Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A 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 A
Convertible Preferred Stock, was duly adopted on September 15,
2017.
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 A Convertible Preferred Stock,” consisting of
Thirty One Thousand Twenty-One (31,021) 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 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 One Thousand Twenty-One (31,021) shares.
The Series A Preferred shall rank senior to the Company’s
common stock, par value $0.01 per share (the “
Common Stock
”), Series E
Convertible Preferred Stock (the
“Series E Preferred”
),
Series F Convertible Preferred Stock (the
“Series F Preferred”
),
Series G Convertible Preferred Stock (the
“Series G 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
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 Convertible Redeemable Preferred Stock
(“
Series B
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
”.
2.
Dividends
.
(a)
Payment of
Dividends
.
(i)
The holders of
record of shares of Series A Preferred shall be entitled to
receive, 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;
provided
,
however
, that should the Company elect
to pay dividends in cash, the Company may only use proceeds
received from positive cash flows resulting from operations.
In the
event that the Company elects 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 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”
). 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 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 Liquidation Preference Amount (as
defined in Section 4 hereof) per share per annum, and (ii) in the
event the Company elects to pay a dividend payable on any Dividend
Payment Date in Dividend Shares, the cumulative dividend rate of
ten percent (10%) of the stated Liquidation Preference Amount 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 OTCQB or
OTCQX and if prices for the Common Stock are then reported 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 holders of Purchasers of a majority in interest
of the Securities then outstanding 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).
(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 S-3 (or, if such form is not
available to the Company, a Form S-1) to register under the
Securities Act of 1933, as amended (the
“Securities Act”
), the
resale, by the holders of shares of Series A 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
manner-of-sale 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 reasonably 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 A
Preferred may sell all of such Conversion Shares and/or Dividend
Shares without restriction pursuant to Rule 144, without volume or
manner-of-sale restrictions or current public information
requirements, as determined by counsel to the Company as set forth
in a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the holders of
Series A Preferred, or (ii) the date when all of the Conversion
Shares and Dividend Shares registered thereunder have been disposed
of by such holders of Series A 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, 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.
(b)
In the event of a
Voluntary Conversion (as defined in Section 5(a) below), all
accrued but unpaid dividends on the Series A Preferred being
converted shall be payable in cash or shares of Common Stock within
five (5) business days of such Voluntary Conversion Date (as
defined in Section 5(b)(i) below). Dividends on the Series A
Preferred are prior and in preference to any declaration or payment
of any distribution on any outstanding shares of Junior Stock. Such
dividends shall accrue on each share of Series A Preferred from day
to day, whether or not earned or declared, so that if such
dividends with respect to any previous dividend period have not
been paid on, or declared and set apart for, all shares of Series A
Preferred at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata
basis with all other equity securities of the Company ranking on a
parity with the Series A Preferred as to the payment of dividends
before any distribution shall be paid on, or declared and set apart
for Junior Stock.
(c) So
long as any shares of Series A Preferred are outstanding, the
Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than
dividends or distributions payable in additional shares of Junior
Stock), unless at the time of such dividend or distribution the
Company shall have paid all accrued and unpaid dividends on the
outstanding shares of Series A Preferred.
(d) In
the event of a dissolution, liquidation or winding up of the
Company, all accrued and unpaid dividends on the Series A Preferred
shall be payable on the day immediately preceding the date of
payment of the Liquidation Preference Amount payable to the holders
of Series A 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 below or conversion of Series A
Preferred in accordance with Section 5 below, all accrued and
unpaid dividends on the Series A Preferred shall be payable on the
day immediately preceding the date of such redemption or
conversion, as the case may be.
(e) For
purposes hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash or
property without consideration, whether by way of dividend or
otherwise, payable other than in shares of Common Stock or other
Junior securities, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Section 7 below or
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 or
property.
(a)
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 A 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 A Preferred held by such
holder are convertible as of the record date for determining
stockholders entitled to vote on such matter. Except as provided by
law or by Section 3(b) below, holders of Series A 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.
(b)
So long as shares
of the Series A Preferred representing at least fifty percent (50%)
of the total number of shares of Series A Preferred issued on the
Issuance Date remain issued and outstanding, the holders of record
of the shares of Series A Preferred, exclusively and as a separate
class, shall be entitled to elect two directors of the Company (the
“Series A
Directors”
), who shall initially be Robert T.
