written submission
made to the SEC with respect thereto. No such written submission
shall be made to the SEC to which the Required Purchasers’,
or, with respect to a Demand Registration, the Requesting
Purchasers’ (as such term is defined in Section 2(f)(i)
below), counsel reasonably objects. In the event that, despite the
Company’s best efforts and compliance with the terms of this
Section 2(d), the SEC refuses to alter its position, the Company
shall (i) remove from such Registration Statement such portion of
the Registrable Securities that the SEC requires to be removed from
such Registration Statement, while still including the maximum
number of Registrable Securities permitted to be registered by the
SEC under such Registration Statement at such time (such removed
Registrable Securities, the “Cut Back
Shares”), and/or (ii)
agree to such restrictions and limitations on the registration and
resale of the Registrable Securities as the SEC may require to
assure the Company’s compliance with the requirements of Rule
415 (collectively, the “SEC
Restrictions”);
provided,
however, that the Company shall
not agree to name any Purchaser as an “underwriter” in
any Registration Statement without the prior written consent of
such Purchaser. Any cut-back imposed on the Purchasers pursuant to
this Section 2(d) shall be allocated, first, among all securities
that are not Registrable Securities (to the extent previously
permitted by the Required Purchasers, or, in the case of a Demand
Registration, by the Requesting Purchasers), and second, among the
Purchasers on a pro rata basis, unless the SEC Restrictions
otherwise require or provide or the Purchasers otherwise agree. In
the event of any cut-back imposed on the Purchasers pursuant to
this Section 2(d), the Company will use its best efforts to file
with the SEC, as promptly as allowed by the SEC, one or more
Registration Statements on Form S-1 covering the resale of the Cut
Back Shares or such other form available to register for resale the
Cut Back Shares. No liquidated damages shall accrue as to any Cut
Back Shares until such date as the Company is permitted to effect
the registration of such Cut Back Shares using Form S-3 in
accordance with any SEC Restrictions (such date, the
“Restriction Termination
Date” of such Cut Back
Shares). From and after the Restriction Termination Date applicable
to any Cut Back Shares, all of the provisions of this Section 2
(including the liquidated damages provisions) shall again be
applicable to any Cut Back Shares that are not included in a
Registration Statement prior to the Restriction Termination
Date; provided,
however, that (i) the Filing
Deadline for any Registration Statement including any Cut Back
Shares that have not otherwise been included in a Registration
Statement that has been declared effective shall be ten (10)
Business Days after such Restriction Termination Date, and (ii) the
date by which the Company is required to obtain effectiveness with
respect to such Cut Back Shares under Section 2(c) shall be the
120th
day immediately after the Restriction
Termination Date.
-3-
(e) Right
to Piggyback Registration.
(i) If
at any time following the date of this Agreement that any
Registrable Securities remain outstanding the Company proposes for
any reason to register any shares of Common Stock under the 1933
Act (other than pursuant to a registration statement on Form S-4 or
Form S-8 (or a similar or successor form)) with respect to an
offering of Common Stock by the Company for its own account or for
the account of any of its stockholders, it shall, unless a holder
of Registrable Securities has provided written notice to the
Company that it does not want to receive such information, at each
such time promptly give written notice to the holders of the
Registrable Securities of its intention to do so (but in no event
less than thirty (30) days before the anticipated filing date) and,
to the extent permitted under the provisions of Rule 415 under the
1933 Act, include in such registration all Registrable Securities
with respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after receipt of the
Company’s notice (a “Piggyback
Registration”). Such
notice shall offer the holders of the Registrable Securities the
opportunity to register such number of shares of Registrable
Securities as each such holder may request and shall indicate the
intended method of distribution of such Registrable
Securities.
(ii) Notwithstanding
the foregoing, (A) if such registration involves an underwritten
public offering, the Purchasers must sell their Registrable
Securities to, if applicable, the underwriter(s) at the same price
and subject to the same underwriting discounts and commissions that
apply to the other securities sold in such offering (it being
acknowledged that the Company shall be responsible for other
expenses as set forth in Section 2(b)) and subject to the
Purchasers entering into customary underwriting documentation for
selling stockholders in an underwritten public offering, and (B)
if, at any time after giving written notice of its intention to
register any Registrable Securities pursuant to Section 2(e)(i) and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for
any reason not to cause such registration statement to become
effective under the 1933 Act, the Company shall deliver written
notice to the Purchasers and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection
with such registration; provided,
however, that nothing contained
in this Section 2(e) shall limit the Company’s liabilities
and/or obligations under this Agreement, including, without
limitation, the obligation to pay liquidated damages under this
Section 2. Any Purchaser may elect to withdraw such
Purchaser’s request for inclusion of Registrable Securities
in any Piggyback Registration by giving written notice to the
Company of such request to withdraw prior to the effectiveness of
the Registration Statement or the pricing of an underwritten
offering, as applicable.
(f) Demand
Registration.
(i) At
any time and from time to time after the Initial Registration
Statement has been declared effective, any Purchaser or group of
Purchasers (acting together) that own or control Registrable
Securities representing at least fifty percent (50%) of the
then-issued and outstanding Registrable Securities (collectively,
the “Requesting
Purchasers”), may deliver
to the Company a written notice (a “Demand Registration
Notice”) informing the
Company that such Requesting Purchasers require the Company to
register for resale some or all of such Requesting
Purchasers’ Registrable Securities not otherwise then
registered for resale by the Initial Registration Statement (a
“Demand
Registration”);
provided,
however, that the Company will
not be required to effect more than two (2) Demand Registrations in
accordance with this Agreement. Upon receipt of the Demand
Registration Notice, the Company will use best efforts to file with
the SEC as promptly as practicable after receiving the Demand
Registration Notice, but in no event more than sixty (60) days
following receipt of the Demand Registration Notice, a Registration
Statement covering all requested Registrable Securities (the
“Demand Registration
Statement”), and agrees
to use best efforts to cause the Demand Registration Statement to
be declared effective by the SEC as soon as practicable following
the filing thereof, but in no event later than ninety (90) days
after the filing of such Demand Registration Statement. The Company
agrees to use best efforts to keep any Demand Registration
Statement continuously effective (including the preparation and
filing of any amendments and supplements necessary for that
purpose) until such time as all of the Registrable Securities
covered thereby have been sold (“Minimum Effective
Period”).
(ii) Notice
to Purchasers. The Company
shall give written notice of the proposed filing of any Demand
Registration Statement to all Purchasers (other than the Requesting
Purchasers) as soon as practicable, and each such Purchaser who
wishes to participate in such Demand Registration Statement shall
notify the Company in writing within five (5) Business Days after
the receipt by such Purchaser of the notice from the Company, and
shall specify in such notice the number of Registrable Securities
held by such Purchaser to be included in the Demand Registration
Statement. Upon the written request of any Purchaser, delivered to
the Company no later than five (5) Business Days after the
Company’s notice is delivered to such Purchaser (each such
Purchaser, a “Joining
Purchaser”), to register,
on the same terms and conditions as the Registrable Securities
otherwise being sold pursuant to such Demand Registration, any of
its Registrable Securities, the Company will use its best efforts
to cause such Registrable Securities to be included in the Demand
Registration Statement proposed to be filed by the Company on the
same terms and conditions as any Registrable Securities included
therein.
-4-
3.
Company
Obligations. The Company will
use best efforts to effect the registration of the Registrable
Securities in accordance with the terms hereof, and pursuant
thereto the Company will, as expeditiously as
possible:
(a) use
best efforts to cause the Initial Registration Statement to become
effective and to remain continuously effective for a period that
will terminate upon the earlier of (i) the date on which all
Registrable Securities covered by such Initial Registration
Statement as amended from time to time, have been sold, and (ii)
the date on which all Registrable Securities covered by such
Initial Registration Statement may be sold without restriction and
without the need for current public information pursuant to Rule
144 (the “Effectiveness
Period”) and advise the
Purchasers in writing when the Effectiveness Period has
expired;
(b) prepare
and file with the SEC such amendments and post-effective amendments
to any Registration Statement and Prospectus as may be necessary to
keep such Registration Statement effective for, with respect to the
Initial Registration Statement, the Effectiveness Period and with
respect to any Demand Registration Statement, the Minimum Effective
Period, and in any case to comply with the provisions of the 1933
Act and the 1934 Act with respect to the distribution of all of the
Registrable Securities covered in any Registration
Statement;
(c) provide
copies to and permit counsel designated by the Purchasers to review
each Registration Statement and all amendments and supplements
thereto no fewer than seven (7) days prior to their filing with the
SEC and not file any Registration Statement or other document to
which such counsel reasonably objects;
(d) furnish
to the Purchasers and their legal counsel (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or
received by the Company (but not later than two (2) Business Days
after the filing date, receipt date or sending date, as the case
may be) one (1) copy of any Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and
each amendment or supplement thereto, and each letter written by or
on behalf of the Company to the SEC or the staff of the SEC, and
each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than
any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of
copies of a Prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as each
Purchaser may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Purchaser
that are covered by the related Registration
Statement;
(e) use
best efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued,
obtain the withdrawal of any such order at the earliest possible
moment;
(f) prior to any public offering of Registrable
Securities, use best efforts to register or qualify or cooperate
with the Purchasers and their counsel in connection with the
registration or qualification of such Registrable Securities for
offer and sale under the securities or blue sky laws of such
jurisdictions requested by the Purchasers and do any and all other
acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by any
Registration Statement; provided,
however, that the Company shall
not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(f),
(ii) subject itself to general taxation in any jurisdiction where
it would not otherwise be so subject but for this Section 3(f), or
(iii) file a general consent to service of process in any such
jurisdiction;
-5-
(g) use
best efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange,
interdealer quotation system or other market on which similar
securities issued by the Company are then listed or
quoted;
(h) immediately
notify the Purchasers, at any time prior to the end of the
Effectiveness Period or the Minimum Effective Period, as
applicable, upon discovery that, or upon the happening of any event
as a result of which, any Prospectus includes an untrue statement
of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and
promptly prepare, file with the SEC and furnish to such holder a
supplement to or an amendment of such Prospectus as may be
necessary so that such Prospectus shall not include an 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 light of the circumstances then
existing;
(i) otherwise
use best efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act,
including, without limitation, Rule 172 under the 1933 Act, file
any final Prospectus, including any supplement or amendment
thereof, with the SEC pursuant to Rule 424 under the 1933 Act,
promptly inform the Purchasers in writing if, at any time during
the Effectiveness Period or Minimum Effective Period, as
applicable, the Company does not satisfy the conditions specified
in Rule 172 and, as a result thereof, the Purchasers are required
to deliver a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be
reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its
security holders, as soon as reasonably practicable, but not later
than the Availability Date (as defined below), an earnings
statement covering a period of at least twelve (12) months,
beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section
11(a) of the 1933 Act, including Rule 158 promulgated thereunder
(for the purpose of this subsection 3(i),
“Availability
Date” means the 45th day
following the end of the fourth fiscal quarter that includes the
effective date of such Registration Statement, except that, if such
fourth fiscal quarter is the last quarter of the Company’s
fiscal year, “Availability
Date” means the 90th day
after the end of such fourth fiscal quarter);
(j) if
during the Effectiveness Period, the number of Registrable
Securities at any time exceeds 100% of the number of shares of
Common Stock then registered in the Initial Registration Statement,
the Company shall file as soon as reasonably practicable an
additional Registration Statement covering the resale by the
Purchasers of not less than the number of such Registrable
Securities; and
(k) with
a view to making available to the Purchasers the benefits of Rule
144 (or its successor rule) and any other rule or regulation of the
SEC that may at any time permit the Purchasers to sell shares of
Common Stock to the public without registration, the Company
covenants and agrees to: (i) make and keep public information
available, as those terms are understood and defined in Rule 144,
until the earlier of (A) six months after such date as all of the
Registrable Securities may be sold without restriction (including
without volume or manner-of-sale restrictions) and without the need
for current public information by the holders thereof pursuant to
Rule 144 or any other rule of similar effect and (B) such date as
all of the Registrable Securities shall have been resold; (ii) file
with the SEC in a timely manner all reports and other documents
required of the Company under the 1934 Act; and (iii) furnish to
each Purchaser upon request, as long as such Purchaser owns any
Registrable Securities, (A) a written statement by the Company that
it has complied with the reporting requirements of the 1934 Act,
(B) a copy of the Company’s most recent Annual Report on Form
10-K or Quarterly Report on Form 10-Q, and (C) such other
information as may be reasonably requested in order to avail such
Purchaser of any rule or regulation of the SEC that permits the
selling of any such Registrable Securities without registration.
