LOAN AND SECURITY AGREEMENT
Exhibit 10.5
This
LOAN AND SECURITY AGREEMENT (this “Agreement”) is
entered into as of September 28, 2020, by and between funds and
separate accounts under the management of Nantahala Capital
Management, LLC (collectively, “Nantahala”), as
lenders, and the other lenders set forth on the signature pages
(each a “Signature Page”) hereto (together with
Nantahala, the “Lenders”) and ImageWare Systems, Inc.
(“Borrower”).
RECITALS
This
Agreement sets forth the terms on which Lenders will provide a term
loan to Borrower, and Borrower will repay the amounts owing to
Lenders on the terms and conditions contained herein.
AGREEMENT
The
parties agree as follows:
1. DEFINITIONS AND
CONSTRUCTION.
1.1 Definitions. As used in this
Agreement, all capitalized terms shall have the definitions set
forth on Exhibit A.
Any term used in the Code and not defined herein shall have the
meaning given to the term in the Code.
1.2 Accounting Terms. Any
accounting term not specifically defined on Exhibit A shall be construed in
accordance with GAAP and all calculations shall be made in
accordance with GAAP. The term “financial statements”
shall include the accompanying notes and schedules.
2.1 Term Loan. Subject to the terms
and conditions of this Agreement, each Lender that has a Commitment
hereby agrees to make a term loan to Borrower on the Closing Date
in the amount set forth on such Lender’s Signature Page
which, together with all Lenders hereto, will be in the aggregate
principal amount of Two Million Dollars and Zero Cents
($2,000,000.00) (as may be increased from time to time pursuant to
Section 2.5, the “Loan”). Loan (i) shall not exceed for
any Lender at the time outstanding, the Commitment of such Lender
at such time and (ii) shall not exceed for all Lenders at any time
outstanding, the total amount of all Commitments at such
time.
2.2 Conversion Rights.
(a) The Loans shall be
convertible into Shares as, and to the extent, provided in Section
2.2(b) hereof unless a Loan Conversion Suspension Event has
occurred.
(b) Subject to the next
sentence, when (i) the Borrower notifies the Lenders in writing
(the “Notice Date”) that all the conditions to closing
in Section 7 of the Securities Purchase Agreement have been
fulfilled and that the transactions contemplated by the Securities
Purchase Agreement are ready to be consummated, and (ii) the
Required Lenders consent in writing to such conversion (which
Required Lenders shall be deemed to have consented to such
conversion unless written notice of objection to such conversion is
provided to the Borrower within five (5) Business Days following
the Notice Date), then the Loans of each Lender shall convert into
Shares as set forth on Schedule B hereto (the date of
such conversion, the “Loan Conversion Date”).
Notwithstanding the foregoing, unless each Lender has otherwise
consented to such conversion in writing, the Loans shall not be
converted into Shares pursuant to this Section 2(b) if (i) a Loan
Conversion Suspension Event has occurred, (ii) the Borrower has not
paid interest on the Loans pursuant to Section 2.4(c) hereof, or
(iii) the Borrower does not deliver to the Lenders, on the
scheduled Loan Conversion Date, duly executed certificates (or if
the Shares are not represented by certificates, duly executed
statements related to book-entry accounts) representing the number
of Shares purchased by each Lender under the Securities Purchase
Agreement on the Closing Date (as defined in the Securities
Purchase Agreement), registered in such Lender’s
name.
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2.3 Repayment. Amounts borrowed
pursuant to this Section 2 may be repaid at any time without
penalty or premium prior to the earlier of the Maturity Date and
the Loan Conversion Date. All amounts borrowed under this
Section 2, together with all accrued but unpaid interest and
fees thereon, shall be paid in full in cash no later than the
Maturity Date, unless the Loan Conversion has previously occurred.
Any such amounts that are repaid, prepaid or converted by Borrower
prior to the Maturity Date may not be reborrowed.
2.4 Interest Rates, Payments, and
Calculations.
(a) Interest Rate. The outstanding
principal balance of the Loan, shall bear interest at a fixed rate
per annum equal to twelve percent (12%) (“Interest
Rate”).
