IMAGEWARE SYSTEMS, INC. SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
IMAGEWARE SYSTEMS, INC.
This
SECURITIES PURCHASE AGREEMENT (this “Agreement”),
dated as of September 28, 2020 (the “Effective
Date”), 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 Fifteen Thousand (15,000) shares
of the Company’s Series D Convertible Preferred Stock, par
value $0.01 per share (the “Preferred
Stock”), for $1,000 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 D Convertible Preferred Stock (the “Series D Certificate of
Designation”) filed with the Secretary of State for
the State of Delaware on or prior to the Closing Date, and
substantially 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”; and
WHEREAS, in connection with the
execution of this Agreement, the Company has entered into an Escrow
Agreement, dated as of the Effective Date, an executed copy of
which is attached hereto as Exhibit B (the
“Escrow
Agreement”), with Citibank, N.A. (the
“Escrow
Agent”), pursuant to which the Escrow Agent will act
as Escrow Agent with respect to the transactions contemplated by
this Agreement.
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:
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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(d) 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 $1,000 per share of Preferred
Stock.
(b) Deliverables as of the Effective
Date. As of the Effective Date, the parties hereto
acknowledge and agree that the following has occurred:
(i) Escrow Agreement. (A) The
Company and the Escrow Agent have executed such party’s
Signature Page to the Escrow Agreement and delivered the same to
the other parties hereto, (B) each Purchaser has delivered to the
Escrow Agent the full amount of such Purchaser’s applicable
Initial Purchase Price (defined below) and (C) the Company has
delivered to the Escrow Agent the wire transfer instructions set
forth on Exhibit
C.
(ii) Registration
Rights Agreement. The Company and each Purchaser have
executed such party’s Signature Page to the Registration
Rights Agreement in the form attached hereto as Exhibit D (the
“Registration Rights
Agreement”), and delivered executed copies of the same
to the other parties hereto. The Registration Rights Agreement
shall be effective upon Closing.
(iii) Series
C Exchange Agreement. The Company and the applicable holders
of the Company’s Series C Convertible Preferred Stock (the
“Series C
Holders”) have executed the Series C Exchange
Agreement, an executed copy of which is attached hereto as
Exhibit E (the
“Exchange
Agreement”), and the Purchasers shall have received an
executed copy thereof. The transactions contemplated by the
Exchange Agreement shall have occurred, or concurrently with the
Closing, will occur.
(iv) Term
Loan and Security Agreement. The Company and each Purchaser
have entered into that certain Term Loan Security Agreement, an
executed copy of which is attached hereto and which is attached
hereto as Exhibit F
(the “Term Loan and Security
Agreement”), which provides for the bridge loan to the
Company (the “Bridge Loan”).
The amount of the Bridge Loan shall be referred to as the
“Bridge
Loan Amount.”
(v) Written Consent. The Requisite
Shareholders have executed a written consent
approving and adopting the applicable New Organizational Documents
(defined below) which require shareholder approval, an
executed copy of which is attached hereto as Exhibit G (including the
documents and transactions authorized therein, the
“Written
Consent”). For
the purposes of this Agreement, “Written Consent” shall
refer to, individual and collectively, the Written Consent of each
Stockholder Group (defined below) included as part of Exhibit G.
(c) Additional Purchasers. At any
time after the Effective Date, one or more additional Purchasers
(“Additional
Purchasers”) may become a party hereto by (i)
executing and delivering to the Company and each other Purchaser
(A) a Joinder Agreement in substantially the form attached hereto
as Exhibit K, and
(B) a signature page to the Registration Rights Agreement and Term
Loan Agreement, and (ii) delivering such Additional
Purchaser’s Initial Purchase Price to the Escrow Agent.
Immediately upon (i) execution and delivery of such Joinder
Agreement and (ii) payment of such Additional Purchaser’s
Initial Purchase Price (and without any further action), each such
Additional Purchaser will become a party to this Agreement and have
all of the rights and obligations of a Purchaser hereunder, and
this Agreement and the schedules hereto shall be deemed amended by
such Joinder Agreement. Notwithstanding the foregoing, no
Additional Purchasers will be permitted to be a party to this
Agreement to the extent such Additional Purchaser’s proposed
Purchase Price would cause Total Purchase Price (including the
Purchase Price of all Additional Purchasers) to exceed $15,000,000
without the express written consent of the Company.