The parties agree that nothing contained herein shall limit the
Company’s obligations under the Purchase
Agreement.
-6-
4.
Due Diligence Review;
Information. The Company shall
make available, upon reasonable advance written notice, during
normal business hours, for inspection and review by the Purchasers,
advisors to and representatives of the Purchasers (who may or may
not be affiliated with the Purchasers and who are reasonably
acceptable to the Company), all financial and other records, all
SEC Documents (as defined in the Purchase Agreement) and other
filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the
purpose of such review, and cause the Company’s officers,
directors and employees, within a reasonable time period, to supply
all such information reasonably requested by the Purchasers or any
such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted
by any of them), prior to and from time to time after the filing
and effectiveness of the Registration Statement for the sole
purpose of enabling the Purchasers and such representatives,
advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect
to the accuracy of such Registration Statement.
The
Company shall not disclose material nonpublic information to the
Purchasers, or to advisors to or representatives of the Purchasers,
unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information
and provides the Purchasers, such advisors and representatives with
the opportunity to accept or refuse to accept such material
nonpublic information for review and any Purchaser wishing to
obtain such information enters into an appropriate confidentiality
agreement with the Company with respect thereto.
5.
Obligations of the
Purchasers.
(a) Each
Purchaser shall furnish in writing to the Company such information
regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably
request. At least ten (10) Business Days prior to the first
anticipated filing date of any Registration Statement, the Company
shall notify each Purchaser of the information the Company requires
from such Purchaser if such Purchaser elects to have any of the
Registrable Securities included in the Registration Statement. A
Purchaser shall provide such information to the Company at least
two (2) Business Days prior to the first anticipated filing date of
such Registration Statement if such Purchaser elects to have any of
the Registrable Securities included in the Registration
Statement.
(b) Each
Purchaser, by its acceptance of the Registrable Securities agrees
to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of a
Registration Statement hereunder, unless such Purchaser has
notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration
Statement.
(c) Each
Purchaser agrees that, upon receipt of any notice from the Company
of the happening of an event pursuant to Section 3(h) hereof, such
Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the applicable Registration Statement
covering such Registrable Securities, until the Purchaser is
advised by the Company that such dispositions may again be
made.
-7-
6.
Indemnification.
(a) Indemnification
by the Company. The Company
will indemnify and hold harmless each Purchaser and its officers,
directors, members, employees and agents, successors and assigns,
and each other person, if any, who controls such Purchaser within
the meaning of the 1933 Act (collectively, the
“Purchaser
Indemnitees”), against
any losses, claims, damages or liabilities, joint or several, to
which such Purchaser Indemnitee may become subject under the 1933
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement or
omission or alleged omission of any material fact contained in any
Registration Statement, any preliminary Prospectus or final
Prospectus, or any amendment or supplement thereof; (ii) any blue
sky application or other document executed by the Company
specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Registrable Securities under
the securities laws thereof (any such application, document or
information herein called a “Blue Sky
Application”); (iii) the
omission or alleged omission to state in a Blue Sky Application a
material fact required to be stated therein or necessary to make
the statements therein not misleading; (iv) any violation by the
Company or its agents of any rule or regulation promulgated under
the 1933 Act or 1934 Act or any state securities laws in connection
with the performance of its obligations under this Agreement; or
(v) any failure to register or qualify the Registrable Securities
included in any such Registration Statement in any state where the
Company or its agents has affirmatively undertaken or agreed in
writing that the Company will undertake such registration or
qualification on an Purchaser’s behalf and will promptly
reimburse such Purchaser Indemnitee for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action as such
expenses are incurred; provided,
however, that the Company will
not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such
Purchaser or any such controlling person in writing specifically
for use in such Registration Statement or Prospectus. The indemnity
provided in this Section 6(a) shall survive the transfer of the
Registrable Securities by any Purchaser to any other
Person.
(b) Indemnification
by the Purchasers. Each
Purchaser agrees, severally but not jointly, to indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who
controls the Company (within the meaning of the 1933 Act)
(collectively, the “Company
Indemnitees”) against any
losses, claims, damages, liabilities and expense (including
reasonable attorney fees) resulting from any untrue statement of a
material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary
Prospectus or amendment or supplement thereto or necessary to make
the statements therein not misleading, to the extent, but only to
the extent that such untrue statement or omission is contained in
any information furnished in writing by such Purchaser to the
Company specifically for inclusion in such Registration Statement
or Prospectus or amendment or supplement thereto. In no event shall
the liability of a Purchaser be greater in amount than the dollar
amount of the proceeds (net of all underwriter’s discounts
and expenses paid by such Purchaser in connection with any claim
relating to this Section 6 and the amount of any damages such
Purchaser has otherwise been required to pay by reason of such
untrue statement or omission) received by such Purchaser upon the
sale of the Registrable Securities included in the Registration
Statement giving rise to such indemnification
obligation.
(c) Conduct
of Indemnification Proceedings.
Any person entitled to indemnification under Section 6(a) or
Section 6(b) (an “Indemnitee”) shall (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to
the Indemnitee; provided that any Indemnitee shall have the right to employ
separate counsel and to participate in the defense of such claim,
but the fees and expenses of such counsel shall be at the expense
of such Indemnitee unless (a) the indemnifying party has agreed to
pay such fees or expenses, or (b) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel
reasonably satisfactory to such Indemnitee or (c) in the reasonable
judgment of any such Indemnitee, based upon written advice of its
counsel, a conflict of interest exists between such Indemnitee and
the indemnifying party with respect to such claims (in which case,
if such Indemnitee notifies the indemnifying party in writing that
such Indemnitee elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such
Indemnitee); and provided,
further, that the failure of
any Indemnitee to give notice as provided herein shall not relieve
the indemnifying party of its obligations hereunder, except to the
extent that such failure to give notice shall materially adversely
affect the indemnifying party in the defense of any such claim or
litigation. It is understood that the indemnifying party shall not,
in connection with any proceeding in the same jurisdiction, be
liable for fees or expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for
all such Indemnitees. No indemnifying party will, except with the
consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement that (i) does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnitee of a release from all liability in respect of
such claim or litigation or (ii) includes a statement as to, or an
admission of, fault, culpability or a failure to act, by or on
behalf of the Indemnitee.
(d) Contribution.
If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an Indemnitee or
insufficient to hold it harmless, other than as expressly specified
therein, then the indemnifying party shall contribute to the amount
paid or payable by the Indemnitee as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect
the relative fault of the Indemnitee and the indemnifying party, as
well as any other relevant equitable considerations. No person
guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution
from any person not guilty of such fraudulent misrepresentation. In
no event shall the contribution obligation of a holder of
Registrable Securities be greater in amount than the dollar amount
of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount
of any damages such holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable
Securities giving rise to such contribution
obligation.
-8-
7.
Miscellaneous.
(a) Amendments
and Waivers. This Agreement may
be amended only by a writing signed by the Company and the Required
Purchasers. The Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only
if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the Required
Purchasers.
(b) Notices.
All notices and other communications provided for or permitted
hereunder shall be made as set forth in the Purchase
Agreement.
(c) Assignments
and Transfers by Purchasers.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the Purchasers and their respective successors and
assigns. A Purchaser may transfer or assign, in whole or from time
to time in part, to one or more persons its rights and obligations
hereunder in connection with the transfer of Registrable Securities
by such Purchaser to such person, provided that such Purchaser
complies with all laws applicable thereto and provides written
notice of assignment to the Company promptly after such assignment
is effected (such transferee, a "permitted
transferee").
(d) Assignments
and Transfers by the Company.
This Agreement may not be assigned by the Company (whether by
operation of law or otherwise) without the prior written consent of
the Required Purchasers, provided, however, that in the event that
the Company is a party to a merger, consolidation, share exchange
or similar business combination transaction in which the Common
Stock is converted into the equity securities of another Person,
from and after the effective time of such transaction, such Person
shall, by virtue of such transaction, be deemed to have assumed the
obligations of the Company hereunder (and shall have acknowledged
such assumption in writing), the term “Company” shall be deemed to refer to such Person
and the term “Registrable
Securities” shall be
deemed to include the securities received by the Purchasers in
connection with such transaction unless such securities are
otherwise freely tradable by the Purchasers after giving effect to
such transaction.
(e) Benefits
of the Agreement. Nothing in
this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors
and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in
this Agreement and except for any Indemnitee not a party hereto
(solely with respect to Section 6).
(f) Counterparts;
Faxes. This Agreement may be
executed in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile
or other electronic means, which shall be deemed an
original.
(g) Titles
and Subtitles. The titles and
subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.
(h) Severability.
Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the
maximum extent permitted by applicable law, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which renders any
provisions hereof prohibited or unenforceable in any
respect.
(i) Further
Assurances. The parties shall
execute and deliver all such further instruments and documents and
take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the
fulfillment of the agreements herein contained.
-9-
(j) Entire
Agreement. This Agreement is
intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with
respect to such subject matter.
(k) Governing Law; Consent
to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New
York without regard to the choice of law principles thereof. Each
of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern
District of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement
and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served
on each party hereto anywhere in the world by the same methods as
are specified for the giving of notices under this Agreement. Each
of the parties hereto irrevocably consents to the jurisdiction of
any such court in any such suit, action or proceeding and to the
laying of venue in such court. Each party hereto irrevocably waives
any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim
that any such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO
WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
(l) Injunctive
Relief. It is hereby agreed and
acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties to this Agreement
fail to comply with any of the obligations imposed on them by this
Agreement and that in the event of any such failure, a
non-breaching party hereto will be irreparably damaged and will not
have an adequate remedy at law. Any such Person shall, therefore,
be entitled to injunctive relief, specific performance or other
equitable remedies to enforce such obligations, this being in
addition to any other remedy to which such Person is entitled at
law or in equity. Each of the parties hereto hereby waives any
defense that a remedy at law is adequate and any requirement to
post bond or other security in connection with actions instituted
for injunctive relief, specific performance or other equitable
remedies. Each of the parties hereto hereby agrees not to assert
that specific performance, injunctive relief and other equitable
remedies are unenforceable, violate public policy, invalid,
contrary to law or inequitable for any reason. The right of
specific performance, injunctive relief and other equitable
remedies is an integral part of the transactions contemplated by
this Agreement.
(m) Recapitalizations,
Exchanges, Etc. The provisions
of this Agreement shall apply, to the full extent set forth herein
with respect to the Registrable Securities, to any and all shares
of capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities and shall be
appropriately adjusted for any stock dividends, splits, reverse
splits, combinations, recapitalizations and the like occurring
after the date hereof
-10-
(n) Independent
Nature of Purchasers’ Obligations and
Rights. The obligations of each
Purchaser hereunder are several and not joint with the obligations
of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of
any other Purchaser hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of group or entity, or create a
presumption that the Purchasers are in any way acting in concert or
as a group or entity with respect to such obligations or the
transactions contemplated by this Agreement or any other matters,
and the Company acknowledges that the Purchasers are not acting in
concert or as a group, and the Company shall not assert any such
claim, with respect to such obligations or transactions. Without
limiting the foregoing, no Purchaser has agreed with any other
Purchaser, and no term, provision, obligation or agreement of any
Purchaser set forth herein shall be deemed to constitute an
agreement with any other Purchaser, to act together for the
purposes of acquiring, holding, voting or disposing of equity
securities of the Company. Each Purchaser shall be entitled to
protect and enforce its rights, including without limitation the
rights arising out of this Agreement, and it shall not be necessary
for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. The use of a single agreement with
respect to the obligations of the Company contained herein was
solely in the control of the Company, not the action or decision of
any Purchaser, and was done solely for the convenience of the
Company and not because it was required or requested to do so by
any Purchaser. It is expressly understood and agreed that each
provision contained in this Agreement is between the Company and an
Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among
Purchasers.
(o) No
Inconsistent Agreements.