Clutterbuck and Charles Frischer, both of whom shall be elected as
directors of the Company effective as of the Issuance Date. Any
director elected as provided in the preceding sentence may be
removed without cause by, and only by, the affirmative vote of the
holders of the shares of Series A Preferred, given either at a
special meeting of such stockholders duly called for that purpose
or pursuant to a written consent of stockholders. The holders of
record of the shares of Common Stock and of any other class or
series of voting stock (including the Series A Preferred),
exclusively and voting together as a single class, shall be
entitled to elect the balance of the total number of directors of
the Company. At any meeting held for the purpose of electing a
Series A Director, the presence in person or by proxy of the
holders of a majority of the outstanding shares of Series A
Preferred shall constitute a quorum for the purpose of electing
such director. A vacancy in any directorship filled by the holders
of Series A Preferred shall be filled only by vote or written
consent in lieu of a meeting of the holders of Series A Preferred
or by any remaining director or directors elected by the holders of
such class or series pursuant to this Section 3(b).
4.
Liquidation, Dissolution, Winding-Up
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, the holders of shares of the Series A Preferred then
outstanding shall be entitled to receive, out of the assets of the
Company available for distribution to its stockholders, an amount
equal to the greater of (i) $1,000 per share plus all accrued and
unpaid dividends, or (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,
dissolution or winding up (the amount payable pursuant to the
foregoing is referred to herein as the
“Liquidation Preference
Amount”
) before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other
Junior Stock. 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 A Preferred and any other
series of Preferred Stock ranking on a parity, as to rights on
liquidation, dissolution or winding up, with the Series A
Preferred, then all of said assets will be distributed among the
holders of the Series A Preferred and the holders of the other
Preferred Stock on a parity with the Series A Preferred, 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 liquidation payment with respect to each outstanding
fractional share of Series A Preferred shall be equal to a ratably
proportionate amount of the liquidation payment with respect to
each whole outstanding share of Series A 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
,
however
, that no cash shall be paid to
holders of Junior Stock unless each holder of the outstanding
shares of Series A 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 A Preferred will not be entitled to any further
participation as such in any distribution of the assets of the
Company.
(b)
Written notice of
any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, 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 A Preferred at their respective
addresses as recorded on the books of the Company.
5.
Conversion
. The holders of
Series A Preferred shall have the following conversion rights (the
“
Conversion
Rights
”):
(a)
Voluntary Conversion
. At any
time on or after the Issuance Date, the holder of any shares of
Series A Preferred may, at such holder's option, elect to convert
(a “
Voluntary
Conversion
”) all or any portion of the shares of
Series A Preferred held into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i)
the Liquidation Preference Amount of the shares of Series A
Preferred being converted, divided by (ii) the Conversion Price (as
defined in Section 5(c) below) in effect as of the date the holder
delivers to the Company their notice of election to convert (the
“
Conversion
Shares
”). In the event the Company issues a notice of
redemption pursuant to Section 7 hereof, the Conversion Rights of
the shares designated for redemption 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 such
shares 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 A Preferred notice of such
redemption or liquidation, dissolution or winding up, 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 A Preferred that will be paid or distributed on
such redemption or liquidation, dissolution or winding up, as the
case may be.
(b)
Mandatory Conversion
. If, at
any time, (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 (which have not otherwise been
reserved or committed for issuance) to permit the issuance of
Conversion Shares; (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 manner-of-sale 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
$2.15 per share (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) for twenty (20) consecutive
trading days, then the Company shall have the right, subject to the
terms and conditions of this Section 5, to convert one-half of the
issued and outstanding shares of Series A Preferred into Conversion
Shares, on a pro-rata basis among all holders of Series A Preferred
at such time. Provided that the requirements of subsections (i),
(ii), (iii) and (iv) of the preceding sentence are satisfied, and
the VWAP of the Common Stock is at least $2.15 per share (subject
to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such
shares) for at least eighty (80) consecutive trading days, then the
Company shall have the right, subject to the terms and conditions
of this Section 5, to convert all issued and outstanding shares of
Series A Preferred into Conversion Shares.
(c)
Mechanics of Conversion
.
Conversions of Series A Preferred shall be conducted in the
following manner:
(i)
Voluntary Conversion
. To
convert Series A Preferred into Conversion Shares on any date (the
“
Voluntary Conversion
Date
”), the holder thereof shall transmit by facsimile
(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 A 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 A Preferred
into Conversion Shares in pursuant to Section 5(b) above, the
Company shall give written notice (the “
Mandatory Conversion
Notice
”) to all holders
of the Series A Preferred of its intention to require the
conversion of the shares of Series A Preferred identified therein.