(b) Default Rate. Immediately and
automatically upon the occurrence and during the continuance of an
Event of Default, all outstanding principal of the Loans and all
other Obligations shall accrue and bear interest at the Default
Rate.
(c) Payments. Interest hereunder
shall be payable by adding such accrued and unpaid interest to the
then outstanding principal amount of the Loan on each Interest
Payment Date, and from and after such time such interest shall be
treated as a Loan for all purposes hereunder.
(d) Computation. All interest
chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of
days elapsed.
2.5 Incremental Loans.
(a) Request for Increase. Subject
to satisfaction of the conditions in Section 2.5(e), upon notice to
the Lenders, Borrower may from time to time request an increase in
the Loans (each such increase in Loans, an “Increase”);
provided, that (x)
any such request for an Increase shall be in a minimum amount of
$200,000, plus additional increments of $100,000, in the aggregate
or, if less, the entire unutilized amount of the maximum amount of
all such requests set forth above, and (y) the amount of all
Increases shall not exceed an aggregate collective amount of One
Million Dollars and Zero Cents ($1,000,000.00).
(b) Additional Lenders. It is the
intent of the Parties that any Increase will be funded by Eligible
Purchasers, which shall become Lenders pursuant to a joinder
agreement in form and substance reasonably satisfactory to the
Lenders (each such Eligible Purchaser executing and delivering such
joinder agreement and becoming a Lender, an “Additional
Lender”).
(c) Conditions to Effectiveness of
Increase. As a condition precedent to Borrower’s right
to request each
Increase, each of the conditions precedent set forth in Section 3.1
shall be satisfied and no Default or Event of Default shall have
occurred and be continuing.
(d) Interest. The Interest Rates,
payments and calculations set forth in Section 2.4 shall apply to
each Increase; provided that the Interest Rate
on each Increase shall accrue on and from the Increase Effective
Date.
(e) Other Increase Terms. Each
Increase shall rank pari passu in right of payment in respect of
Collateral and with the Obligations in respect of the Loans. In
addition, Increases shall have the same terms as the initial Loans
(and may participate in prepayments of the Loans on a pro rata or
less than pro rata basis) or such other terms as are reasonably
acceptable to the Lenders.
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2.6 Term. This Agreement shall
become effective on the Closing Date and, subject to Section 12.8,
shall continue in full force and effect for so long as any
Obligations remain outstanding. Notwithstanding the foregoing,
Borrower shall have the right to terminate this Agreement at any
time (including without limitation, upon the occurrence of a Change
of Control) so long as Borrower pays in full all outstanding
Obligations as of such date of termination.
3. CONDITIONS OF
LOANS.
3.1 Conditions Precedent to Loans.
The obligation of any Lender to make any Loan hereunder is subject
to the fulfillment (or waiver by Required Lenders) of all of the
following conditions:
(a) receipt by Lenders
of an executed Disbursement Letter in the form of Exhibit C attached
hereto;
(b) in accordance with
the terms of the Escrow Agreement, the Borrower shall have
delivered a Joint Release Instruction (as defined in the Escrow
Agreement) to the Escrow Agent; and
(c) the representations
and warranties contained in Section 5 shall be true and correct in
all material respects on and as of the funding date as though made
at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to
such Loan (provided, however, that those representations and
warranties expressly referring to another date shall be true,
correct and complete in all material respects as of such date). The
making of each Loan shall be deemed to be a representation and
warranty by Borrower on the date of such Loan as to the accuracy of
the facts referred to in this Section 3.1.
4. CREATION OF SECURITY
INTEREST.
4.1 Grant of Security Interest.
Borrower grants and pledges to Lenders a continuing security
interest in the Collateral to secure prompt repayment of any and
all Obligations and to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Except
as set forth in the Schedule, such security interest constitutes a
valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security
interest in later-acquired Collateral. Notwithstanding any
termination of this Agreement, Lenders’ Lien on the
Collateral shall remain in effect for so long as any Obligations
are outstanding.