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(d) The Closing. Closing of the
Transactions (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 Closing Purchase
Price (defined below) of the Preferred Stock to the Company, 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.”
(e) Definitions. Unless the context
otherwise requires, the terms defined in this Section 1(e) shall, for the
purposes of this Agreement, have the meanings herein
specified.
(i) “Accrued
Interest Deduction”
means, as to each Purchaser, an amount equal to the product of (A)
the total amount of interest which has accrued on the Bridge Loan
Amount pursuant to the terms of the Term Loan and Security
Agreement as of the Closing Date, and (B) a fraction, the numerator
of which is such Purchaser’s Initial Purchaser Price and the
denominator of which is the Bridge Loan Amount.
(ii) “Closing
Purchase Price” means, as to each
Purchaser, an amount equal to (A) such
Purchaser’s Purchase Price, less (B) the sum of (1) such
Purchaser’s Initial Purchase Price and (2) such
Purchaser’s Accrued Interest Deduction.
(iii) “Initial
Purchase Price”
means, as to each Purchaser, an amount equal to the product of
(A) such Purchaser’s Purchase Price, and (B)
0.20.
(iv) “New
Organizational Documents” includes each of the
following amended and restated Organizational Documents (defined
below): (A) the amended and restated Certificate of Incorporation
of the Company, in substantially the form attached as Exhibit E to the Written
Consent (the “Amended & Restated
Certificate of Incorporation”); (B) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock of the Company, in substantially the form attached as
Exhibit B to the
Written Consent (the “Amended and Restated Series
A Certificate of Designation”); (C) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series A-1 Convertible
Preferred Stock of the Company, in substantially the form attached
Exhibit C to the
Written Consent (the “Amended and Restated Series
A-1 Certificate of Designation”); (D) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series C Convertible Preferred
Stock of the Company, in substantially the form attached as
Exhibit D to the
Written Consent] (the “Amended and Restated Series
C Certificate of Designation”); and (E) the Series D
Certificate of Designation.
(v) “Organizational
Documents” means (i) with respect to any corporation,
its certificate or articles of incorporation or organization, as
amended, and its by-laws, as amended, (ii) with respect to any
limited partnership, its certificate of limited partnership, as
amended, and its partnership agreement, as amended, (iii) with
respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company,
its articles of organization, as amended, and its operating
agreement, as amended.
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(vi) “Requisite
Shareholders” means the minimum number of shareholders
of the Company required to approve the New Organizational Documents
as required by the Company’s current Organizational Documents
and applicable law (as determined by the Holder Representative in
its sole discretion). The term “Requisite Shareholders”
means, individually and collectively, each of the following groups
of stockholders (each, a “Stockholder
Group”), each voting as a separate class: (a)
stockholders owning at least fifty percent (50%) of the
Company’s outstanding capital stock on an as-converted basis;
(b) holders owning not less than two-thirds (2/3rd) of the
Series A Convertible Preferred
Stock; (c) holders owning at least fifty percent (50%) of
the Company’s Series A-1
Convertible Preferred Stock; and (d) fifty percent (50%) of
the Series C Holders.
(vii) “Total
Purchase Price” means the aggregate Purchase Price of
all Purchasers.
(viii) “Transaction
Documents” mean this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Term Loan and Security
Agreement, the Exchange Agreement and the New Organizational
Documents.
(ix) “Transactions”
means the transaction contemplated by this Agreement and each of
the Transaction Documents.
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.
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(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.
(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) Authorization; Enforcement.
This Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Exchange 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.
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(h) 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
listed on Section 3(a) of the Disclosure Schedules ]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 event, occurrence, fact, condition
or change that, individually or in the aggregate, results, or would
reasonably be likely to result, in a 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 condition (financial or
otherwise) or the earnings, prospects, business, properties,
surplus or results of operations of the Company and its
Subsidiaries.
(b) Authorization; Enforcement.
Other than the Written Consent, (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 Series D
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
(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. Other than the Written
Consent, 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 (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.
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(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 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 on Section
3(c) of the
Disclosure Schedule, (i) there are no outstanding options,
warrants, 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 Series D Certificate of Designation. Other
than the Written Consent, 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.