The Mandatory Conversion Notice shall set forth the number of
Series A Preferred being converted, the date on which such
conversion shall be effective (the “
Mandatory Conversion
Date
”), and shall be
given to the holders of the Series A Preferred not less than
fifteen (15) days prior to the Mandatory Conversion Date. The
Mandatory Conversion Notice shall be delivered to each holder at
the address as it appears on the stock transfer books of the
Company. In order to receive the Conversion Shares into which the
Series A Preferred is convertible pursuant to Section 5(b), each
holder of the Series A Preferred shall surrender to the Company at
the place designated in the Mandatory Conversion Notice the
certificates(s) representing the number of shares of Series A
Preferred specified in the Mandatory Conversion Notice. Upon the
Mandatory Conversion Date, such converted Series A 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 the shares of Common Stock into which the Series A
Preferred is convertible pursuant to Section
5(b).
(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, 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 all 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. If the number of shares of Series A
Preferred represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of shares of
Series A 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 A Preferred not 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, in the event the holder's calculation was correct, or by
the holder, in the event the Company's calculation was correct, or
equally by the Company and the holder in the event that neither the
Company's or the holder's calculation was correct. The period of
time in which the Company is required to effect conversions or
redemptions under this Certificate of Designations shall be tolled
with respect to the subject conversion or redemption 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 shares of
Series A Preferred on the Conversion Date.
(d)
Conversion Price
.
(i)
The term
“Conversion Price” shall mean $1.15 per share, subject
to adjustment under Section 5(e) hereof.
(ii)
Notwithstanding
the foregoing to the contrary, if during any period (a
“
Black-Out
Period
”), a holder of Series A 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 A Preferred) such holder of
Series A Preferred shall have the option but not the obligation on
any Conversion Date within ten (10) trading days following the
expiration of the Black-Out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected
by such holder of Series A Preferred that would have been
applicable had such Conversion Date been at any earlier time during
the Black-Out Period.
(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 A Preferred
simultaneously receive (i) 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 A Preferred had been converted into Conversion Shares on
the date of such event or (ii) a dividend or other distribution of
shares of Series A Preferred which are convertible, as of the date
of such event, into Conversion Shares as is equal to the number of
additional shares of Common Stock being issued with respect to each
share of Common Stock in such dividend or
distribution.
(iii)
Adjustment
for Other 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 securities of the Company other than shares of Common
Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be
made (by adjustments of the Conversion Price or otherwise) so that
the holders of Series A Preferred shall receive upon conversions
thereof, in addition to the Conversion Shares receivable thereon,
the number of securities of the Company which they would have
received had their Series A Preferred been converted into
Conversion Shares on the date of such event and had thereafter,
during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving
application to all adjustments called for during such period under
this Section 5(e)(iii) with respect to the rights of the holders of
the Series A Preferred;
provided
,
however
, that if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted pursuant to this paragraph as of
the time of actual payment of such dividends or
distributions.