4.2 Perfection of Security
Interest. Borrower authorizes Lenders to file at any time
financing statements, continuation statements, and amendments
thereto that (i) either specifically describe the Collateral or
describe the Collateral as all assets of Borrower of the kind
pledged hereunder, and (ii) contain any other information required
by the Code for the sufficiency of filing office acceptance of any
financing statement, continuation statement, or amendment,
including whether Borrower is an organization, the type of
organization and any organizational identification number issued to
Borrower, if applicable. Any such financing statements may be filed
by Lenders at any time in any jurisdiction. Borrower shall from
time to time endorse and deliver to Lenders, at the request of
Required Lenders, all other documents that Required Lenders may
reasonably request, in form satisfactory to Required Lenders, to
perfect and continue perfection of Lenders’ security
interests in the Collateral and in order to fully consummate all of
the transactions contemplated under the Loan Documents. Borrower
shall have the right to possess the Collateral, except where
expressly otherwise provided in this Agreement or where Required
Lenders choose to perfect its security interest by possession in
addition to the filing of a financing statement. Where Collateral
is in possession of a third party bailee, Borrower shall take such
steps as Required Lenders reasonably request for Lenders to (i)
obtain an acknowledgment, in form and substance satisfactory to
Required Lenders, of the bailee that the bailee holds such
Collateral for the benefit of Lenders, and (ii) obtain
“control” of any Collateral consisting of investment
property, deposit accounts, letter-of-credit rights or electronic
chattel paper (as such items and the term “control” are
defined in Revised Article 9 of the Code) by causing the securities
intermediary or depositary institution or issuing bank to execute a
control agreement in form and substance satisfactory to Lenders.
Borrower will not create any chattel paper without placing a legend
on the chattel paper acceptable to Lenders indicating that Lenders
have a security interest in the chattel paper. Borrower from time
to time may deposit with Lenders specific cash collateral to secure
specific Obligations; Borrower authorizes Lenders to hold such
specific balances in pledge and to decline to honor any drafts
thereon or any request by Borrower or any other Person to pay or
otherwise transfer any part of such balances for so long as the
specific Obligations are outstanding.
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4.3 Release of Security Interest.
Upon the earlier of (a) the Loan Conversion, and (b) payment in
full of all outstanding Obligations by Borrower, the Lenders shall
release their security interest in any remaining Collateral;
provided, that if any payment, or any part thereof, of any of the
Obligations is rescinded or must otherwise be restored or returned
by the Lenders upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Borrower, or upon or as a
result of the appointment of a receiver, intervenor or conservator
of, or a trustee or similar officer for the Borrower or any
substantial part of its property, the Collateral or otherwise, this
Loan Agreement, all rights hereunder and the Liens created hereby
shall continue to be effective, or be reinstated, until such
payments have been made.
5. REPRESENTATIONS AND
WARRANTIES.
Borrower represents
and warrants as follows:
5.1 Due Organization and
Qualification. Borrower and each of its Subsidiaries is an
entity duly existing under the laws of the jurisdiction in which it
is organized and qualified and licensed to do business in any state
in which the conduct of its business or its ownership of property
requires that it be so qualified, except where the failure to do so
could not reasonably be expected to cause a Material Adverse
Effect.
5.2 Due Authorization; No Conflict.
The execution, delivery, and performance of the Loan Documents are
within Borrower’s powers, have been duly authorized, and are
not in conflict with nor constitute a breach of any provision
contained in Borrower’s organizational documents, nor will
they constitute an event of default under any material agreement by
which Borrower is bound. Borrower is not in default under any
agreement by which it is bound, except to the extent such default
would not reasonably be expected to cause a Material Adverse
Effect.
5.3 Collateral. Borrower and its
Subsidiaries have rights in or the power to transfer the
Collateral, and their title to the Collateral is free and clear of
Liens, adverse claims, and restrictions on transfer or pledge
except for Permitted Liens. Any real property and facilities held
under lease by the Borrower 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
Borrower and its Subsidiaries.
5.4 Saleable Value of Assets. The
fair saleable value of Borrower’s and its Subsidiaries’
assets (including goodwill minus disposition costs) exceeds the
fair value of its liabilities, and Borrower and its Subsidiaries
are not left with unreasonably small capital after the transactions
contemplated by this Agreement.