Neither the Company nor any of its Subsidiaries has entered, as of
the date hereof, nor shall the Company or any of its Subsidiaries,
on or after the date of this Agreement, enter into any agreement
with respect to its securities, that would have the effect of
impairing the rights granted to the Purchasers in this Agreement or
otherwise conflicts with the provisions hereof. Neither the Company
nor any of its Subsidiaries has previously entered into any
agreement granting any registration rights with respect to any of
its securities to any Person that have not been satisfied in
full.
(p) Prohibition on Filing
Other Registration Statements.
The Company shall not file any other registration statements until
all Registrable Securities are registered pursuant to the Initial
Registration Statement that is declared effective by the staff of
the Commission, provided that this Section 7(p) shall not prohibit the
Company from filing amendments to registration statements filed
prior to the date of this Agreement.
(Signature
Pages Follow)
-11-
IN
WITNESS WHEREOF, the parties have executed this Agreement or caused
their duly authorized officers to execute this Agreement as of the
date first above written.
The
Company:
IMAGEWARE SYSTEMS,
INC.
By:_________________________
Name:
Jim Miller
Title:
Chief Executive Officer
-12-
The
Purchasers:
____________________________________
By:_______________________________
Name:
Title:
-13-
Exhibit 10.3
890 shares of Series C Convertible Preferred Stock
ImageWare Systems, Inc.
PLACEMENT AGENCY AGREEMENT
September
10, 2018
NORTHLAND
SECURITIES, INC.
150
South Fifth Street, Suite 3300
Minneapolis,
Minnesota 55402
Ladies
and Gentlemen:
ImageWare Systems,
Inc., a Delaware corporation (the “Company”), proposes,
subject to the terms and conditions stated in this Placement Agency
Agreement (this “Agreement”) and the Securities
Purchase Agreement in a form mutually agreed upon by the Company
and the Placement Agent (the “Purchase Agreement”)
entered into with the investors identified therein (each, an
“Investor” and collectively, the
“Investors”), to issue and sell up to an aggregate of
890 shares of the Company’s Series C Convertible Preferred
Stock (the “Preferred Stock”), which are convertible
into shares of the Company’s Common Stock (the
“Conversion Shares,” and together with the Preferred
Stock, the “Securities”). The Company hereby confirms
its agreement with Northland Securities, Inc.
(“Northland” or the “Placement Agent”) as
set forth below. Northland Capital Markets is the trade name for
certain capital markets and investment banking activities of
Northland Securities, Inc., member FINRA/SIPC.
1. Agreement to Act as Placement Agent; Delivery
and Payment. On the basis of the representations, warranties
and agreements of the Company herein contained, and subject to the
terms and conditions set forth in this Agreement:
(a) The Company hereby
engages the Placement Agent, as the exclusive agent of the Company
concerning a potential private placement (the “Private
Placement”), to, on a commercially reasonable efforts basis,
solicit offers to purchase the Preferred Stock from the Company on
the terms and subject to the conditions set forth in the Purchase
Agreement and Private Placement Documents (as defined below). In
undertaking this assignment, the Placement Agent will, among other
things, identify potential investors (the “Potential
Investors”). The Placement Agent is permitted to engage
selected dealers and co-agents in performing the services
hereunder. The Placement Agent is authorized on behalf of the
Company to use and distribute copies of any documents provided to
the Placement Agent or Potential Investors in connection with the
Private Placement, including SEC Documents, the Certificate of
Designation, Preferences, Rights and Limitations of Series C
Convertible Preferred Stock in the form of Exhibit A attached to
the Purchase Agreement, the Registration Rights Agreement, in the
form attached to the Purchase Agreement as Exhibit B (collectively,
the “Private Placement Documents”) in connection with
the sale of the Securities as, and to the extent, permitted by
federal and applicable state securities laws. The Private Placement
Documents do not contain any material, non-public information
regarding the Company. The Placement Agent shall use commercially
reasonable efforts to assist the Company in obtaining performance
by each Investor whose offer to purchase the Preferred Stock was
solicited by the Placement Agent and accepted by the Company, but
the Placement Agent shall not, except as otherwise provided in this
Agreement, have any liability to the Company in the event any such
purchase is not consummated for any reason. In connection with its
commercially reasonable efforts to solicit offers to purchase the
Preferred Stock, the Placement Agent shall only communicate
information regarding the Company to potential purchasers of the
Preferred Stock that is consistent with the information contained
in the Private Placement Documents. Under no circumstances will the
Placement Agent or any of its affiliates be obligated to underwrite
or purchase any of the Preferred Stock for its own account or
otherwise provide any financing. The Placement Agent shall act
solely as the Company’s agent and not as principal. The
Placement Agent shall not have any authority to bind the Company
with respect to any prospective offer to purchase Preferred Stock,
and the Company shall have the sole right to accept offers to
purchase Preferred Stock and may reject any such offer, in whole or
in part.
-1-
(b) As compensation for
services rendered by the Placement Agent hereunder, on the Closing
Date (as defined below), the Company shall pay or cause to be paid
to the Placement Agent by wire transfer of immediately available
funds to an account or accounts designated by the Placement Agent,
an aggregate amount equal to 8.0% of the gross proceeds received by
the Company from the sale of the Preferred Stock to Investors (the
“Agency Fee”). Such amount may be deducted from the
payment made by the Investor(s) to the Company and paid directly to
the Placement Agent on the Closing Date. The Placement Agent agrees
that the foregoing compensation, together with any expense
reimbursement payable hereunder, constitutes all of the
compensation that the Placement Agent shall be entitled to receive
in connection with the Offering contemplated hereby. The Placement
Agent may allow concessions, or pay commissions, to other dealers
participating in the offering of the Preferred Stock.
(c) The Preferred Stock
is being sold to the Investors at a price of $10,000 per share (the
“Purchase Price”). The purchases of Preferred Stock by
the Investors shall be evidenced by the execution of the Purchase
Agreement by each of the parties thereto.
(d) Prior to the
earlier of (i) the date on which this
Agreement is terminated and (ii) the Closing Date, the
Company shall not, without the prior written consent of the
Placement Agent, solicit or accept offers to purchase shares of the
Common Stock (other than pursuant to the exercise of options or
warrants to purchase shares of Common Stock that are outstanding at
the date hereof or are granted in the ordinary course to directors,
officers or employees of the Company under the Company’s
equity incentive plans) otherwise than through the Placement Agent
in accordance herewith.
(e) No Preferred Stock
that the Company has agreed to sell pursuant to this Agreement and
the Purchase Agreement shall be deemed to have been purchased and
paid for, or sold by the Company, until such Preferred Stock shall
have been delivered to the Investor purchasing such Preferred Stock
against payment therefor by such Investor. If the Company shall
default in its obligations to deliver Preferred Stock to an
Investor whose offer it has accepted, the Company shall indemnify
and hold the Placement Agent harmless against any loss, claim,
damage or liability directly or indirectly arising from or as a
result of the default by the Company in accordance with the
procedures set forth in Section 6(c)
hereof.
(f) Payment of the
purchase price for, and delivery of the Preferred Stock shall be
made at a closing (the “Closing”) at the time and date
as the Placement Agent and the Company determine pursuant to Rule
15c6-1(a) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) (such date of payment and delivery
being herein referred to as the “Closing Date”).
Subject to the terms hereof, payment of the purchase price for the
Preferred Stock shall be made to the Company in the manner set
forth below by Federal Funds wire transfer, against delivery of the
Preferred Stock to such persons and shall be registered in the name
or names and shall be in such denominations as the Placement Agent
may request at least one business day before the Closing Date.
Payment of the purchase price for the Preferred Stock to be
purchased by Investors shall be made by such Investors to the
Escrow Agent, as defined in the Purchase Agreement for disbursement
to the Company on the Closing Date. Subject to the terms and
conditions hereof, on the Closing Date, the Company shall pay to
the Placement Agent the amount of expenses for which the Placement
Agent is entitled to reimbursement pursuant hereto. At least one
day prior to the Closing Date, the Placement Agent shall submit to
the Company its bona fide estimate of the amount of expenses for
which it is entitled to reimbursement pursuant hereto. As soon as
reasonably practicable after the Closing Date, the Placement Agent
shall submit to the Company its expense reimbursement invoice and
the Company or the Placement Agent, as applicable, shall make any
necessary reconciling payment(s) within thirty days of receipt of
such invoices.
2. Representations and Warranties of the
Company. The Company represents and warrants to the
Placement Agent as of the date hereof and as of the Closing Date,
and agrees with the Placement Agent, as follows:
-2-
(a) Financial Statements. The consolidated
financial statements contained in each report, registration
statement and definitive proxy statement filed by the Company with
the SEC (all documents filed with the SEC, the “ SEC
Documents”) and the Private Placement Documents comply in all
material respects with the requirements of the Securities Act and
the Exchange Act and fairly present the financial condition of the
Company and its consolidated subsidiaries as of the dates indicated
and the results of operations and changes in cash flows for the
periods therein specified in conformity with generally accepted
accounting principles in the United States consistently applied
throughout the periods involved; the supporting schedules included
in the SEC Documents present fairly the information required to be
stated therein; all non-GAAP financial information included in the
SEC Documents complies in all material respects with the
requirements of Regulation G and Item 10 of Regulation S-K under
the Securities Act; and, except as disclosed in the SEC Documents,
there are no material off-balance sheet arrangements (as defined in
Regulation S-K under the Securities Act, Item 303(a)(4)(ii)) or any
other relationships with unconsolidated entities or other persons,
that may have a material current or, to the Company’s
knowledge, material future effect on the Company’s financial
condition, results of operations, liquidity, capital expenditures,
capital resources or significant components of revenue or expenses.
No other financial statements or schedules are required to be
included in the SEC Documents. To the Company’s knowledge
Mayer Hoffman McCann P.C. has expressed its opinion with respect to
the financial statements and schedules filed as a part of the SEC
Documents, is (x) an independent public accounting firm within the
meaning of the Securities Act and the Rules and Regulations, (y) a
registered public accounting firm (as defined in Section 2(a)(12)
of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”)) and (z) not in violation of the auditor independence
requirements of the Sarbanes-Oxley Act.
(b) Organization and Good Standing. Each of
the Company and its subsidiaries has been duly organized and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own its
properties and conduct its business as currently being carried on
and as described in the SEC Documents, and is duly qualified to do
business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which
the conduct of its business makes such qualification necessary and
in which the failure to so qualify would have a material adverse
effect upon the business, prospects, management, properties,
operations, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole
(“Material Adverse Effect”).
(c) Absence of Certain Events. Except as
contemplated in the SEC Documents, subsequent to the respective
dates as of which information is given in the SEC Documents,
neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any
dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital
stock (other than a change in the number of outstanding shares of
Common Stock due to the issuance of shares upon the exercise of
outstanding options or warrants or conversion of convertible
securities), or any material change in the short term or long term
debt (other than as a result of the conversion of convertible
securities), or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company or any of its subsidiaries, or any material adverse change
in the general affairs, condition (financial or otherwise),
business, prospects, management, properties, operations or results
of operations of the Company and its subsidiaries, taken as a whole
(“Material Adverse Change”) or any development which
could reasonably be expected to result in any Material Adverse
Change.
(d) Absence of Proceedings. Except as set
forth in the SEC Documents, there is not pending or, to the
knowledge of the Company, threatened or contemplated, any action,
suit or proceeding (a) to which the Company or any of its
subsidiaries is a party or (b) which has as the subject thereof any
officer or director of the Company or any subsidiary, any employee
benefit plan sponsored by the Company or any subsidiary or any
property or assets owned or leased by the Company or any subsidiary
before or by any court or Governmental Authority (as defined
below), or any arbitrator, which, individually or in the aggregate,
would result in any Material Adverse Change, or would materially
and adversely affect the ability of the Company to perform its
obligations under this Agreement or which are otherwise material in
the context of the sale of the Securities. There are no current or,
to the knowledge of the Company, pending, legal, governmental or
regulatory actions, suits or proceedings (x) to which the Company
or any of its subsidiaries is subject or (y) which has as the
subject thereof any officer or director of the Company or any
subsidiary, any employee plan sponsored by the Company or any
subsidiary or any property or assets owned or leased by the Company
or any subsidiary, that are required to be described in the SEC
Documents by the Exchange Act or by the Rules and Regulations and
that have not been so described.
-3-
(e) Authorization; No Conflicts; Authority.