(iv)
Adjustments
for Reclassification, Exchange or Substitution
. If the
Conversion Shares issuable upon conversion of the Series A
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), (ii) and (iii), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 5(e)(v)),
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 A Preferred shall have the right thereafter to convert
such share of Series A Preferred into the kind and amount of shares
of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of
Conversion Shares into which such share of Series A Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v)
Adjustments for Reorganization,
Merger, Consolidation or Sales of Assets
. If at any time or
from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions
provided for in Section 5(e)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for
in Section 5(e)(iv)), or a merger or consolidation of the Company
with or into another corporation where the holders of outstanding
voting securities prior to such merger or consolidation do not own
over fifty percent (50%) of the outstanding voting securities of
the merged or consolidated entity, immediately after such merger or
consolidation, or the sale of all or substantially all of the
Company's properties or assets to any other person (an
“
Organic
Change
”), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made if
necessary and provision shall be made if necessary (by adjustments
of the Conversion Price or otherwise) so that the holder of each
share of Series A Preferred shall have the right thereafter to
convert such share of Series A Preferred into the kind and amount
of shares of stock and other securities or property which such
holder would have had the right to receive had such holder
converted its shares of Series A Preferred immediately prior to the
consummation of such Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of
this Section 5(e)(v) with respect to the rights of the holders of
the Series A Preferred after the Organic Change to the end that the
provisions of this Section 5(e)(v) (including any adjustment in the
Conversion Price then in effect and the number of shares of stock
or other securities deliverable upon conversion of the Series A
Preferred) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
(vi)
Consideration
for Stock
. In case any shares of Common Stock or Convertible
Securities other than the Series A Preferred, or any rights or
warrants or options to purchase any such Common Stock or
Convertible Securities, shall be issued or sold:
(1)
in connection with
any merger or consolidation in which the Company is the surviving
corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall
be changed to or exchanged for the stock or other securities of
another corporation), the amount of consideration therefore shall
be deemed to be the fair value, as determined reasonably and in
good faith by the Board of Directors of the Company, of such
portion of the assets and business of the nonsurviving corporation
as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or
options, as the case may be; or
(2)
in the event of any
consolidation or merger of the Company in which the Company is not
the surviving corporation or in which the previously outstanding
shares of Common Stock of the Company shall be changed into or
exchanged for the stock or other securities of another corporation,
or in the event of any sale of all or substantially all of the
assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of
shares of its Common Stock for stock or securities or other
property of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated, and
for a consideration equal to the fair market value on the date of
such transaction of all such stock or securities or other property
of the other corporation. If any such calculation results in
adjustment of the applicable Conversion Price, or the number of
shares of Conversion Shares issuable upon conversion of the Series
A Preferred, the determination of the applicable Conversion Price
or the number of Conversion Shares issuable upon conversion of the
Series A Preferred immediately prior to such merger, consolidation
or sale, shall be made after giving effect to such adjustment of
the number of Conversion Shares issuable upon conversion of the
Series A Preferred. In the event any consideration received by the
Company for any securities consists of property other than cash,
the fair market value thereof at the time of issuance or as
otherwise applicable shall be as determined in good faith by the
Board of Directors of the Company. In the event Common Stock is
issued with other shares or securities or other assets of the
Company for consideration which covers both, the consideration
computed as provided in this Section 5(e)(vi) shall be allocated
among such securities and assets as determined in good faith by the
Board of Directors of the Company.
(vii)
Record
Date
. In case the Company shall take record of the holders
of its Common Stock or any other Preferred Stock for the purpose of
entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the
shares of Common Stock shall be deemed to be such record
date.
(1)
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 A Preferred against impairment. In the event
a holder shall elect to convert any shares of Series A 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 adjoining conversion of all or of said shares of
Series A 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 A 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. If the Company is the prevailing
party in any legal action or other legal proceeding relating to the
Conversion Rights of the holders of the Series A Preferred, then
the Company shall be entitled to recover from the holders of Series
A Preferred reasonable attorneys’ fees, costs and
disbursements (in addition to any other relief to which the Company
may be entitled).
(b)
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 A 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 A 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 the holder of such affected Series A
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
securities or property which at the time would be received upon the
conversion of a share of such Series A Preferred. Notwithstanding
the foregoing, the Company shall not be obligated to deliver a
certificate unless such certificate would reflect an increase or
decrease of at least one percent of such adjusted
amount.
(c)
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 A
Preferred Stock, Conversion Shares, Dividend Shares or shares of
Common Stock or other securities issued on account of Series A
Preferred Stock 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.
(d)
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, return-receipt 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 A 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, dissolution, liquidation or winding-up 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 A Preferred at
least twenty (20) days prior to the date on which any Organic
Change, dissolution, liquidation or winding-up 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.
(e)
Fractional Shares
. No
fractional shares of Common Stock shall be issued upon conversion
of the Series A 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.
(f)
Reservation of Common Stock
.
The Company shall, so long as any shares of Series A 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 A Preferred, such number of shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series A Preferred then outstanding;
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 A 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 A Preferred based on the number of shares of Series A
Preferred held by each holder of record at the time of issuance of
the Series A 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 A
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 or entity which does not hold any shares of
Series A Preferred shall be allocated to the remaining holders of
Series A Preferred, pro rata based on the number of shares of
Series A Preferred then held by such holder.
(g)
Retirement of Series A
Preferred
. Conversion of shares of Series A Preferred shall
be deemed to have been effected on the applicable Conversion Date.