Borrower covenants
that, until payment in full of all outstanding Obligations, and for
so long as Lenders may have any commitment to make Loans hereunder,
Borrower shall do and shall cause its Subsidiaries to do all of the
following:
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6.1 Good Standing and Government
Compliance. Borrower shall maintain its and each of its
Subsidiaries’ organizational existence and good standing in
the state in which such person is organized unless otherwise
permitted under this Agreement, shall maintain qualification and
good standing in each other jurisdiction in which the failure to so
qualify could reasonably be expected to have a Material Adverse
Effect. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, and shall maintain, and
shall cause each of its Subsidiaries to maintain, in force all
licenses, approvals and agreements, the loss of which or failure to
comply with which would reasonably be expected to have a Material
Adverse Effect.
6.2 Taxes. Borrower shall make, and
cause each Subsidiary to make, due and timely payment or deposit of
all material federal, state, and local taxes, assessments, or
contributions required of it by law, including, but not limited to,
those laws concerning income taxes; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of
such payment is contested in good faith by appropriate proceedings
and is reserved against (to the extent required by GAAP) by
Borrower.
6.3 Further Assurances. At any time
and from time to time Borrower shall execute and deliver such
further instruments and take such further action as may reasonably
be requested by Lenders to effect the purposes of this
Agreement.
Borrower covenants
and agrees that so long as any Obligations (other than contingent
indemnity obligations) remain outstanding, Borrower will not and it
will not permit its Subsidiaries to do any of the following without
Required Lenders’ prior written consent, which shall not be
unreasonably withheld:
7.1 Dispositions. Convey, sell,
lease, license, transfer or otherwise dispose of all or any
material portion of its business or property except where no Event
of Default has occurred, is continuing or would exist after giving
effect to such transactions.
7.2 Mergers or Acquisitions. Merge
or consolidate with or into any other business organization or
acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another
Person, except where no Event of Default has occurred, is
continuing or would exist after giving effect to such
transactions.
7.3 Encumbrances. Create, incur,
assume or allow any Lien with respect to any of its property or
assign or otherwise convey any right to receive income, except for
Permitted Liens, or covenant to any other Person that Borrower in
the future will refrain from creating, incurring, assuming or
allowing any Lien with respect to any of Borrower’s property
other than Permitted Liens.
7.4 Distributions. Pay any
dividends or make any other distribution or payment on account of
or in redemption, retirement or purchase of any capital
stock.
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7.5 Incurrence of Indebtedness.
Incur, assume, become liable for, or make any commitment to incur,
Indebtedness.
8. EVENTS OF DEFAULT.
Any one
or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower
fails to pay any (i) principal when due, or (ii) any of the other
Obligations within five (5) Business Days from when
due;
8.2 Covenant Default.
(a) If Borrower fails
to perform any obligation under Section 6 or violates any of the
covenants contained in Section 7 of this Agreement; provided,
however, that if in the event of a breach of an obligation under
Section 6, if such breach is capable of being cured, such breach
shall only become an Event of Default if such breach continues for
ten (10) Business Days after the occurrence thereof;
or
(b) If Borrower fails
or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement
between Borrower and Lenders and as to any default under such other
term, provision, condition or covenant that can be cured, has
failed to cure such default within ten (10) Business Days after
Borrower receives notice thereof or any officer of Borrower becomes
aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) Business Day period or cannot
after diligent attempts by Borrower be cured within such ten (10)
Business Day period, and such default is likely to be cured within
a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30)
Business Days) to attempt to cure such default, so long as Borrower
continues to diligently attempt to cure such default, and within
such reasonable time period the failure to have cured such default
shall not be deemed an Event of Default;
8.3 Material Adverse Effect. If
there occurs any circumstance or circumstances that could
reasonably be expected to have a Material Adverse
Effect;
8.4 Defective Perfection. If, at
any time, Lenders’ security interest in the Collateral is not
prior to all other security interests or Liens;
8.5 Attachment. If any material
portion of Borrower’s or its Subsidiaries assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or
distress warrant or levy has not been removed, discharged or
rescinded within fifteen (15) Business Days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower’s assets,
or if a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, and the
same is not paid within fifteen (15) Business Days after Borrower
receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed
or an adequate bond has been posted pending a good faith contest by
Borrower (provided that no Loans will be made during such cure
period);
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8.6 Insolvency. If Borrower becomes
insolvent, or if an Insolvency Proceeding is commenced by Borrower,
or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within thirty (30) Business Days (provided
that no Loans will be made prior to the dismissal of such
Insolvency Proceeding);
8.7 Other Agreements. If there is a
default by Borrower or other failure by Borrower to perform under
any agreement to which Borrower is a party with a third party or
parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any
Indebtedness; or
8.8 Misrepresentations. If any
material misrepresentation or material misstatement exists now or
hereafter in any warranty or representation set forth herein or in
any certificate delivered to Lenders by any Responsible Officer
pursuant to this Agreement or to induce Lenders to enter into this
Agreement or any other Loan Document.