This Agreement has been duly authorized, executed and delivered by
the Company, and constitutes a valid, legal and binding obligation
of the Company, enforceable in accordance with its terms, except as
rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles
of equity. The execution, delivery and performance of this
Agreement and the consummation of the transactions herein
contemplated will not (A) conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to any indenture, mortgage, deed
of trust, loan agreement or other material agreement or instrument
to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its
subsidiaries is subject, (B) result in any violation of the
provisions of the Company’s charter or by-laws or (C) result
in the violation of any law or statute or any judgment, order,
rule, regulation or decree of any court or arbitrator or federal,
state, local or foreign governmental agency or regulatory authority
having jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets (each, a “Governmental
Authority”), except in the case of clauses (A) and (C) as
would not result in a Material Adverse Effect. No consent,
approval, authorization or order of, or registration or filing with
any Governmental Authority is required for the execution, delivery
and performance of this Agreement or for the consummation of the
transactions contemplated hereby, including the issuance or sale of
the Securities by the Company, except such as may be required under
the Securities Act, the rules of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), the OTCQB Marketplace
(“OTCQB”) or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby, including
the authorization, issuance and sale of the Securities as
contemplated by this Agreement.
(f) Capitalization; the Securities; Registration
Rights. All of the issued and outstanding shares of capital
stock of the Company, including the outstanding shares of Common
Stock, are duly authorized and validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and
state and foreign securities laws, were not issued in violation of
or subject to any preemptive rights or other rights to subscribe
for or purchase securities that have not been waived in writing (a
copy of which, if any, has been delivered to counsel to the
Placement Agent), and the holders thereof are not subject to
personal liability by reason of being such holders; the Securities
which may be sold hereunder by the Company have been duly
authorized and, when issued, delivered and paid for in accordance
with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable, and the holders thereof will
not be subject to personal liability by reason of being such
holders; and the capital stock of the Company conforms to the
description thereof in the SEC Documents. Except as otherwise
stated in the SEC Documents, (A) there are no preemptive rights or
other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant
to the Company’s charter, by laws or any agreement or other
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound;
(B) the offering or sale of the Securities as contemplated by this
Agreement does not give rise to any rights for or relating to the
registration of any shares of Common Stock or other securities of
the Company (collectively “Registration Rights”) and
(C) any person to whom the Company has granted Registration Rights
has agreed not to exercise such rights until after expiration of
the Lock-Up Period (as defined below). All of the issued and
outstanding shares of capital stock of each of the Company’s
subsidiaries have been duly and validly authorized and issued and
are fully paid and nonassessable, and, except as otherwise
described in the SEC Documents, the Company owns of record and
beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all of the issued
and outstanding shares of such stock. The Company has an authorized
and outstanding capitalization as set forth in the SEC Documents.
The Common Stock conforms in all material respects to the
description thereof contained in the SEC Documents.
-4-
(g) Stock Options. Except as described in
the SEC Documents, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from
the Company or any subsidiary of the Company any shares of the
capital stock of the Company or any subsidiary of the Company. The
description of the Company’s stock option, stock bonus and
other stock plans or arrangements (the “Company Stock
Plans”), and the options or other rights granted thereunder
(collectively, the “Awards”), set forth in the SEC
Documents accurately and fairly presents in all material respects
the information required to be shown with respect to such plans,
arrangements and Awards. Each grant of an Award (A) was duly
authorized no later than the date on which the grant of such Award
was by its terms to be effective by all necessary corporate action,
including, as applicable, approval by the board of directors of the
Company (or a duly constituted and authorized committee thereof)
and any required stockholder approval by the necessary number of
votes or written consents, and the award agreement governing such
grant (if any) was duly executed and delivered by each party
thereto and (B) was made in accordance with the terms of the
applicable Company Stock Plan, and all applicable laws and
regulatory rules or requirements, including all applicable federal
securities laws.
(h) Compliance with Laws. The Company and
each of its subsidiaries holds, and is operating in compliance in
all material respects with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and orders of
any Governmental Authority or self-regulatory body required for the
conduct of its business and all material franchises, grants,
authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect;
and neither the Company nor any of its subsidiaries has received
notice of any revocation or modification of any material franchise,
grant, authorization, license, permit, easement, consent,
certification or order or has reason to believe that any material
franchise, grant, authorization, license, permit, easement,
consent, certification or order will not be renewed in the ordinary
course; and the Company and each of its subsidiaries is in
compliance in all material respects with all applicable federal,
state, local and foreign laws, regulations, orders and
decrees.
(i) Ownership of Assets. The Company and its
subsidiaries have good and marketable title to, or have valid
rights to lease or otherwise use, all property (whether real or
personal) described in the SEC Documents as being owned, leased or
used by them, in each case free and clear of all liens, claims,
security interests, other encumbrances or defects except such as
are described in the SEC Documents. The property held under lease
by the Company and its subsidiaries is held by them under valid,
subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material
respect with the conduct of the business of the Company or its
subsidiaries.
(j) Intellectual
Property.
(A)
The Company and
each of its subsidiaries owns or has the right to use pursuant to a
valid and enforceable written license or other legally enforceable
right, all Intellectual Property (as defined below) necessary for
the conduct of the Company’s and its subsidiaries’
businesses as now conducted or as described in the SEC Documents to
be conducted (the “Company IP”). “Intellectual
Property” means all patents, patent applications, trade and
service marks, trade and service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets, domain names,
technology, know-how and other intellectual property.
(B)
To the knowledge of
the Company, there is no infringement, misappropriation or
violation by third parties of any Company IP. There is no pending
or, to the knowledge of the Company, threatened, action, suit,
proceeding or claim by others challenging the Company’s or
its subsidiaries’ rights in or to any Company IP, and the
Company is unaware of any facts which would form a reasonable basis
for any such claim. The Intellectual Property owned by the Company
and its subsidiaries, and to the knowledge of the Company, the
Intellectual Property licensed to the Company and its subsidiaries,
has not been adjudged invalid or unenforceable, in whole or in
part, and there is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others challenging
the validity or scope of any Company IP, and the Company is unaware
of any facts which would form a reasonable basis for any such
claim. There is no pending or, to the knowledge of the Company,
threatened action, suit, proceeding or claim by others that the
Company or its subsidiaries infringe, misappropriate or otherwise
violate any Intellectual Property or other proprietary rights of
others, and neither the Company nor any of its subsidiaries has
received any written notice of such claim and the Company is
unaware of any other fact which would form a reasonable basis for
any such claim.
-5-
(C)
To the
Company’s knowledge, no employee of the Company or any of its
subsidiaries is in or has ever been in material violation of any
term of any employment contract, patent disclosure agreement,
invention assignment agreement, non-competition agreement,
non-solicitation agreement, nondisclosure agreement or any
restrictive covenant to or with a former employer where the basis
of such violation relates to such employee’s employment with
the Company or any of its subsidiaries or actions undertaken by the
employee while employed with the Company or any of its
subsidiaries.
(D)
The Company and its
subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their material
Intellectual Property.
(E)
All patent
applications owned by the Company or its subsidiaries and filed
with the U.S. Patent and Trademark Office (the “PTO”)
or any foreign or international patent authority that have resulted
in patents or currently pending applications that describe
inventions necessary to conduct the business of the Company or its
subsidiaries as now conducted or as described in the SEC Documents
to be conducted (collectively, the “Company Patent
Applications”) have been or were duly and properly
filed.
(F)
The Company and its
subsidiaries have complied with their duty of candor and disclosure
to the PTO for the Company Patent Applications. To the
Company’s knowledge, there are no facts required to be
disclosed to the PTO that were not disclosed to the PTO and which
would preclude the grant of a patent for the Company Patent
Applications. The Company has no knowledge of any facts which would
preclude it or its applicable subsidiary from having clear title to
the Company Patent Applications that have been identified by the
Company as being exclusively owned by the Company or one of its
subsidiaries.
(k) No Violations or Defaults. Neither the
Company nor any of its subsidiaries is in violation of its
respective charter, by laws or other organizational documents, or
in breach of or otherwise in default, and no event has occurred
which, with notice or lapse of time or both, would constitute such
a default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan
agreement or any other contract, lease or other instrument to which
it is subject or by which any of them may be bound, or to which any
of the property or assets of the Company or any of its subsidiaries
is subject, except as would not have a Material Adverse
Effect.
(l) Taxes. The Company and its subsidiaries
have timely filed all federal, state, local and foreign income and
franchise tax returns required to be filed and are not in default
in the payment of any taxes which were payable pursuant to said
returns or any assessments with respect thereto, other than any
which the Company or any of its subsidiaries is contesting in good
faith. There is no pending dispute with any taxing authority
relating to any of such returns, and the Company has no knowledge
of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an
adequate reserve reflected in the Company’s financial
statements included in the SEC Documents.
(m) Exchange Listing and Exchange Act
Registration. The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is quoted on the OTCQB and
the Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that
the Securities and Exchange Commission (the
“Commission”) is contemplating terminating such
registration. The Company has complied in all material respects
with the applicable requirements of the OTCQB for maintenance of
inclusion of the Common Stock on the OTCQB automated quotation
system. Except as previously disclosed to counsel for the Placement
Agent or as set forth in the SEC Documents, to the knowledge of the
Company, no beneficial owners of the Company’s capital stock
who, together with their associated persons and affiliates, hold in
the aggregate 10% or more of such capital stock, have any direct or
indirect association or affiliate with a FINRA member.
-6-
(n) Ownership of Other Entities. Other than
the subsidiaries listed in this paragraph, the Company, directly or
indirectly, owns no capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, association,
trust or other entity. The Company’s subsidiaries currently
consist of the following entities: I.W. Systems Canada Company, a
Nova Scotia unlimited liability company; Digital Imaging
International GmbH, a company formed under German laws; and
ImageWare Mexico, S. DE R.L.
(o) Internal Controls. The Company and its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management’s general or
specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles in the United States and
to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Except
as disclosed in the SEC Documents, the Company’s internal
control over financial reporting is effective and none of the
Company, its board of directors and audit committee is aware of any
“significant deficiencies” or “material
weaknesses” (each as defined by the Public Company Accounting
Oversight Board) in its internal control over financial reporting,
or any fraud, whether or not material, that involves management or
other employees of the Company and its subsidiaries who have a
significant role in the Company’s internal controls; and
since the end of the latest audited fiscal year, there has been no
change in the Company’s internal control over financial
reporting (whether or not remediated) that has materially affected,
or is reasonably likely to materially affect, the Company’s
internal control over financial reporting. The Company’s
board of directors has, subject to the exceptions, cure periods and
the phase in periods specified in the applicable stock exchange
rules (“Exchange Rules”), validly appointed an audit
committee to oversee internal accounting controls whose composition
satisfies the applicable requirements of the Exchange Rules and the
Company’s board of directors and/or the audit committee has
adopted a charter that satisfies the requirements of the Exchange
Rules.
(p) No Brokers or Finders. Other than as
contemplated by this Agreement, the Company has not incurred any
liability for any finder’s or broker’s fee or
agent’s commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(q) Insurance. The Company and each of its
subsidiaries carries, or is covered by, insurance from reputable
insurers in such amounts and covering such risks as is adequate for
the conduct of its business and the value of its properties and the
properties of its subsidiaries and as is customary for companies
engaged in similar businesses in similar industries; all policies
of insurance and any fidelity or surety bonds insuring the Company
or any of its subsidiaries or its business, assets, employees,
officers and directors are in full force and effect; the Company
and its subsidiaries are in compliance with the terms of such
policies and instruments in all material respects; there are no
claims by the Company or any of its subsidiaries under any such
policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause;
neither the Company nor any of its subsidiaries has been refused
any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has reason to believe that it
will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a
cost that would not have a Material Adverse Effect.
(r) Investment Company Act. The Company is
not and, after giving effect to the offering and sale of the
Securities, will not be an “investment company,” as
such term is defined in the Investment Company Act of 1940, as
amended.
(s) Sarbanes-Oxley Act. The Company is in
compliance with all applicable provisions of the Sarbanes-Oxley Act
and the rules and regulations of the Commission
thereunder.
(t) Disclosure Controls. The Company has
established and maintains disclosure controls and procedures (as
defined in Rules 13a-14 and 15d-14 under the Exchange Act) and such
controls and procedures are effective in ensuring that material
information relating to the Company, including its subsidiaries, is
made known to the principal executive officer and the principal
financial officer. The Company has utilized such controls and
procedures in preparing and evaluating the disclosures in the SEC
Documents.