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(d) Issuance of Securities. Subject
to the Written Consent, the Preferred Stock is duly authorized and,
upon issuance in accordance with the terms of this Agreement and
the Series D 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 Series D 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 Series D
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), and subject to
Section 4(k), 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 on Section
3(e) of the Disclosure Schedule, and subject to the Written
Consent, 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 (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.
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(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, 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.
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(g) SEC Documents, Financial
Statements. Except as set forth on Section 3(g) of the Disclosure
Schedules, 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, 2019, (B)
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2020, (C) Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2020, and (D) all Current Reports on Form 8-K filed
since August 19, 2020.
(h) No Material Adverse Effect in
Business. Except as set forth on Section 3(h) of the
Disclosure Schedule, and other than effects on the business related
primarily to COVID-19, since March 31, 2020 through the date
hereof, (i) there has been no Material Adverse Effect, nor any
development or event which would result, or be reasonably likely to
result, in a Material Adverse Effect, (ii) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock, and (iii) there has been
no material adverse change in the capital stock, short-term
indebtedness, long-term indebtedness, net current assets, net
current liabilities or net assets of the Company and its
Subsidiaries.
-10-
(i) Absence of Certain Changes.
Except as set forth on Section 3(i) of the
Disclosure Schedule, since March 31, 2020, (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) 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(i),
“Approved
Share Plan” shall mean the Company’s Amended and
Restated 1999 Stock Award Plan and 2020 Omnibus Stock Incentive
Plan.
(j) Transactions with Affiliates.
Except as disclosed on the Select SEC Documents, 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, employees or consultants), 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.
(k) Absence of Litigation. Except
as disclosed on Section
3(k) of the
Disclosure Schedules, there is no action, suit, proceeding, inquiry
or, to the best of the Company’s knowledge, 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.
-11-
(l) 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(l) 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 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 xxx 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.
-12-
(m) 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.
(n) Tax Status. Except as set forth
in Section
3(n) 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.
(o) Key Employees. Except as set
forth on Section
3(o) of the
Disclosure Schedules, 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. Except as set forth on
Section 3(o) of the
Disclosure Schedules, 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(o) of the
Disclosure Schedule and any individual who assumes or performs any
of the duties of a Key Employee.
(p) Employee Relations. 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.
-13-
(q) 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.
(r) 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.
(s) 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 do not contravene the rules and
regulations of the OTCQB.
(t) 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.
(u) No Brokers. 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. 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(u) that may be due
in connection with the Transactions.
(v) 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 Series D 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 Series D 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 Transactions are in the best interests of the Company and
its stockholders.
(w) 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.
(x) 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.
(y) Xxxxxxxx-Xxxxx Compliance. The
Company and the Company’s directors and officers, in their
capacities as such, are in compliance with any provision of the
Xxxxxxxx-Xxxxx 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).
-14-
(z) 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 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.
(aa) Absence of Indebtedness. On the
Closing Date, as a result of the Transactions, 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(aa) 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.
(bb) 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 Series D
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.
(cc) 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. 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 and any advice given by any Purchaser or any of its
representatives or agents in connection with the Transaction
Documents and the Transactions 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
by the Company and its representatives.
(dd) 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.
-15-
(ee) Information
Statement. Neither the information supplied, or to be
supplied, by or on behalf of the Company, for inclusion or
incorporation by reference into the Information Statement or any
other documents to be filed by the Company with the SEC in
connection with the Transactions, contains or will, on the date of
its filing or at the date it is mailed to the stockholders, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
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 Holder Representative (as defined below) 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, 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 Holder
Representative with a copy of the 8-K Filing at least two (2)
business days prior to the filing of the 8-K Filing for Holder
Representative’s 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
Holder Representative or its 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 Holder
Representative or its counsel with respect to such comments. For
purposes of this Agreement, “Holder
Representative” means any Purchaser beneficially
owning in excess of fifty percent (50%) of the Preferred Stock
immediately following Closing. 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.
-16-
(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. Except as set
forth on Section 3(aa) of the Disclosure Schedules, the Company
shall use the proceeds from the sale and issuance of the Preferred
Stock for general corporate purposes and working capital (including
payment of legal fees and expenses pursuant to Section 4(l) herein);
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.