9. LENDERS’ RIGHTS AND
REMEDIES.
9.1 Rights and Remedies. Upon the
occurrence and during the continuance of an Event of Default,
Required Lenders may, at their election, without notice of their
election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all
Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described
in Section 8.6(insolvency), all Obligations shall become
immediately due and payable without any action by
Lender);
(b) Cease advancing
money or extending credit to or for the benefit of Borrower under
this Agreement or under any other agreement between Borrower and
Lenders;
(c) Settle or adjust
disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Required Lenders reasonably
consider advisable;
(d) Make such payments
and do such acts as Required Lenders consider necessary or
reasonable to protect their security interest in the Collateral.
Borrower agrees to assemble the Collateral if Required Lenders so
require, and to make the Collateral available to Lenders as
Required Lenders may designate. Borrower authorizes Lenders to
enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Required Lenders’ determination appears to be
prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of
Borrower’s owned premises, Borrower hereby grants Lenders a
license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of Lenders’
rights or remedies provided herein, at law, in equity, or
otherwise;
(e) Set off and apply
to the Obligations any and all (i) balances and deposits of
Borrower held by Lenders, and (ii) Indebtedness at any time owing
to or for the credit or the account of Borrower held by
Lenders;
(f) Ship, reclaim,
recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein)
the Collateral. Lenders are hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to
use, without charge, Borrower’s labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and, in
connection with Lenders’ exercise of their rights under this
Section 9.1, Borrower’s rights under all licenses and all
franchise agreements shall inure to Lenders’
benefit;
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(g) Sell the Collateral
at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower’s premises) as Required
Lenders determine is commercially reasonable, and apply any
proceeds to the Obligations in whatever manner or order Required
Lenders deem appropriate. Lenders may sell the Collateral without
giving any warranties as to the Collateral. Lenders may
specifically disclaim any warranties of title or the like. This
procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral. If Lenders sell any
of the Collateral upon credit, Borrower will be credited only with
payments actually made by the purchaser, received by Lenders, and
applied to the indebtedness of the purchaser. If the purchaser
fails to pay for the Collateral, Lenders may resell the Collateral
and Borrower shall be credited with the proceeds of the
sale;
(h) Lenders may credit
bid and purchase at any public or private sale;
(i) Apply for the
appointment of a receiver, trustee, liquidator or conservator of
the Collateral, without notice and without regard to the adequacy
of the security for the Obligations and without regard to the
solvency of Borrower, any guarantor or any other Person liable for
any of the Obligations;
(j) Exercise any other
rights of a secured creditor under applicable law; and
(k) Any deficiency that
exists after disposition of the Collateral as provided above will
be paid immediately by Borrower.
Lenders
may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will
not be considered adversely to affect the commercial reasonableness
of any sale of the Collateral.
9.2 [Reserved].
9.3 Accounts Collection. At any
time after the occurrence and during the continuation of an Event
of Default, to the extent constituting Collateral, Lenders may
notify any Person owing funds to Borrower of Lenders’
security interest in such funds. Borrower shall collect all such
amounts owing to Borrower for Lenders, receive in trust all
payments as Lenders’ trustee, and immediately deliver such
funds to Lenders in their original form as received from such
Person, with proper endorsements for deposit.