-7-
(u) Anti-Bribery and Anti-Money Laundering
Laws. Each of the Company, its subsidiaries, its affiliates
and any of their respective officers, directors, supervisors,
managers, agents or employees has not, to the Company’s,
knowledge, violated and its participation in the offering will not
violate each of the following laws: anti-bribery laws, including
but not limited to, any applicable law, rule, or regulation of any
locality, including but not limited to any law, rule, or regulation
promulgated to implement the OECD Convention on Combating Bribery
of Foreign Public Officials in International Business Transactions,
signed December 17, 1997, including the U.S. Foreign Corrupt
Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or
any other law, rule or regulation of similar purposes and scope, or
anti-money laundering laws, including but not limited to,
applicable federal, state, international, foreign or other laws,
regulations or government guidance regarding anti-money laundering,
including, without limitation, Title 18 U.S. Code Section 1956 and
1957, the Patriot Act, the Bank Secrecy Act, and international
anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial
Action Task Force on Money Laundering, of which the United States
is a member and with which designation the United States
representative to the group or organization continues to concur,
all as amended, and any executive order, directive, or regulation
pursuant to the authority of any of the foregoing, or any orders or
licenses issued thereunder.
(v) OFAC.
(A)
Neither the Company
nor any of its subsidiaries, nor any of their directors, officers
or employees, nor, to the Company’s knowledge, any agent,
affiliate or representative of the Company or its subsidiaries, is
an individual or entity that is, or is owned or controlled by an
individual or entity that is:
(1)
the subject of any
sanctions administered or enforced by the U.S. Department of
Treasury’s Office of Foreign Assets Control, the United
Nations Security Council, the European Union, Her Majesty’s
Treasury, or other relevant sanctions authority (collectively,
“Sanctions”), nor
(2)
located, organized
or resident in a country or territory that is the subject of
Sanctions (including, without limitation, the Crimea Region of
Ukraine, Cuba, Iran, North Korea, Sudan and Syria).
(B)
Neither the Company
nor any of its subsidiaries will, directly or indirectly, use the
proceeds of the offering, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or
other individual or entity:
(1)
to fund or
facilitate any activities or business of or with any individual or
entity or in any country or territory that, at the time of such
funding or facilitation, is the subject of Sanctions;
or
(2)
in any other manner
that will result in a violation of Sanctions by any individual or
entity (including any individual or entity participating in the
offering, whether as underwriter, advisor, investor or
otherwise).
(C)
For the past five
years, neither the Company nor any of its subsidiaries has
knowingly engaged in, and is not now knowingly engaged in, any
dealings or transactions with any individual or entity, or in any
country or territory, that at the time of the dealing or
transaction is or was the subject of Sanctions.
(w) Compliance with Environmental Laws.
Except as disclosed in the SEC Documents, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any Governmental Authority or any
court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, “Environmental
Laws”), owns or operates any real property contaminated with
any substance that is subject to any Environmental Laws, is liable
for any off-site disposal or contamination pursuant to any
Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or
claim would, individually or in the aggregate, have a Material
Adverse Effect; and the Company is not aware of any pending
investigation which might lead to such a claim. Neither the Company
nor any of its subsidiaries anticipates incurring any material
capital expenditures relating to compliance with Environmental
Laws.
-8-
(x) Compliance with Occupational Laws. The
Company and each of its subsidiaries (A) is in compliance, in all
material respects, with any and all applicable foreign, federal,
state and local laws, rules, regulations, treaties, statutes and
codes promulgated by any and all Governmental Authorities
(including pursuant to the Occupational Health and Safety Act)
relating to the protection of human health and safety in the
workplace (“Occupational Laws”); (B) has received all
material permits, licenses or other approvals required of it under
applicable Occupational Laws to conduct its business as currently
conducted; and (C) is in compliance, in all material respects, with
all terms and conditions of any such permits, licenses or
approvals. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or, to the Company’s
knowledge, threatened against the Company or any of its
subsidiaries relating to Occupational Laws, and the Company does
not have knowledge of any facts, circumstances or developments
relating to its operations or cost accounting practices that could
reasonably be expected to form the basis for or give rise to such
actions, suits, investigations or proceedings.
(y) ERISA and Employee Benefits Matters. (A)
To the knowledge of the Company, no “prohibited
transaction” as defined under Section 406 of ERISA (as
defined below) or Section 4975 of the Code (as defined below) and
not exempt under ERISA Section 408 and the regulations and
published interpretations thereunder has occurred with respect to
any Employee Benefit Plan (as defined below). At no time has the
Company or any ERISA Affiliate (as defined below) maintained,
sponsored, participated in, contributed to or has or had any
liability or obligation in respect of any Employee Benefit Plan
subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA, or Section 412 of the Code or any “multiemployer
plan” as defined in Section 3(37) of ERISA or any multiple
employer plan for which the Company or any ERISA Affiliate has
incurred or could incur liability under Section 4063 or 4064 of
ERISA. No Employee Benefit Plan provides or promises, or at any
time provided or promised, retiree health, life insurance, or other
retiree welfare benefits except as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
or similar state law. Each Employee Benefit Plan is and has been
operated in material compliance with its terms and all applicable
laws, including but not limited to ERISA and the Code and, to the
knowledge of the Company, no event has occurred (including a
“reportable event” as such term is defined in Section
4043 of ERISA) and no condition exists that would subject the
Company or any ERISA Affiliate to any material tax, fine, lien,
penalty or liability imposed by ERISA, the Code or other applicable
law. Each Employee Benefit Plan intended to be qualified under Code
Section 401(a) is so qualified and has a favorable determination or
opinion letter from the IRS upon which it can rely, and any such
determination or opinion letter remains in effect and has not been
revoked; to the knowledge of the Company, nothing has occurred
since the date of any such determination or opinion letter that is
reasonably likely to adversely affect such qualification; (B) with
respect to each Foreign Benefit Plan (as defined below), such
Foreign Benefit Plan (1) if intended to qualify for special tax
treatment, meets, in all material respects, the requirements for
such treatment, and (2) if required to be funded, is funded to the
extent required by applicable law, and with respect to all other
Foreign Benefit Plans, adequate reserves therefor have been
established on the accounting statements of the applicable Company
or subsidiary; (C) neither the Company nor any of its subsidiaries
has any obligations under any collective bargaining agreement with
any union and no organization efforts are underway with respect to
employees of the Company or any of its subsidiaries. As used in
this Agreement, “Code” means the Internal Revenue Code
of 1986, as amended; “Employee Benefit Plan” means any
“employee benefit plan” within the meaning of Section
3(3) of ERISA, including, without limitation, all stock purchase,
stock option, stock-based severance, employment, change-in-control,
medical, disability, fringe benefit, bonus, incentive, deferred
compensation, employee loan and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or
not subject to ERISA, under which (1) any current or former
employee, director or independent contractor of the Company or its
subsidiaries has any present or future right to benefits and which
are contributed to, sponsored by or maintained by the Company or
any of its subsidiaries or (2) the Company or any of its
subsidiaries has had or has any present or future obligation or
liability; “ERISA” means the Employee Retirement Income
Security Act of 1974, as amended; “ERISA Affiliate”
means any member of the Company’s controlled group as defined
in Code Section 414(b), (c), (m) or (o); and “Foreign Benefit
Plan” means any Employee Benefit Plan established, maintained
or contributed to outside of the United States of America or which
covers any employee working or residing outside of the United
States.
-9-
(z) Business Arrangements. Except as
disclosed in the SEC Documents, neither the Company nor any of its
subsidiaries has granted exclusive rights to develop, manufacture,
produce, assemble, distribute, license, market or sell its products
to any other person and is not bound by any agreement that affects
the exclusive right of the Company or such subsidiary to develop,
manufacture, produce, assemble, distribute, license, market or sell
its products.
(aa) Labor
Matters. No labor problem or dispute with the employees of
the Company or any of its subsidiaries exists or is threatened or
imminent, and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or its
subsidiaries’ principal suppliers, contractors or customers,
that could have a Material Adverse Effect.
(bb) Restrictions
on Subsidiary Payments to the Company. No subsidiary of the
Company is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making any other
distribution on such subsidiary’s capital stock, from
repaying to the Company any loans or advances to such subsidiary
from the Company or from transferring any of such
subsidiary’s property or assets to the Company or any other
subsidiary of the Company, except as provided by applicable state
law or described in the SEC Documents.
(cc) Statistical
Information. Any third-party statistical and market-related
data included in the SEC Documents are based on or derived from
sources that the Company believes to be reasonably current and
reliable and accurate in all material respects.
(dd) Forward-looking
Statements. No forward-looking statement (within the meaning
of Section 27A of the Securities Act and Section 21E of the
Exchange Act) contained in the SEC Documents has been made or
reaffirmed without a reasonable basis or has been disclosed other
than in good faith.
(ee) Non-public
Information. The Company has
not provided and has not authorized any other person to act on its
behalf to provide any Investor or its respective agents or counsel
with any information about the Company that constitutes or might
constitute material, non-public information which is not otherwise
disclosed in the SEC Documents.
(ff) Private
Placement. Assuming the accuracy of the representations of
the Purchasers in the Purchase Agreement, on each Closing Date and
solely as this subsection relates to the issue and sale of the
Conversion Shares on the date(s) of conversion of the Preferred
Stock (assuming no change in applicable law prior to the date the
Conversion Shares are issued), are and will be exempt from the
registration and prospectus delivery requirements of the Securities
Act of 1933 (the “Securities Act”) and have been or
will be registered or qualified (or are or will be exempt from
registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
Neither the Company, nor any of its affiliates, nor any person
acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any
security under circumstances that would require registration under
the Securities Act of the issuance of the Securities to the
purchasers in the Private Placement. Upon the conversion of the
Preferred Stock pursuant to their terms, the Conversion Shares will
be quoted on the OTCQB. Other than the Private Placement Documents,
the Company has not distributed and will not distribute prior to a
Closing any offering material in connection with the offering and
sale of the Securities, unless such offering materials are provided
to the Placement Agent prior to or simultaneously with such
delivery to the offerees of the Securities. The Company agrees that
no Private Placement Documents (as hereinafter defined) or
materials presented or distributed to the Potential Investors,
including the SEC Documents, shall contain an untrue statement of a
material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(gg) No
General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has
engaged or will engage in any form of general solicitation or
general advertising (within the meaning of Regulation D promulgated
under the Securities Act) in connection with the offer or sale of
the Securities.
-10-
(hh) Bad
Actor Disqualification.
(A)
With respect to
Securities to be offered and sold hereunder in reliance on Rule 506
under the Securities Act (“Regulation D Securities”),
none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the
Company participating in the Private Placement, any beneficial
owner of 20% or more of the Company's outstanding voting equity
securities (calculated on the basis of voting power), nor any
promoter (as that term is defined in Rule 405 under the Securities
Act) connected with the Company in any capacity at the time of such
sale (each, an “Issuer Covered Person” and, together,
“Issuer Covered Persons”) is subject to any of the
“Bad Actor” disqualifications described in Rule
506(d)(1)(i)–(viii) under the Securities Act (a
“Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any
Issuer Covered Person is subject to a Disqualification Event. The
Company has complied, to the extent applicable, with its disclosure
obligations under Rule 506(e), and has furnished to the Placement
Agent and the Potential Investors a copy of any disclosures
provided thereunder.
(B)
The Company is not
aware of any person (other than any Issuer Covered Person or Dealer
Covered Person that has been or will be paid (directly or
indirectly) remuneration for solicitation of purchasers in
connection with the sale of the Securities. For the purposes of
this subsection, “Dealer Covered Person” shall mean
Northland Securities, Inc. or any of its directors, executive
officers, general partners, managing members or other officers
participating in the Private Placement.
(C)
The Company will
notify the Placement Agent in writing, prior to each Closing Date
of (i) any Disqualification Event relating to any Issuer Covered
Person and (ii) any event that would, with the passage of time,
become a Disqualification Event relating to any Issuer Covered
Person.