(d) Uplisting. 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 shall file an application to be listed on any of the NASDAQ
Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market or any successor market thereto (collectively,
“NASDAQ”),
or such other national
securities exchange as is reasonably acceptable to Holder
Representative (the “Uplisting”),
and will use its commercially reasonable efforts to effect the
Uplisting (including by effectuating a reverse stock split on or
prior to December 31, 2020 at the request of Holder
Representative). The Company shall bear all costs associated with
the Uplisting. Unless and until such Uplisting is
effectuated, the Company will use its best efforts to continue the
listing and trading of its Common Stock on the OTCQB.
-17-
(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
Exchange.
(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 or any
other Transaction Document without the prior written approval of
Holder Representative, 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. THIS
SECURITIES REPRESENTED HEREBY MAY BE PLEDGED IN ACCORDANCE WITH THE
TERMS OF THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER
28, 2020, 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.
-18-
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.
-19-
(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.
(k) Information Statement. As
promptly as practicable after the date hereof, the Company, acting
through its Board of Directors, shall, in accordance with
applicable law and the Organizational Documents, in consultation
with Holder Representative, prepare and file with the SEC a
preliminary information statement relating to the Transactions and
obtain and furnish the information required by the SEC to be
included therein and, after consultation with Holder
Representative, respond promptly to any comments made by the SEC
with respect to the preliminary information statement and cause a
definitive information statement (together with all amendments,
supplements and exhibits thereto, the "Information
Statement") to be mailed to the Company's shareholders at
the earliest practicable date; provided that no amendments or
supplements to the Information Statement shall be made by the
Company without consultation with Holder Representative. Each
Purchaser shall promptly provide the Company with such information
with respect to such Purchasers and its affiliates as shall be
required to be included in the Information Statement.
(l) Legal Fees and Expenses.
Whether or not the Transactions are consummated, each of the
Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in
connection with the Transactions, including, without limitation,
(i) all expenses incident to the issuance and delivery of the
Securities (including all printing and engraving costs), (ii) all
necessary issue, transfer and other stamp taxes in connection with
the issuance and sale of the Preferred Stock to the Purchasers,
(iii) the reasonable fees and expenses of the Escrow Agent, and
(iv) all reasonable and documented out-of-pocket fees and expenses
-- including, without limitation, the fees and expenses of Stroock
& Stroock & Xxxxx LLP (“Stroock”) as
counsel to certain Purchasers (“Stroock Legal
Fees”) incurred in connection with the Transactions
and any related documentation therewith; provided, however that aggregate
Stroock Legal Fees shall not exceed $350,000 (the
“Stroock
Legal Fee Cap”) except as otherwise set forth herein.
Notwithstanding the foregoing, aggregate Stroock Legal Fees may
exceed the Stroock Legal Fee Cap to account for fees and expenses
incurred in connection with the preparation, negotiation and
execution of the Term Loan and Security Agreement, Escrow Agreement
and other documents related to the Bridge Loan (ii) if and to the
extent Stroock and its client make a good faith determination that
the incurrence of such additional fees is consistent with the legal
requirements of Stroock’s clients, either in its capacity as
Purchaser or as Holder Representative.
(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 Series
D 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.
-20-
(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) Representation and Warranties.
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.
(b) Closing Purchase Price. Each
Purchaser shall have delivered such Purchaser’s Closing
Purchase Price to the Company by wire transfer of immediately
available funds in accordance with the wire transfer instructions
set forth in Exhibit
C.
(c) No Proceedings. 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.
-21-
The
obligation of each Purchaser hereunder to deliver the Closing
Purchase Price in connection with the purchase of 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) Representation and Warranties.
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.
(b) Amended and Restated Certificate of
Incorporation. The Amended and Restated Certificate of
Incorporation of the Company 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.
(c) Amended and Restated Series C
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series C Convertible Preferred
Stock, 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.
(d) Amended and Restated Series A
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock, 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.
(e) Amended and Restated Series A-1
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series A-1 Convertible Preferred
Stock, 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.
(f) Series D Certificate
of Designation. The Series
D Certificate of Designations 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.
(g) Information Statement. (i) The
Company shall have mailed to its shareholders the Information
Statement conforming to the requirements of the Exchange Act
relating to the Written Consent; (ii) twenty (20) days shall have
passed since the mailing date of the Information Statement; and
(iii) and the Company shall have otherwise satisfied its
obligations under Section
4(k).