9.4 Lender Expenses. If Borrower
fails to pay any amounts or furnish any required proof of payment
due to third persons or entities, as required under the terms of
this Agreement, then Lenders may after reasonable notice to
Borrower make payment of the same or any part thereof. Any amounts
so paid or deposited by Lenders shall constitute Lender Expenses,
shall be immediately due and payable, and shall bear interest at
the then applicable rate hereinabove provided, and shall be secured
by the Collateral. Any payments made by Lenders shall not
constitute an agreement by Lenders to make similar payments in the
future or a waiver by Lenders of any Event of Default under this
Agreement.
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9.5 Lenders’ Liability for
Collateral. Lenders have no obligation to clean up or
otherwise prepare the Collateral for sale. All risk of loss, damage
or destruction of the Collateral shall be borne by
Borrower.
9.6 No Obligation to Pursue Others.
Lenders have no obligation to attempt to satisfy the Obligations by
collecting them from any other person liable for them and Lenders
may release, modify or waive any collateral provided by any other
Person to secure any of the Obligations, all without affecting
Lenders’ rights against Borrower. Borrower waives any right
it may have to require Lenders to pursue any other Person for any
of the Obligations.
9.7 Remedies Cumulative.
Lenders’ rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Lenders
shall have all other rights and remedies not inconsistent herewith
as provided under the Code, by law, or in equity. No exercise by
Lenders of one right or remedy shall be deemed an election, and no
waiver by Lenders of any Event of Default on Borrower’s part
shall be deemed a continuing waiver. No delay by Lenders shall
constitute a waiver, election, or acquiescence by it. No waiver by
Lenders shall be effective unless made in a written document signed
on behalf of Lenders and then shall be effective only in the
specific instance and for the specific purpose for which it was
given. Borrower expressly agrees that this Section 9.7 may only be
waived or modified with the express written consent of the Required
Lenders and will not be deemed waived or modified by Lenders by
course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Except as
otherwise provided in this Agreement, Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment and any other notices relating to the
Obligations.
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11. NOTICES.
Unless
otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and shall be
personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested,
or by email to Borrower or to Lender, as the case may be, at its
addresses set forth below:
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If to
Borrower:
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ImageWare
Systems Inc.13500 Evening Creek Drive N.Suite 550
San
Diego, California 92127Email: xxxxxxx@xxxxxx.xxxXxxx: Chief
Financial Officer
Disclosure
Law Group, a Professional Corporation
000
Xxxx Xxxxxxxx, Xxxxx 000
Xxx
Xxxxx, XX 00000
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
Email:
xxxxxxx@xxxxxxxxxxxxxxxxxx.xxx
Attention:
Xxxxxx X. Xxxxxx, Managing Director
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If to
Lender:
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If to
any Lenders, to the address set forth under such Lender’s
name on the Signature Page hereto executed by such
Lender.
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The
parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner
given to the other.
12. CHOICE OF LAW AND VENUE; JURY TRIAL
WAIVER; JUDICIAL REFERENCE.
This
Agreement and the other Loan Documents and any claims, controversy,
dispute or cause of action (whether in contract or tort or
otherwise) based upon, arising out of or relating to this Agreement
or any other Loan Document (except, as to any other Loan Document,
as expressly set forth therein) and the transactions contemplated
hereby and thereby shall be governed by, and construed in
accordance with, the Law of the State of New York. Borrower irrevocably and unconditionally agrees
that it will not commence any action, litigation or proceeding of
any kind or description, whether in law or equity, whether in
contract or tort or otherwise, against Lenders in any way relating
to this Agreement or any other Loan Document or the transactions
relating hereto or thereto, in a forum other than the courts of the
State of New York sitting in New York County, and of the United
States District Court of the Southern District of New York, and any
appellate court from any thereof, and each of the parties hereto
irrevocably and unconditionally submits to the exclusive
jurisdiction of such courts and agrees that all claims in respect
of any such action, litigation or proceeding may be heard and
determined in such New York State court or, to the fullest extent
permitted by applicable Law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action,
litigation or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by Law. Nothing in this Agreement or in any other Loan
Document shall affect any right that Lenders may otherwise have to
bring any action or proceeding relating to this Agreement or any
other Loan Document against Borrower or its properties in the
courts of any jurisdiction. Borrower irrevocably and
unconditionally waives, to the fullest extent permitted by
applicable Law, any objection that it may now or hereafter have to
the laying of venue of any action or proceeding arising out of or
relating to this Agreement or any other Loan Document in any court
referred to in this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable
Law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court. Each party hereto
irrevocably consents to service of process in the manner provided
for notices in Section 10. Nothing in
this Agreement will affect the right of any party hereto to serve
process in any other manner permitted by applicable
Law.