Upon conversion of only a portion of the number of shares of Series
A 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 A Preferred representing the unconverted
portion of the certificate so surrendered as required by Section
5(c)(i) or Section 5(c)(ii), as the case may be.
(h)
Regulatory Compliance
. If any
shares of Common Stock to be reserved as Conversion 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.
(i)
Validity of Shares
. All Series
A Preferred Stock, Conversion Shares, Dividend Shares and shares of
Common Stock or other securities issued on account of Series A
Preferred Stock 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.
6.
No Preemptive Rights
. Except as
provided in Section 5 hereof, no holder of the Series A 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 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 Option Upon Change of
Control
. In addition to any other rights of the Company or
the holders of Series A Preferred contained herein, simultaneous
with the occurrence of a Change of Control (as defined below), the
Company, at its option, shall have the right to redeem all or a
portion of the outstanding Series A Preferred in cash at a price
per share of Series A Preferred equal to 115% of the Liquidation
Preference Amount plus all accrued and unpaid dividends (the
“
Change of Control
Redemption Price
”). Notwithstanding the foregoing to
the contrary, the Company may effect a redemption pursuant to this
Section 7(a) only if
the Company is in
material compliance with the terms and conditions of this
Certificate of Designations
.
(b)
“Change of
Control”
. A “
Change of Control
” shall be
deemed to have occurred at such time as a third party not
affiliated with the Company on the Issuance Date or any holders of
the Series A Preferred shall have acquired, in one or a series of
related transactions, equity securities of the Company representing
more than fifty percent 50% of the outstanding voting securities of
the Company.
(c)
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 transaction,
the Company may elect to redeem, effective immediately prior to the
consummation of such Change of Control, all of the Series A
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 A
Preferred, which Notice of Redemption at Option of Company Upon
Change of Control shall indicate (i) the number of shares of Series
A Preferred that the Company is electing to redeem from such holder
and (ii) the Change of Control Redemption Price, as calculated
pursuant to Section 7(a) above. The Change of Control Redemption
Price shall be paid in cash in accordance with Section 7(a) of this
Certificate of Designations. On or prior to the Change of Control,
the holders of Series A 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 A Preferred as a holder of such Series A
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 any
redeemed shares of Series A 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 A 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.
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 A Preferred Stock 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) 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 self-regulatory
organization with jurisdiction over the Company or its securities
from issuing all of the Conversion Shares to be issued to a holder
of Series A 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 A Preferred, the holder, solely at such holder's
option, can elect, within five (5) business days after receipt of
notice from the Company thereof to:
(i)
if the Company's
inability to fully convert Series A 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 A 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 A 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 Series A
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 facsimile to the Company
(“
Notice in Response to
Inability to Convert
”).
(c)
Pro-Rata Conversion and
Redemption
. In the event the Company receives a Conversion
Notice from more than one holder of Series A Preferred on the same
day and the Company can convert and redeem some, but not all, of
the Series A Preferred pursuant to this Section 8, the Company
shall convert and redeem from each holder of Series A Preferred
electing to have Series A Preferred converted and redeemed at such
time an amount equal to such holder's pro-rata amount (based on the
number shares of Series A Preferred held by such holder relative to
the number shares of Series A Preferred outstanding) of all shares
of Series A Preferred being converted and redeemed at such
time.
9.
Protective Provisions
. So long
as shares of the Series A Preferred representing at least fifty
percent (50%) of the total number of shares of Series A Preferred
issued on the Issuance Date remain issued and outstanding, the
Company shall not, without obtaining the approval (by vote or
written consent) of the holders of more than fifty percent (50%) of
the issued and outstanding shares of Series A
Preferred:
(a)
create, or
authorize the creation of, any class or series, or issue, or
authorize the issuance of, any shares of capital stock that ranks
senior to on a parity with the Series A Preferred;
(b)
sell, lease or
otherwise dispose of intellectual property rights owned by or
licensed to the Company or any subsidiary of the Company;
and
(c)
create, or
authorize the creation of, or incur, or authorize the incurrence
of, any Indebtedness, other than Permitted Indebtedness, or permit
any subsidiary to take any such action.
“
Indebtedness
” means (x) any
liabilities for borrowed money or amounts owed in excess of
$500,000 (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 (x)
all indebtedness of the Company outstanding on the Issuance Date or
thereafter that does not constitute Indebtedness for purposes of
this Section 9; and (y) monies borrowed under credit lines of the
Company existing on the Issuance Date in an amount not to exceed
$6.0 million.