(ii) No
Manipulation; Disclosure Of Information. None of the
Company, its subsidiaries or any executive officer of the Company
(as defined in Rule 501(f) of Regulation D under the Securities
Act) has taken and will not take any action designed to or that
might reasonably be expected to cause or result in an unlawful
manipulation of the price of the Common Stock to facilitate the
sale or resale of the Securities,. The Company confirms that, to
its knowledge, with the exception of the proposed sale of
Securities contemplated in the Purchase Agreement (as to which the
Company makes no representation), neither it nor any other person
acting on its behalf has provided any of the Potential Investors or
their agent or counsel with any information that constitutes or
might constitute material, non-public information. The Company
understands and confirms that the Potential Investors shall be
relying on the foregoing representations in effecting transactions
in securities of the Company. All disclosures provided to the
Potential Investors regarding the Company, its business and the
transactions contemplated by the Purchase Agreement, including the
exhibits to the Purchase Agreement and the SEC Documents, furnished
by the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not
misleading.
(jj) Application
Of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under
the Company’s articles of incorporation or the laws of the
jurisdiction of its formation which is or could become applicable
to any Potential Investor as a result of the transactions
contemplated by the Purchase Agreement, including, without
limitation, the Company’s issuance of the Securities and any
Potential Investor’s ownership of the Securities. The Company
has not adopted a shareholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock
or a change in control of the Company.
-11-
Any
certificate signed by any officer of the Company or any Subsidiary
and delivered to the Placement Agent or to counsel for the
Placement Agent in connection with the offering of the Preferred
Stock shall be deemed a representation and warranty by the Company
to the Placement Agent and the Investors as to the matters covered
thereby. All representations and warranties of the Company in the
Purchase Agreement are deemed to have been made to the Placement
Agent and incorporated by reference herein.
3. Covenants. The Company covenants and
agrees with the Placement Agent as follows:
(a) Blue Sky Laws. The
Company will promptly take or cause to be taken, from time to time,
such actions as the Placement Agent may reasonably request to
qualify the Securities for offering and sale under the state
securities, or blue sky, laws of such states or other jurisdictions
as the Placement Agent may reasonably request and to maintain such
qualifications in effect so long as the Placement Agent may request
for the distribution of the Securities, provided that in no event
shall the Company be obligated to qualify as a foreign corporation
in any jurisdiction in which it is not so qualified or to file a
general consent to service of process in any jurisdiction or
subject itself to taxation as doing business in any jurisdiction.
The Company will advise the Placement Agent promptly of the
suspension of the qualification or registration of (or any
exemption relating to) the Securities for offering, sale or trading
in any jurisdiction or any initiation or threat of any proceeding
for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof
at the earliest possible moment.
(b) Public
Communications. Prior to 9:00 a.m. New York City time on the
business day immediately subsequent to the date hereof, the Company
shall issue a press release (the “Press Release”)
reasonably acceptable to the Placement Agent disclosing the
execution of this Agreement, the Purchase Agreement and the
transactions contemplated hereby and thereby. Prior to the Closing
Date, the Company covenants not to issue any press release (other
than the Press Release) or other communication directly or
indirectly or hold any press conference with respect to the
Company, its condition, financial or otherwise, or earnings,
business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and
consistent with the past practices of the Company and of which the
Placement Agent is notified), without the prior written consent of
the Placement Agent, unless in the judgment of the Company and its
counsel, and after notification to the Placement Agent, such press
release or communication is required by law.
(c) Stabilization. The
Company will not take directly or indirectly any action designed,
or that would reasonably be expected to cause or result in, or that
will constitute, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of
the Preferred Stock and Conversion Shares.
(d) Transfer Agent. The
Company shall engage and maintain, at its expense, a transfer agent
and, if necessary under the jurisdiction of incorporation of the
Company, a registrar for the Preferred Stock and Conversion
Shares.
(e) Investment Company
Act. The Company shall not invest or otherwise use the proceeds
received by the Company from its sale of the Preferred Stock in
such a manner as would require the Company or any Subsidiary to
register as an investment company under the Investment Company
Act.
4. Costs and Expenses. In addition to the
Agency Fee, the Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is
terminated, will reimburse the Placement Agent for (a) all
reasonable fees and disbursements of counsel retained by the
Placement Agent with the Company’s consent, provided that
such fees and disbursements of such counsel shall not exceed
$90,000, (b) all of the Placement Agent’s reasonable travel
and related expenses, and (c) any other reasonable out-of-pocket
expenses incurred by the Placement Agent in connection with the
performance of their services hereunder.
-12-
5. Conditions of Placement Agent’s
Obligations. The obligations of the Placement Agent
hereunder and the Investors under the Purchase Agreement are
subject to the following conditions:
(a) Action Preventing
Issuance. No action shall have been taken and no law, statute,
rule, regulation or order shall have been enacted, adopted or
issued by any governmental agency or body which would prevent the
issuance or sale of the Securities or materially and adversely
affect or potentially materially and adversely affect the business
or operations of the Company; and no injunction, restraining order
or order of any other nature by any federal or state court of
competent jurisdiction shall have been issued which would prevent
the issuance or sale of the Securities or materially and adversely
affect or potentially materially and adversely affect the business
or operations of the Company.
(b) Material Adverse
Change. Subsequent to the date of the latest audited financial
statements included or incorporated by reference in the SEC
Documents, (i) the Company has not
sustained any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth in the SEC
Documents, or (ii) there has not been any
change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares
upon the exercise of outstanding options or warrants or the
conversion of convertible indebtedness), or material change in the
short-term debt or long-term debt of the Company (other than upon
conversion of convertible indebtedness) or any material adverse
change, in or affecting the business, assets, general affairs,
management, financial position, prospects, stockholders’
equity or results of operations of the Company, otherwise than as
set forth in the SEC Documents, the effect of which, in any such
case described in clause (i) or (ii) of this subsection (b), is, in the reasonable
judgment of the Placement Agent, so material and adverse as to make
it impracticable or inadvisable to proceed with Private
Placement.
(c) Representations and
Warranties. Each of the representations and warranties of the
Company contained herein shall be true and correct in all material
respects when made and on and as of the Closing Date, as if made on
such date (except that those representations and warranties that
address matters only as of a particular date shall remain true and
correct as of such date), and all covenants and agreements herein
contained to be performed on the part of the Company and all
conditions herein contained to be fulfilled or complied with by the
Company at or prior to the Closing Date shall have been duly
performed, fulfilled or complied with.
(d) Opinions of Counsel
to the Company. The Placement Agent shall have received from
Disclosure Law Group, a professional corporation, counsel to the
Company, such counsel’s written opinions, addressed to the
Placement Agent and the Investors and dated the Closing Date, in
form and substance reasonably satisfactory to the Placement Agent
and its counsel.
(e) Opinion of
Intellectual Property Counsel to the Company. The Placement Agent
shall have received from San Diego IP Law Group LLP, intellectual
property counsel for the Company, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Placement
Agent may reasonably require, and the Company shall have furnished
to such counsel such documents as it requests to enable it to pass
upon such matters.
(f) Opinion of Counsel
to the Placement Agent. The Placement Agent shall have received
from Faegre Baker Daniels LLP, counsel for the Placement Agent,
such opinion or opinions, dated the Closing Date, with respect to
such matters as the Placement Agent may reasonably require, and the
Company shall have furnished to such counsel such documents as it
requests to enable it to pass upon such matters.
(g) No FINRA Objection.
The Placement Agent shall not have received any unresolved
objection from the FINRA as to the fairness and reasonableness of
the amount of compensation allowable or payable to the Placement
Agent in connection with the issuance and sale of the
Securities.
-13-
(h) Officers’
Certificate. The Placement Agent shall have received on the Closing
Date a certificate, addressed to the Placement Agent and dated the
Closing Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that:
(i) each
of the representations, warranties and agreements of the Company
contained in this Agreement were true and correct when originally
made and are true and correct in all material respects as of the
Closing Date as if made on each such date (except that those
representations and warranties that address matters only as of a
particular date remain true and correct as of each such date); and
the Company has complied with all agreements and satisfied all the
conditions on its part required under this Agreement to be
performed or satisfied at or prior to the Closing Date;
and
(ii) there
has not been, subsequent to the date of the most recent audited
financial statements included the SEC Documents, any material
adverse change in the financial position or results of operations
of the Company, or any change or development that, singularly or in
the aggregate, would involve a material adverse change or a
prospective material adverse change, in or affecting the condition
(financial or otherwise), results of operations, business, assets
or prospects of the Company except as set forth in the SEC
Documents.
(i) Purchase Agreement.
The Company shall have entered into the Purchase Agreement with
each of the Investors, and such agreement shall be in full force
and effect on the Closing Date.
(j) Additional
Documents. Prior to the Closing Date, the Company shall have
furnished to the Placement Agent such further information,
certificates or documents as the Placement Agent shall have
reasonably requested.
All
opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance
with the provisions hereof only if they are in form and substance
reasonably satisfactory to counsel for the Placement
Agent.
If any
condition specified in this Section 5 is not satisfied when
and as required to be satisfied, this Agreement may be terminated
by the Placement Agent by notice to the Company at any time prior
to the Closing Date, which termination shall be without liability
on the part of any party to any other party, except that
Section 4,
Section 6 and
Section 8 hereof
shall at all times be effective and shall survive such
termination.
6. Indemnification and
Contribution.
(a) Indemnification of
the Placement Agent. The Company agrees to indemnify, defend and
hold harmless the Placement Agent, its affiliates and each of its
and their respective directors, officers, members, employees,
representatives and agents and its
affiliates, and each of its and their respective directors,
officers, members, employees, representatives and agents and each
person who controls the Placement Agent within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the successors and assigns of all of the foregoing
persons, from and against any losses, claims, damages, expenses or
liabilities, joint or several, to which such person may become
subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, the common law or
otherwise (including in settlement of any litigation if such
settlement is effected with the written consent of the Company),
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the
Private Placement Documents or any amendment or supplement thereto,
or in any materials or information provided to Investors or
Potential Investors by, or with the approval of, the Company in
connection with the marketing of the offering of the Common Stock,
including any roadshow or investor presentations made to Investors
or Potential Investors by the Company (whether in person or
electronically) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Placement Agent for any legal or
other expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage,
liability, expense or action; or (ii) in whole or in part upon
any inaccuracy in the representations and warranties of the Company
contained herein; or (iii) in whole or in part upon
any failure of the Company to perform its obligations hereunder or
under law.
-14-
(b) Notice and
Procedures. If any action, suit or proceeding (each, a
“Proceeding”) is brought against a person (an
“Indemnified Party”) in respect of which indemnity may
be sought against the Company or the Placement Agent (as
applicable, the “Indemnifying Party”) pursuant to
subsections
(a) or (b) above, respectively, of
this Section 6, such
Indemnified Party shall promptly notify such Indemnifying Party in
writing of the institution of such Proceeding and such Indemnifying
Party shall assume the defense of such Proceeding, including the
employment of counsel reasonably satisfactory to such Indemnified
Party and payment of all fees and expenses; provided, however, that
the omission to so notify such Indemnifying Party shall not relieve
such Indemnifying Party from any liability which such Indemnifying
Party may have to any Indemnified Party or otherwise, except to the
extent the Indemnifying Party has been materially prejudiced by
such failure; and provided, further, that the failure to notify the
Indemnifying Party shall not relieve it from any liability that it
may have to an Indemnified Party otherwise than under subsection (a) or (b) above. The Indemnified
Party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or parties unless
(i) the employment
of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such
Proceeding, (ii) the Indemnifying Party
shall not have, within a reasonable period of time in light of the
circumstances, employed counsel to defend such Proceeding or
(iii) such
Indemnified Party or parties shall have reasonably concluded upon
written advice of counsel that there may be one or more legal
defenses available to it or them which are different from,
additional to or in conflict with those available to such
Indemnifying Party (in which case such Indemnifying Party shall not
have the right to direct that portion of the defense of such
Proceeding on behalf of the Indemnified Party or parties, but such
Indemnifying Party or parties may employ counsel and participate in
the defense thereof but the fees and expenses of such counsel shall
be at the expense of the Indemnifying Party), in any of which
events such reasonable fees and expenses shall be borne by such
Indemnifying Party and paid as incurred (it being understood,
however, that such Indemnifying Party shall not be liable for the
expenses of more than one separate counsel (in addition to any
local counsel) in any one Proceeding or series of related
Proceedings in the same jurisdiction representing the Indemnified
Parties who are parties to such Proceeding). An Indemnifying Party
shall not be liable for any settlement of any Proceeding effected
without its written consent but, if settled with its written
consent, such Indemnifying Party agrees to indemnify and hold
harmless the Indemnified Party or parties from and against any loss
or liability by reason of such settlement. Notwithstanding the
foregoing sentence, if at any time an Indemnified Party shall have
requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the second
sentence of this Section 6(c), then the
Indemnifying Party agrees that it shall be liable for any
settlement of any Proceeding effected without its written consent
if (i) such
settlement is entered into more than 60 days after receipt by such
Indemnifying Party of the aforesaid request, (ii) such Indemnifying
Party shall not have fully reimbursed the Indemnified Party in
accordance with such request prior to the date of such settlement
and (iii) such
Indemnified Party shall have given the Indemnifying Party at least
30 days’ prior notice of its intention to settle. No
Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement, compromise or consent to
the entry of judgment in any pending or threatened Proceeding in
respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that
are the subject matter of such Proceeding and does not include an
admission of fault or culpability or a failure to act by or on
behalf of such Indemnified Party.