-10-
EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
13. GENERAL
PROVISIONS.
13.1 Successors
and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each
of the parties and shall bind all persons who become bound as a
debtor to this Agreement; provided, however, that neither this
Agreement nor any rights hereunder may be assigned by Borrower
without Required Lenders’ prior written consent, which
consent may be granted or withheld in Required Lenders’ sole
discretion. Each Lender shall have the right without the consent of
or notice to Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, such
Lenders’ obligations, rights and benefits
hereunder.
13.2 Indemnification. Borrower shall
defend, indemnify and hold harmless Lenders and its officers,
employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement
and/or the Loan Documents; and (b) all losses or Lender Expenses in
any way suffered, incurred, or paid by Lenders, its officers,
employees and agents as a result of or in any way arising out of,
following, or consequential to transactions between Lenders and
Borrower whether under this Agreement, or otherwise (including
without limitation reasonable attorneys’ fees and expenses),
except for losses caused by Lenders’ gross negligence or
willful misconduct.
13.3 Time
of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
13.4 Severability
of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific
provision.
13.5 Correction
of Loan Documents. Lenders may correct patent errors and
fill in any blanks in this Agreement and the other Loan Documents
consistent with the agreement of the parties.
-11-
13.6 Amendments
in Writing, Integration. All amendments, modifications or
waivers to or terminations of this Agreement or the other Loan
Documents must be in writing signed by the Borrower and the
Required Lenders, provided, however that not such amendment,
modification or waiver shall:
(a) modify this Section
12.6 without the consent of all Lenders;
(b) increase the
aggregate amount of the Loans required to be made by a Lender
pursuant to its Commitment or extend the Maturity Date for any
Loans made (or participated in) by a Lender without the consent of
such Lender;
(c) reduce the
principal amount of or rate of interest on or premium payable with
respect to any Lender’s Loans or extend the date on which
interest, fees or premiums are payable in respect of such
Lender’s Loans, in each case, without the consent of such
Lender; or
(d) except as otherwise
expressly provided in a Loan Document, release the Borrower from
its Obligations under the Loan Documents or release all or
substantially all of the Collateral, in each case without the
consent of all Lenders.
All
prior agreements, understandings, representations, warranties, and
negotiations between the parties hereto with respect to the subject
matter of this Agreement and the other Loan Documents, if any, are
merged into this Agreement and the Loan Documents.
13.7 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the
same Agreement.
13.8 Survival. All covenants,
representations and warranties made in this Agreement shall
continue in full force and effect so long as any Obligations remain
outstanding or Lender has any obligation to make any Loan to
Borrower. The obligations of Borrower to indemnify Lenders with
respect to the expenses, damages, losses, costs and liabilities
described in Section 12.2 shall survive until all applicable
statute of limitations periods with respect to actions that may be
brought against Lenders have run.
13.9 Confidentiality.
In handling any confidential information, Lenders and all employees
and agents of Lenders shall exercise the same degree of care that
Lenders exercise with respect to its own proprietary information of
the same types to maintain the confidentiality of any non-public
information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the
subsidiaries or Affiliates of Lenders in connection with their
present or prospective business relations with Borrower, (ii) to
prospective transferees or purchasers of any interest in the Loans,
(iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of
a Lender, (v) to Lenders’ accountants, auditors and
regulators, and (vi) as Lenders may determine in connection with
the enforcement of any remedies hereunder. Confidential information
hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of a Lender when
disclosed to such Lender, or becomes part of the public domain
after disclosure to such Lender through no fault of such Lender; or
(b) is disclosed to a Lender by a third party, provided such Lender
does not have actual knowledge that such third party is prohibited
from disclosing such information.
-12-
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
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BORROWER:
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IMAGEWARE
SYSTEMS, INC.