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 holders of not less than two-thirds (2/3rds) of the then
outstanding shares of Series A Preferred, shall be required for any
change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or
repeal, or otherwise adversely affect, any of the powers,
designations, preferences and rights of the Series A
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 A 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 re-issue Preferred Stock
Certificates if the holder contemporaneously requests the Company
to convert such shares of Series A 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 A 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 A Preferred shall be entitled, in addition to
all other available remedies, to an injunction restraining any
breach or the Series A 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 Designation shall
be deemed to be jointly drafted by the Company and all initial
purchasers of the Series A 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 A 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.
IN
WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 15th day of
September, 2017.
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IMAGEWARE SYSTEMS,
INC.
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By:
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/s/
S.
James Miller, Jr.
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S. James Miller,
Jr.
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Chief Executive
Officer
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IMAGEWARE
SYSTEMS, INC.
CONVERSION
NOTICE
Reference is made
to the Certificate of Designations, Preferences and Rights of the
Series A Convertible Preferred Stock (“
Series A 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 A 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 A Preferred
specified below as of the date specified below.
Number of shares of
Series A Preferred to be
converted:
Stock certificate
no(s). of Series A Preferred to be
converted:
Please
confirm the following information:
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 Preferred Shares are being
converted and, if applicable, any check drawn on an account of the
Company in the following name and to the following
address:
Name of
bank/broker due to receive the underlying Common
Stock:
Bank/broker's
four-digit “DTC” participant number
(obtained
from the receiving bank/broker):
By:
Title:
Exhibit
10.2
EXCHANGE AGREEMENT
This
Exchange Agreement (this “
Agreement
”) is dated as of
September __, 2017, by and among ImageWare Systems, Inc., a
Delaware corporation (the “
Company
”), and each of the
signatories to this Agreement (each, a “
Stockholder
”).
RECITALS
WHEREAS
, as of the date hereof, the
Stockholder beneficially owns that number of shares of the
Company’s Preferred Stock, $0.01 par value, and in such
series, as more particularly set forth below the
Stockholder’s name on the signature page to this
Agreement;
WHEREAS
, in connection with a public
offering (the “
Public
Offering
”) of the Company’s Series A Convertible
Preferred Stock (“
Series A
Preferred
”), and as a condition to the consummation of
the Public Offering, Stockholders owning at least 66.6% of the
issued and outstanding shares of the Company’s (i) Series E
Convertible Preferred Stock, (ii) Series F Convertible Preferred
Stock, and (iii) Series G Convertible Preferred Stock (such
preferred stock collectively the “
Exchanged Preferred
”), are
required to exchange their Exchanged Preferred for Series A
Preferred, the designations, powers, preferences and relative and
other special rights of which are set forth in the Certificate of
Designations, Preferences and Rights attached hereto as
Exhibit A
(the
“Certificate of
Designations”
); and
WHEREAS
, the Stockholder desires to
cancel the Exchanged Preferred currently held by the Stockholder,
in exchange for that number of shares of Series A Preferred set
forth below the Stockholder’s name on the signature page to
this Agreement, in accordance with the terms and conditions set
forth herein.
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
.
1.1
In consideration of
and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the Stockholder
agrees to exchange that number of shares of Exchanged Preferred
appearing on the signature page to this Agreement
(“
Exchange
Shares
”), for that number of shares of Series A
Preferred indicated below the Stockholder’s name on the
signature page to this Agreement. In consideration for the
foregoing, the Company agrees to issue and deliver the Series A
Preferred to each Stockholder (the “
Exchange
”).
1.2
The closing under this Agreement (the “
Closing
”) shall take place upon
the satisfaction of each of the conditions set forth in Sections 4
and 5 hereof (the “
Closing
Date
”).
1.3
Within five (5) business days after the Closing, the Company shall
issue and deliver to each Stockholder a certificate evidencing the
Series A Preferred.
2.
Representations, Warranties and
Covenants of the Stockholders
.
Each Stockholder, individually and
not jointly, hereby makes the following representations and
warranties to the Company, and covenants for the benefit of the
Company, as follows:
2.1
This Agreement has
been duly authorized, validly executed and delivered by or on
behalf of such Stockholder and is a valid and binding agreement and
obligation of such Stockholder enforceable against such Stockholder
in accordance with its terms, subject to limitations on enforcement
by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies, and such Stockholder 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.