(c) Contribution. If
the indemnification provided for in this Section 6 is unavailable
to an Indemnified Party under subsections (a) or
(b) of this
Section 6 or
insufficient to hold an Indemnified Party harmless in respect of
any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of the
losses, claims, damages, liabilities or expenses referred to in
subsections (a) or
(b) above,
(i) in such
proportion as is appropriate to reflect the relative benefits
received by the Indemnifying Party or parties on the one hand and
the Indemnified Party or parties on the other hand from the
offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the
relative fault of the Indemnifying Party or parties on the one hand
and the Indemnified Party or parties on the other hand in
connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Placement Agent on
the other hand shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the
Preferred Stock (before deducting expenses) received by the
Company
-15-
bear to
the Agency Fee received by the Placement Agent. The relative fault
of the Company on the one hand and the Placement Agent on the other
hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or
by the Placement Agent, on the other hand, and the parties’
relevant intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement, omission, act or
failure to act; provided that the parties hereto agree that the
Placement Agent provided no written information to the Company for
use in the Private Placement Documents.
(d) Allocation. The
Company and the Placement Agent agree that it would not be just and
equitable if contribution pursuant to subsection (d) above were to be
determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in the first sentence of subsection (d) above.
Notwithstanding the provisions of this Section 6(e), the Placement
Agent shall not be required to contribute any amount in excess of
the total Agency Fee received by the Placement Agent in accordance
with Section 1(b)
less the amount of any damages which the Placement Agent has
otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement, omission or alleged omission, act or
alleged act or failure to act or alleged failure to act. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 6 are not exclusive and
shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in
equity.
(e) Representations and
Agreements to Survive Delivery. The obligations of the Company and
the Placement Agent under this Section 6 shall be in
addition to any liability which the Company and the Placement Agent
may otherwise have. The indemnity and contribution agreements
contained in this Section 6 and the
covenants, agreements, warranties and representations of the
Company contained in this Agreement shall remain operative and in
full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made
by or on behalf of the Placement Agent, any person who controls the
Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or any
affiliate of the Placement Agent, or by or on behalf of the
Company, its directors or officers or any person who controls the
Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and
(iii) the issuance
and delivery of the Preferred Stock. The Company and the Placement
Agent agree promptly to notify each other of the commencement of
any Proceeding against it and, in the case of the Company, against
any of the Company’s officers or directors in connection with
the issuance and sale of the Securities, or in connection with the
Private Placement Documents.
7. Termination. The Placement Agent shall
have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the Closing Date,
without liability on the part of the Placement Agent to the
Company, if (i)
prior to delivery and payment for the Preferred Stock (A) trading in securities
generally shall have been suspended on or by the New York Stock
Exchange, the NYSE MKT, the NASDAQ Global Market, the NASDAQ
Capital Market or in the over-the-counter markets, (B) trading in the Common
Stock of the Company shall have been suspended on any exchange or
in the over-the-counter market or by the Commission, or
(C) a general
moratorium on commercial banking activities shall have been
declared by federal or New York state authorities or a material
disruption shall have occurred in commercial banking or securities
settlement or clearance services in the United States,
(D) there
shall have occurred any outbreak or material escalation of
hostilities or acts of terrorism involving the United States or
there shall have been a declaration by the United States of a
national emergency or war, or (E) there shall have occurred
any other calamity or crisis or any material change in general
economic, political or financial conditions in the United States or
elsewhere, if the effect of any such event specified in clause (D)
or (E), in the reasonable judgment of the Placement Agent, is
material and adverse and makes it impractical or inadvisable to
proceed with the completion of the sale of and payment for the
Preferred Stock on the Closing Date on the terms and in the manner
contemplated by this Agreement and the Private Placement Documents,
(ii) since the time
of execution of this Agreement or the earlier respective dates as
of which information is given in the Private Placement Documents,
there has been any Material Adverse Effect, (iii) the Company shall have
failed, refused or been unable to comply with the material terms or
perform any material agreement or obligation of this Agreement or
the Purchase Agreement, other than by reason of a default by the
Placement Agent, or (iv) any condition of the
Placement Agent’s obligations hereunder is not fulfilled.
This Agreement may be terminated by any party if the Closing does
not occur on or before September 30, 2018. Any such termination
shall be without liability of any party to any other party except
that the provisions of Section 4, Section 6, and
Section 12 hereof
shall at all times be effective notwithstanding such
termination.
-16-
8. Notices. All statements, requests,
notices and agreements hereunder shall be in writing or by
facsimile, and:
(a) if to the Placement
Agent, shall be delivered or sent by mail or facsimile transmission
as follows:
Northland
Securities, Inc.
45
South Seventh Street, Suite 2000
Minneapolis,
Minnesota 55402
Attention:
Investment Banking
with a
copy (which shall not constitute notice) to:
Faegre
Baker Daniels LLP
2200
Wells Fargo Center
90
South Seventh Street
Minneapolis,
Minnesota 55402
Attention: Jonathan
R. Zimmerman
Facsimile No.:
(612) 766-1600
(b) if to the Company
shall be delivered or sent by mail or facsimile transmission
to:
ImageWare Systems,
Inc.
10815
Rancho Bernanrdo Road, Suite 310,
San
Diego, California 92127,
Attention: S. James
Miller
with a
copy (which shall not constitute notice) to:
Disclosure Law
Group, a professional corporation
600
West Broadway, Suite 700
San
Diego, California 92101
Attention: Jessica
R. Sudweeks
Facsimile: (619)
330-2101
Any
such statements, requests, notices or agreements shall be effective
only upon receipt. Any party to this Agreement may change such
address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
9. Persons Entitled to Benefit of
Agreement. This Agreement shall inure to the benefit of and
shall be binding upon the Placement Agent, the Company, and their
respective successors and assigns. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any
person other than the persons mentioned in the preceding sentence
any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended
to be and being for the sole and exclusive benefit of such persons
and for the benefit of no other person, except that (i) the representations,
warranties, covenants, agreements and indemnities of the Company
contained in this Agreement shall also be for the benefit of the
controlling persons, officers and directors referred to in
Section 6(a) hereof
and the indemnities of the Placement Agent shall also be for the
benefit of the controlling persons, officers and directors referred
to in Section 6(b)
hereof; and (ii)
the Investors are relying on the representations, warranties,
covenants and agreements made by the Company under, and are
intended third party beneficiaries of, this Agreement. The term
“successors and assigns” as herein used shall not
include any purchaser of the Securities by reason merely of such
purchase.
-17-
10. Governing Law; Submission to
Jurisdiction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York,
without giving effect to the conflicts of laws provisions thereof.
Except as set forth below, no Proceeding may be commenced,
prosecuted or continued in any court other than the courts of State
of New York located in the City and County of New York or the
United States District Court for the Southern District of New York,
which courts shall have jurisdiction over the adjudication of such
matters, and the parties hereby consent to the jurisdiction of such
courts and personal service with respect thereto. The Company
hereby consents to personal jurisdiction, service and venue in any
court in which any Proceeding arising out of or in any way relating
to this Agreement is brought by any third party against the
Placement Agent. All parties hereby waive all right to trial by
jury in any Proceeding (whether based upon contract, tort or
otherwise) in any way arising out of or relating to this Agreement.
All parties agree that a final judgment in any such Proceeding
brought in any such court shall be conclusive and binding upon each
party and may be enforced in any other courts in the jurisdiction
of which a party is or may be subject, by suit upon such
judgment.
11. No Fiduciary Relationship. The Company
hereby acknowledges and agrees that:
(a) No Other
Relationship. The Placement Agent has been retained solely to act
as the exclusive placement agent in connection with the offering of
the Company’s securities. The Company further acknowledges
that the Placement Agent is acting pursuant to a contractual
relationship created solely by this Agreement entered into on an
arm’s-length basis and in no event do the parties intend that
the Placement Agent act or be responsible as a fiduciary to the
Company, its management, stockholders, creditors or any other
person in connection with any activity that the Placement Agent may
undertake or has undertaken in furtherance of the offering of the
Company’s securities, either before or after the date hereof,
irrespective of whether the Placement
Agent has advised or is advising the Company on other
matters. The Placement Agent hereby expressly disclaims any
fiduciary or similar obligations to the Company, either in
connection with the transactions contemplated by this Agreement or
any matters leading up to such transactions, and the Company hereby
confirms its understanding and agreement to that
effect.
(b) Arm’s-Length
Negotiations. The price and terms of the Securities set forth in
this Agreement was established by the Company following discussions
and arm’s-length negotiations with the Investors and the
Placement Agent, and the Company is capable of evaluating and
understanding, and understands and accepts, the terms, risks and
conditions of the transactions contemplated by this
Agreement.
(c) Absence of
Obligation to Disclose. The Company has been advised that the
Placement Agent and its affiliates are engaged in a broad range of
transactions which may involve interests that differ from those of
the Company and that the Placement Agent does not have any
obligation to disclose such interests or transactions to the
Company by virtue of any fiduciary, advisory or agency
relationship.
(d) Waiver. The Company
hereby waives and releases, to the fullest extent permitted by law,
any claims that the Company may have against the Placement Agent
with respect to any breach or alleged breach of any fiduciary or
similar duty to the Company in connection with the transactions
contemplated by this Agreement or any matters leading up to such
transactions and agrees that the Placement Agent shall have no
liability (whether direct or indirect) to the Company in respect of
such a fiduciary duty claim to any person asserting a fiduciary
duty claim on behalf of the Company, including stockholders,
employees or creditors of the Company.
12. Headings. The Section headings in this
Agreement have been inserted as a matter of convenience of
reference and are not a part of this Agreement.
13. Amendments and Waivers. No supplement,
modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. The failure
of a party to exercise any right or remedy shall not be deemed or
constitute a waiver of such right or remedy in the future. No
waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof
(regardless of whether similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly
provided.
-18-
14. Counterparts. This Agreement may be
executed in one or more counterparts and, if executed in more than
one counterpart, the executed counterparts shall each be deemed to
be an original and all such counterparts shall together constitute
one and the same instrument. Delivery of an executed counterpart by
facsimile or portable document format (.pdf) shall be effective as
delivery of a manually executed counterpart thereof.
15. Research Analyst Independence. The
Company acknowledges that the Placement Agent’s research
analysts and research departments are required to be independent
from its investment banking division and are subject to certain
regulations and internal policies, and that the Placement
Agent’s research analysts may hold views and make statements
or investment recommendations and/or publish research reports with
respect to the Company and/or the offering that differ from the
views of their investment banking division. The Company hereby
waives and releases, to the fullest extent permitted by law, any
claims that the Company may have against the Placement Agent with
respect to any conflict of interest that may arise from the fact
that the views expressed by its independent research analysts and
research department may be different from or inconsistent with the
views or advice communicated to the Company by the Placement
Agent’s investment banking division. The Company acknowledges
that the Placement Agent is a full service securities firm and as
such from time to time, subject to applicable securities laws,
rules and regulations, may effect transactions for its own account
or the account of its customers and hold long or short positions in
debt or equity securities of the Company; provided, however, that
nothing in this Section
16 shall relieve the Placement Agent of any responsibility
or liability it may otherwise bear in connection with activities in
violation of applicable securities laws, rules or
regulations.
16. Entire Agreement. This Agreement
constitutes the entire agreement of the parties to this Agreement
with respect to the Company’s offering, issuance and sale of
the Securities, and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.