-22-
(h) Board Resignations. The Company
shall have received a letter of resignation addressed to the
Company, effective as of a date no later than the Closing Date and
in substantially the form attached hereto as Exhibit H (the
“Board
Resignation”), from each of the resigning directors
set forth on Section
3(o)(ii) of the Disclosure
Schedules, and provided Holder Representative satisfactory evidence
thereof (in the sole discretion of Holder
Representative).
(i) Board/Management Release
Agreements. The Company shall have received a
Board/Management Release Agreement, effective as of a date no later
than the Closing Date and in substantially the form attached hereto
as Exhibit I (the
“Board/Management Release
Agreement”), from each of the Persons set forth on
Section 3(o)(iv) of the Disclosure
Schedules, and provided Holder Representative satisfactory evidence
thereof (in the sole discretion of Holder
Representative).
(j) Change-in-Control Waivers. The
Company shall have received a Change-in-Control Waiver, effective
as of a date no later than the Closing Date and in substantially
the form attached hereto as Exhibit J (the
“Change-in-Control
Waiver”), from each holder of a restricted stock unit
(i) issued pursuant to an Approved Share Plan, and (ii) not
otherwise executing a Board/Management Release Agreement (such
holders, the “Continuing RSU
Holders”), and provided Holder Representative
satisfactory evidence thereof (in the sole discretion of Holder
Representative). Each Continuing RSU Holder is listed on
Section 3(e)(ii) of the Disclosure
Schedules.
(k) Satisfaction and Release of
Related-Party Loans. The Company shall have satisfied the
loans and other indebtedness listed on Sections 3(aa)(i) and 3(aa)(ii) of the Disclosure
Schedules, and provided Holder Representative satisfactory evidence
thereof (in the sole discretion of Holder
Representative).
(l) Delivery of Preferred Stock
Certificates. The Company shall have delivered to such
Purchaser 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.
(m) OTCQB. 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.
(n) Legal Opinion. 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, as counsel to certain
Purchasers.
(o) IP Opinion. Such Purchaser
shall have received an opinion of the Company’s intellectual
property counsel, Sheppard, Mullin, Xxxxxxx & Hampton LLP
(“Company
IP Counsel”), dated as of the Closing Date, addressed
to such Purchaser in form and substance reasonably satisfactory to
Stroock, as counsel to certain Purchasers.
-23-
(p) Board Resolutions. Each
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, 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.
(q) Closing Purchase Price. The
Closing 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 Company by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth in
Exhibit
C.
(r) Legal Fees. The Company shall
have paid (or shall pay concurrently with the Closing) the legal
fees and disbursements of Stroock, as provided for in Section 4(l).
(s) No Proceeding. 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.
(t) No Material Adverse Change.
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.
(u) Other Consents, Approvals and
Waivers. All other consents, approvals and waivers
reasonably required for the consummation of the Transactions (in
the sole discretion of Holder Representative) shall have been
obtained.
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.
-24-
(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.
00000
Xxxxxxx Xxxxx Xxxxx X.
Xxxxx
000
Xxx
Xxxxx, Xxxxxxxxxx 00000
E-mail:
xxxxxxx@xxxxxx.xxx
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
000
Xxxx Xxxxxxxx, Xxxxx 000
Xxx
Xxxxx, XX 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
E-Mail:
xxxxxxx@xxxxxxxxxxxxxxxxxx.xxx
Attention: Xxxxxx
X. Xxxxxx, Managing Director
-25-
(ii) If
to any Purchasers, to the address set forth under such
Purchaser’s name on the Signature Page hereto executed by
such Purchaser.
(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 (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.
-26-
(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 and the
other Transaction Documents, that it has independently determined
to enter into the Transactions, 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. 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, and no Purchaser
shall make any claim against any other Purchaser under this
Agreement, whether on the basis of breach, non-performance, or
otherwise.
(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.
-27-
(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 October 31, 2020. 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 (i)
the Closing and (ii) termination of the Escrow Agreement pursuant
to Section 12 therein, 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 (pursuant
to Section 4 of the Escrow Agreement) instructing the Escrow Agent
to, and otherwise cause the Escrow Agent to, refund to the
applicable Purchasers all unreleased amounts deposited into the
Escrow Account (as defined in the Escrow Agreement) by the
Purchasers. 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.