2.2
Such Stockholder understands that the shares of Series A Preferred
are being offered and sold in reliance on specific provisions of
Federal and state securities laws, and that the Company is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder
set forth herein for purposes of qualifying for exemptions from
registration under the Securities Act of 1933, as amended (the
“
Securities
Act
”), and applicable state securities
laws.
2.3
Such Stockholder is an “accredited investor” as defined
under Rule 501 of Regulation D, promulgated under the Securities
Act.
2.4
Such Stockholder
will be acquiring the Series A Preferred for their own account, for
investment purposes, and not with a current view to any resale or
distribution in whole or in part, in violation of the Securities
Act or any applicable securities laws;
provided, however
, that notwithstanding
the foregoing, such Stockholder does not covenant to hold the
Series A Preferred for any minimum period of time.
2.5
Such Stockholder
understands that the shares Series A Preferred have not been
registered under the Securities Act, are being issued pursuant to
an exemption under Section 3(a)(9) of the Securities Act and may
not be resold except in accordance with Rule 144 promulgated under
the Securities Act or pursuant to another available exemption from
the registration requirements of the Securities Act or pursuant to
a registration statement.
2.6
Such Stockholder owns and holds, beneficially and of record, the
entire right, title, and interest in and to the Exchange Shares
free and clear of all rights and Encumbrances (as defined below),
and each Stockholder has full power and authority to transfer and
dispose of the Exchange Shares 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 Exchange Shares.
“
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.
2.7
Such Stockholder, in its capacity as a holder of Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock,
and/or Series G Convertible Preferred Stock, as the case may be,
hereby approves, subject to and effective upon the consummation of
both the Exchange and the Qualified Financing (as defined below),
the designation of a series of the Series A Preferred with the
preferences and rights set forth in the Certificate of
Designations.
3.
Representations, Warranties and
Covenants of the Company
. The Company represents and
warrants to the Stockholders, and covenants for the benefit of the
Stockholders, as follows:
3.1
The Company has
been duly incorporated and is validly existing and in good standing
as a corporation 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.
3.2
The Series A
Preferred have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms
hereof, the Series A Preferred shall be validly issued and
outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind. The offer
and issuance of the Series A Preferred is exempt from registration
under the Securities Act, pursuant to the exemption provided by
Section 3(a)(9) thereof. Based in part on the representations and
warranties of the Stockholders herein contained and the structure
of the transaction, the shares of Series A Preferred, the shares of
Common Stock issuable upon conversion of the Series A Preferred and
the shares of Common Shares that may be issued as dividends on the
Series A Preferred pursuant to the Certificate of Designations,
upon issuance, will be issued to the Stockholders without any
restrictive legend and such shares will be freely tradable by the
Stockholders, subject to volume or manner-of-sale restrictions or
current public information requirements that may be applicable
under Rule 144 promulgated under the Securities Act to such
Stockholders who are “affiliates” of the Company for
purposes of Rule 144(a)(1).
3.3
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 or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights
and remedies, 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.
3.4
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 Series A Preferred hereunder.
3.5
The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this agreement will not
contravene any (i) provision of applicable law, (ii) the charter or
bylaws of the Company, (iii) any agreement or other instrument
binding upon the Company or any of its subsidiaries, (iv) any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any of its subsidiaries or
(v) applicable rules and regulations of OTCQB Marketplace, and no
consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement
other than those consents, approvals, authorizations, orders or
qualifications which have been obtained.
3.6
Since January 1, 2016, the Company has filed all required reports
and other documents of the Company identified in Rule 144(c)(1)
under the Securities Act. The documents of the Company filed with
the Securities and Exchange Commission (the
“SEC”
) in accordance with
the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”
),
from
the commencement of the fiscal year covered by the Company’s
most recent Annual Report on Form 10-K to the date of this
agreement (the
“SEC
Documents”
), as of their respective dates, complied in
all material respects with the requirements of the Exchange Act 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 the light of the circumstances under which
they were made, not misleading. As of their respective dates, the
audited financial statements and unaudited interim 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 with respect thereto
as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim financial statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of
unaudited interim financial statements, to normal year-end audit
adjustments which will not be material, either individually or in
the aggregate).