17. Partial Unenforceability. The invalidity
or unenforceability of any section, paragraph, clause or provision
of this Agreement shall not affect the validity or enforceability
of any other section, paragraph, clause or provision hereof. If any
section, paragraph, clause or provision of this Agreement is for
any reason determined to be invalid or unenforceable, there shall
be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and
enforceable.
18. Effectiveness. This Agreement shall
become effective upon the execution and delivery hereof by the
parties hereto.
[Signature
page follows.]
-19-
If the
foregoing is in accordance with your understanding of the agreement
between the Company and the Placement Agent, kindly indicate your
acceptance in the space provided for that purpose
below.
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Very
truly yours,
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IMAGEWARE
SYSTEMS, INC.
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By:
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s/ Wayne
Wetherell
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Name:
Wayne Wetherell
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Title:
Chief Financial Officer
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Accepted
as of
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the
date first above written:
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NORTHLAND
SECURITIES, INC.
By:
/s/ Shawn D.
Messner
Name: Shawn D.
Messner
Title: Managing Director, Investment Banking
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-20-
Exhibit 10.4
EXCHANGE AGREEMENT
This
Exchange Agreement (this “Agreement”) is dated as of
September __, 2018 (the “Closing Date”), by and among
ImageWare Systems, Inc., a Delaware corporation (the
“Company”), and
________ (“______”).
RECITALS
WHEREAS, the
Company and Crocker are currently parties to that certain
Convertible Promissory Note, dated _________, as amended ________
(as amended, the “Note”), which Note provides for
maximum borrowings of up to $_______;
WHEREAS, as of
September __, 2018, the total amount of advances under the Note,
including outstanding principal and all accrued and unpaid interest
thereon, equals $_______ (the “Outstanding Amount”);
and
WHEREAS, subject to
the terms and conditions set forth herein, the Company and _______
desire that, concurrently with the execution and delivery of this
Agreement by the Company and ____________, (i) the Outstanding
Amount shall be exchanged for shares of the Company’s Series
A Convertible Preferred Stock, par value $0.01 per share, with a
stated value of $1,000 per share (the “Exchange Shares”) (the
“Exchange”),
which Exchange Shares shall be convertible into shares of common
stock of the Company, par value $0.01 per share
(“Conversion
Shares”), and (ii) all indebtedness, liabilities and
other obligations arising under or relating to the Note (including,
without limitation, principal, interest, fees, expenses, costs,
disbursements, premium, and indemnification) be deemed cancelled,
extinguished, released, discharged and satisfied in full without
the requirement for the payment or provision of any consideration
or other amounts (except for the issuance of the Exchange Shares in
exchange for the Outstanding Amount as contemplated herein), each
on the terms and conditions set forth in this
Agreement.
NOW,
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby agreed and acknowledged, the
parties hereby agree as follows:
AGREEMENT
1. Securities
Exchange.
(a) In consideration of
and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, ____________
hereby exchanges the Outstanding Amount for that number of Exchange
Shares equal to the Outstanding Amount divided by 1,000 (rounded
down to the nearest whole share), it being understood that the
number of Exchange Shares issued in connection with the Exchange
shall include accrued and unpaid interest on such Note up to and
including the Closing Date. In consideration for the foregoing, the
Company agrees to issue and deliver the Exchange Shares to
____________, as directed by ____________. For the avoidance of
doubt, the number of Exchange Shares issued by the Company in
exchange for the Outstanding Amount pursuant to this Section 1(a)
is _________ (_____) Exchange Shares.
(b) Within five
business days after the Closing Date, the Company shall issue and
deliver to ____________ a certificate evidencing the Exchange
Shares against delivery of the Note to the Company. Following the
Closing Date, the parties agree that all indebtedness, liabilities and other
obligations arising under or relating to the Note (including,
without limitation, principal, interest, fees, expenses, costs,
disbursements, premium, and indemnification) shall be deemed
cancelled, extinguished, released, discharged and satisfied in full
without the requirement for the payment or provision of any
consideration or other amounts (except for the issuance of the
Exchange Shares in exchange for the Outstanding Amount as
contemplated herein), and the Note shall be marked cancelled and
paid in full. As a result of the foregoing the Note shall be
terminated and of no further force and effect.
-1-
2. Representations,
Warranties and Covenants of ____________. ____________ hereby makes the
following representations and warranties to the Company, and
covenants for the benefit of the Company:
(a) This Agreement has
been duly authorized, validly executed and delivered by
____________ and is a valid and binding agreement and obligation of
____________ enforceable against ____________ in accordance with
its terms, subject to limitations on enforcement by general
principles of equity and by bankruptcy or other laws affecting the
enforcement of creditors’ rights generally, and ____________
has full power and authority to execute and deliver the Agreement
and the other agreements and documents contemplated hereby and to
perform its obligations hereunder and thereunder.
(b) ____________
understands that the Exchange Shares are being offered and sold to
it in reliance on the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of
____________ set forth herein.
(c) ____________ is and
will be acquiring the Exchange Shares for ____________’s own
account, for investment purposes, and not with a view to any resale
or distribution in whole or in part, in violation of the Securities
Act of 1933, as amended (“Securities Act”) or any
applicable securities laws.
(d) ____________ owns
and holds, beneficially and of record, the entire right, title, and
interest in and to the Note free and clear of all rights and
Encumbrances (as defined below). ____________ has full power and
authority to transfer and dispose of the Note free and clear of any
right or Encumbrance. Other than the transactions contemplated by
this Agreement, there is no outstanding plan, pending proposal, or
other right of any person to acquire all or any of the Note.
Encumbrances shall mean any
security or other property interest or right, claim, lien, pledge,
option, charge, security interest, contingent or conditional sale,
or other title claim or retention agreement, interest or other
right or claim of third parties, whether perfected or not
perfected, voluntarily incurred or arising by operation of law, and
including any agreement (other than this Agreement) to grant or
submit to any of the foregoing in the future.
(e) ____________ agrees
and acknowledges that it is currently an “affiliate” of
the Company, as such term is defined in the Securities Act, and as
a result cannot resell the Exchange Shares or Conversion Shares, as
such term is defined in the Certificate of Designations,
Preferences and Rights of the Exchange Shares, except in compliance
with the Securities Act and any applicable state blue sky
laws.
3. Representations,
Warranties and Covenants of the Company. The Company represents and warrants to
____________, and covenants for the benefit of ____________, as
follows:
(a) The Company has
been duly incorporated and is validly existing and in good standing
under the laws of the State of Delaware, with full corporate power
and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered
and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or
qualification, except where the failure to register or qualify
would not have a Material Adverse Effect. For purposes of this
Agreement, “Material Adverse
Effect” shall mean any material adverse effect on the
business, operations, properties, prospects, or financial condition
of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material
respect.
(b) The Exchange Shares
have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the
Exchange Shares shall be validly issued and outstanding, fully paid
and nonassessable, free and clear of all liens, encumbrances and
rights of refusal of any kind.
(c) This Agreement has
been duly authorized, validly executed and delivered on behalf of
the Company and is a valid and binding agreement and obligation of
the Company enforceable against the Company in accordance with its
terms, subject to limitations on enforcement by general principles
of equity and by bankruptcy or other laws affecting the enforcement
of creditors’ rights generally, and the Company has full
power and authority to execute and deliver the Agreement and the
other agreements and documents contemplated hereby and to perform
its obligations hereunder and thereunder.
-2-
(d) The Company has
complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and delivery
of the Exchange Shares hereunder.
4. Governing
Law; Consent to Jurisdiction. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of
California without giving effect to conflict of law principles that
would result in the application of the substantive laws of another
jurisdiction. Each of the parties consents to the exclusive
jurisdiction of the Federal courts whose districts encompass any
part of the State of California in connection with any dispute
arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection
based on forum non
conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party waives its right to a trial by jury. Each
party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its
address set forth herein. Nothing herein shall affect the right of
any party to serve process in any other manner permitted by
law.
5. Entire
Agreement. This
Agreement constitutes the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes
all prior and/or contemporaneous oral or written proposals or
agreements relating thereto all of which are merged herein. This
Agreement may not be amended or any provision hereof waived in
whole or in part, except by a written amendment signed by both of
the parties.
6. Counterparts.
This Agreement may be executed by facsimile signature and in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same
instrument.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-3-
IN
WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
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IMAGEWARE SYSTEMS, INC.
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By:______________________________________
Name:
Title:
|
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______________:
|
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________________________________________
|
-4-
Exhibit
99.1
ImageWare®
Systems Closes $8.9 Million Preferred
Stock
Private Placement and Approximately $6.9 Million
Debt Conversion into Equity
San
Diego, CA, September 12, 2018 – ImageWare® Systems, Inc.
(OTCQB:
IWSY), a leader in mobile and cloud-based, multi-factor,
multi-modal biometric identity management solutions, today
announced that it has completed a private placement of $8.9 million
of the Company’s newly designated Series C Convertible
Preferred Stock, with four new institutional investors. Shares of
Series C Preferred will accrue dividends at a rate of 8% per annum
if paid in cash or 10% per annum if paid in shares of the
Company’s common stock, and are convertible into shares of
the Company’s common stock at a conversion price of $1.00 per
share.
Northland
Capital Markets acted as the exclusive placement agent for the
Series C Financing. Northland
Capital Markets is the trade name for certain capital markets and
investment banking services of Northland Securities, Inc., member
FINRA/SIPC.
Concurrently
with the Series C Financing, holders of approximately $6.9 million
of unsecured debt converted their debt, which amount includes all
accrued and unpaid interest thereon, into 6,897 shares of the
Company’s existing Series A Convertible Preferred Stock. The
Company’s Board of Directors also declared a dividend for the
holders of the Series A Preferred, pursuant to which each holder of
Series A Preferred will receive a warrant to purchase approximately
40 shares of the Company’s common stock for every share of
Series A Preferred held, which warrant is only exercisable
concurrently with conversion of outstanding shares of Series A
Preferred.
Jim Miller, Chairman and CEO of ImageWare stated,
“We are extremely
pleased with the financial commitment that our new investors and
our existing debt holders have shown in support of the
Company’s efforts through this financing and debt conversion.
The proceeds from the Series C Financing will enable us to expand
our sales and marketing efforts.”
About ImageWare®
Systems, Inc.
ImageWare
Systems, Inc. is a leading developer of mobile and cloud-based
identity management solutions, providing patented biometric
authentication solutions for the enterprise. Biometric technology
uses unique physical characteristics to authenticate a
person’s identity. The Company delivers next-generation
biometrics as an interactive and scalable cloud-based solution.
ImageWare brings together cloud and mobile technology to offer
multi-factor authentication for smartphone users, for the
enterprise, and across industries.
ImageWare’s
products support multi-factor, multi-modal biometric authentication
including, but not limited to, any individual use or combination of
face, voice, fingerprint, iris, palm, and more. All the biometrics
can be combined with or used as replacements for authentication and
access control tools, including tokens, digital certificates,
passwords, and PINS, to provide the ultimate level of assurance,
accountability, and ease of use for corporate networks, web
applications, mobile devices, and PC desktop
environments.
ImageWare
is headquartered in San Diego, California, with offices in
Portland, Oregon; Ottawa, Ontario; and Mexico City, Mexico. To
learn more about ImageWare, visit https://iwsinc.com/
and follow us
on Twitter,
LinkedIn,
YouTube,
and Facebook.
Forward-Looking Statements
Any statements contained in this document that are not historical
facts are forward-looking statements as defined in the U.S. Private
Securities Litigation Reform Act of 1995. Words such as
“anticipate,” “believe,”
“estimate,” “expect,”
“forecast,” “intend,” “may,”
“plan,” “project,” “predict,”
“if,” “should” and “will” and
similar expressions as they relate to ImageWare Systems, Inc. are
intended to identify such forward-looking statements. ImageWare may
from time to time update publicly announced projections, but
it is not obligated to do so. Any projections of future results of
operations should not be construed in any manner as a guarantee
that such results will in fact occur. These projections are subject
to change and could differ materially from final reported results.
For a discussion of such risks and uncertainties, see “Risk
Factors” in ImageWare’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2017 and its other reports filed
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended. Readers are cautioned not to
place undue reliance on these forward-looking statements, which
speak only as of the dates on which they are made.
Investor Relations Contact
Harvey Bibicoff, CEO
Bibicoff + MacInnis, Inc.
818.379.8500 [email protected]
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