(q) 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.
(r) Tax Treatment. The Company and
the Purchasers agree to treat the Series D Preferred Shares as
common stock solely for U.S. income tax purposes.
(s) Holder
Representative.
(i) By virtue of
executing and delivering their respective Signature Page to this
Agreement, each Purchaser shall have irrevocably authorized and
appointed Holder Representative as such Purchaser’s
representative and attorney-in-fact to act on behalf of such Person
with respect the Holder Representative Matters (defined below) as
expressly set forth in, which shall survive the Closing Date to the
extent applicable. “Holder Representative
Matters” include approvals by Holder Representative
expressly set forth in: Section 1(b), Section 4(a), Section 4(d), Section 4(h), Section 4(k) and
Section 7(v).
(ii) Holder
Representative shall have no duties or obligations to the
Purchasers hereunder, including any fiduciary duties, except those
Holder Representative Matters set forth herein, and such duties and
obligations shall be determined solely by the express provisions of
this Agreement.
-28-
(iii) Each
of the Purchasers disclaims any beneficial ownership or
participation in any group (as such term is defined in Sections
13(d) or 13(g) of the Securities Act) as a result of such party
communicating with other parties in connection with this Agreement
(or the Transactions Documents), including without limitation
Holder Representative acting in such capacity. Any such
communications that the parties hereto may engage in with other
Purchasers, to the extent such communications occur after the
consummation of the Transactions and in connection with this
Agreement (or the Transaction Documents), are solely for the
purpose of protecting such party’s rights or fulfilling such
party’s obligations under this Agreement (or the Transaction
Documents) and are not intended to, and do not, constitute any
agreement, arrangement or understanding among one or more such
parties for the purpose of, directly or indirectly, buying,
selling, voting or holding securities of the Company.
(iv) The
Holder Representative shall not be liable to the Purchasers (or any
other Persons) for actions taken pursuant to this Agreement, except
to the extent such actions shall have been determined by a court of
competent jurisdiction to have constituted gross negligence or
involved fraud, intentional misconduct or bad faith (it being
understood that any act done or omitted pursuant to the advice of
counsel, accountants and other professionals and experts retained
by Holder Representative shall be conclusive evidence of good
faith). The Purchasers shall severally and not jointly (pro rata in
accordance with the Purchase Price of each Purchaser), indemnify
and hold harmless Holder Representative from and against,
compensate it for, reimburse it for and pay any and all losses,
liabilities, claims, actions, damages and expenses, including
reasonable attorneys’ fees and disbursements, arising out of
and in connection with its activities as Holder Representative
under this Agreement (the “Representative
Losses”), in each case as such Representative Loss is
suffered or incurred; provided, that in the event it is
finally adjudicated that a Representative Loss or any portion
thereof was primarily caused by the gross negligence, fraud,
intentional misconduct or bad faith of Holder Representative,
Holder Representative shall reimburse the Stockholders the amount
of such indemnified Representative Loss attributable to such gross
negligence, fraud, intentional misconduct or bad
faith.
[REMAINDER
OF PAGE LEFT BLANK INTENTIONALLY]
-29-
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: /s/ Xxxxxxx
Xxxxxx
Name:
Xxxxxxx Xxxxxx
Title:
Chief Executive Officer
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
($1,000 per share of Preferred
Stock):
-30-
Exhibit List
Exhibit
A – Form of Series D Certificate of Designation
Exhibit
B – Escrow Agreement
Exhibit
C – Wire Transfer Instructions
Exhibit
D – Form of Registration Rights Agreement
Exhibit
E – Exchange Agreement
Exhibit
F – Term Loan and Security Agreement
Exhibit
G – Written Consent
●
Amended and
Restated Certificate of Incorporation
●
Amended and
Restated Series A Certificate of Designation
●
Amended and
Restated Series A-1 Certificate of Designation
●
Amended and
Restated Series C Certificate of Designation
Exhibit
H – Form Board Resignation
Exhibit
I – Form of Board/Management Release Agreement
Exhibit
J – Form of Change-in-Control Waiver
Exhibit
K – Joinder Agreement
[EXHIBITS
INTENTIONALLY OMITTED]
-31-