3.7
Since the date of the most recent balance sheet included in the
Company’s audited financial statements contained in the
Company’s most recent Annual Report on Form 10-K, except as
disclosed in the SEC Documents filed subsequent to such Form 10-K,
there has been no Material Adverse Effect. Since the date of the
most recent balance sheet included in the Company’s audited
financial statements contained in the Company’s most recent
Annual Report on Form 10-K, except as disclosed in the SEC
Documents filed subsequent to such Form 10-K, neither the Company
nor any of its subsidiaries has (i) declared or paid any dividends
other than regular quarterly dividends on the Company’s
securities, (ii) sold any assets outside of the ordinary course of
business or (iii) made any material capital expenditures (either
individually or in the aggregate). Neither the Company nor any of
its subsidiaries has taken any steps to seek protection pursuant to
any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does
the Company or any subsidiary have any knowledge or reason to
believe that any of their respective creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so.
3.8
The Company and each of its subsidiaries has timely filed and will
timely file true, correct and complete income and other material
tax returns required to be filed by or on behalf of such entities
and has timely paid and will timely pay all income and other
material taxes required to be paid by or on behalf of such entities
(whether or not shown as due on any tax return).
4.
Conditions Precedent to the Obligation
of the Company to Consummate the Exchange
. The obligation
hereunder of the Company to issue and deliver the Series A
Preferred to each Stockholder and consummate the Exchange is
subject to the satisfaction or waiver, at or before the Closing
Date, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion.
4.1
The Stockholder
shall have executed and delivered this Agreement.
4.2
The Stockholder
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by each
Stockholder at or prior to the Closing Date, including, but not
limited to delivering the Exchange Shares to the
Company.
4.3
The representations
and warranties of each Stockholder shall be true and correct in all
material respects as of the date when made and as of the Closing
Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which
shall be true and correct in all material respects as of such
date.
4.4 Stockholders
holding at least 66.6% of the issued and outstanding shares of
Exchanged Preferred shall have executed this
Agreement.
4.5 The
Company shall have consummated the Public Offering, resulting in
gross proceeds to the Company of at least $7.0 million
(“
Qualified
Financing
”).
5.
Conditions Precedent to the Obligation
of the Stockholder to Consummate the Exchange
. The
obligation hereunder of the Stockholder to accept the Series A
Preferred and consummate the Exchange is subject to the
satisfaction or waiver, at or before the Closing Date, of each of
the conditions set forth below. These conditions are for the
Stockholder’s sole benefit and may be waived by any
Stockholder at any time in their sole discretion.
5.1
The Company shall
have executed and delivered this Agreement.
5.2
The Company shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
5.3
Each of the
representations and warranties of the Company shall be true and
correct in all material respects 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 particular date,
which shall be true and correct in all material respects as of such
date.
5.4
Stockholders
holding at least 66.6% of the issued and outstanding shares of
Exchanged Preferred shall have executed this
Agreement.
5.5
The Company shall have consummated the Qualified
Financing.
5.6
In accordance with the terms of the Series A Preferred set forth in
the Certificate of Designations, Robert T. Clutterbuck and Charles
Frischer shall have been elected as directors of the Company,
effective as of the Closing Date.
5.7
The Company shall have paid, at the Closing, the fees and
disbursements (up to a maximum of $32,500) of counsel to certain of
the Stockholders, in connection with the negotiation of this
Agreement and the other transaction documents contemplated hereby
and the closing of the transactions contemplated
hereby.
6. Company
Covenant. The Company covenants and agrees to use its best
efforts to obtain executed Agreements from Stockholders owing 100%
of the issued and outstanding shares of each series of Exchanged
Preferred; at such time that the Company has executed Agreements
from Stockholders owning 100% of the issued and outstanding shares
of a series of Exchanged Preferred, the Company shall promptly file
a Certificate of Elimination of such series of Exchanged Preferred
under the provisions of Section 151(g) of the General Corporation
Law of the State of Delaware.
7.
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 conflicts 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.
8.
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.
9.
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]
IN WITNESS WHEREOF
, this Agreement was
duly executed on the date first written above.
|
IMAGEWARE SYSTEMS, INC.
|
|
By:______________________________________
Name:
Title:
|
|
STOCKHOLDER:
|
|
By:______________________________________
Name:
Title:
Series
of Exchanged Preferred owned by the Stockholder:
______________
No. of
Exchange Preferred to be delivered to the Company:
_____________
No. of
Series A Preferred to be issued to the Stockholder:
______________
|
|
|