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By:
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/s/ Xxxxxxx
Xxxxxx
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Name:
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Xxxxxxx
Xxxxxx
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Title:
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Chief
Executive Officer
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LENDER:
(Print
or Type Name of Purchaser)
By:
Name:
Title:
ADDRESS:
Telephone:
Facsimile:
E-Mail:
Attention:
LOAN
AMOUNT: ______________________
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EXHIBIT A
DEFINITIONS
“Additional
Lender” has the meaning assigned to such term in Section
2.5(b).
“Affiliate”
means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each
of such Person’s senior executive officers, directors, and
partners.
“Business
Day” means any day that is not a Saturday, Sunday, or other
day on which banks in the State of New York are authorized or
required to close.
“Closing
Date” means the date of this Agreement.
“Code”
means the New York Uniform Commercial Code as amended or
supplemented from time to time.
“Collateral”
means the property described on Exhibit B attached
hereto.
“Commitment”
means, with respect to each Lender, the amount set forth opposite
such Lender’s name on Schedule A hereto.
“Contingent
Obligation” means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any
such obligation directly or indirectly guaranteed, endorsed,
co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of
credit, corporate credit cards or merchant services issued for the
account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate
cap agreement, interest rate collar agreement, or other agreement
or arrangement designated to protect a Person against fluctuation
in interest rates, currency exchange rates or commodity prices;
provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the
stated or determined amount of the primary obligation in respect of
which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith;
provided, however, that such amount shall not in any event exceed
the maximum amount of the obligations under the guarantee or other
support arrangement.
“Default
Rate” means a per annum rate equal to (i) 2.00% plus (ii) the Interest
Rate.
“Eligible
Purchaser” means (i) a Lender, (ii) an Affiliate of a Lender,
and (iii) any other Person (other than a natural person) approved
by the Borrower.
“Equity
Interests” with respect to any Person, means all of the
shares of capital stock of (or other ownership or profit interests
in) such Person, all of the warrants, options or other rights for
the
Exhibit
A-1
purchase
or acquisition from such Person of shares of capital stock of (or
other ownership or profit interests in) such Person, all of the
securities convertible into or exchangeable for shares of capital
stock of (or other ownership or profit interests in) such Person or
warrants, rights or options for the purchase or acquisition from
such Person of such shares (or such other interests), and all of
the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or
nonvoting, and whether or not such shares, warrants, options,
rights or other interests are outstanding on any date of
determination.
“Escrow
Agent” means Citibank, N.A.
“Escrow
Agreement” means that certain Escrow Agreement, dated as of
the date hereof, by and among the Borrower, the Lenders and the
Escrow Agent, as it may be amended, restated, supplemented or
otherwise modified from time to time.
“Event
of Default” has the meaning assigned to such term in Section
8.
“GAAP”
means generally accepted accounting principles, consistently
applied, as in effect from time to time.
“Increase”
has the meaning assigned to such term in Section
2.5(a).
“Increase
Effective Date” means the date of funding of an Increase by
an Additional Lender.
“Indebtedness”
means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without
limitation reimbursement and other obligations with respect to
surety bonds and letters of credit, (b) all obligations evidenced
by notes, bonds, debentures or similar instruments (c) all capital
lease obligations and (d) all Contingent Obligations, if
any.
“Insolvency
Proceeding” means any proceeding commenced by or against any
Person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including assignments for the benefit of creditors,
formal or informal moratoria, compositions, extension generally
with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
“Interest
Payment Date” means the first calendar day of each month
following the Closing Date.
“Interest
Rate” has the meaning assigned to such term in Section
2.4(a).
“Lender
Expenses” means all reasonable costs or expenses (including
reasonable attorneys’ fees and expenses, whether generated
in-house or by outside counsel) incurred in connection with the
preparation, negotiation, administration, and enforcement of the
Loan Documents; reasonable Collateral audit fees; and
Lenders’ reasonable attorneys’ fees and expenses
(whether generated in-house or by outside counsel) incurred in
amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an
Insolvency Proceeding, whether or not suit is brought.
“Lien”
means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
“Loan”
has the meaning assigned to such term in Section 2.2.
“Loan
Conversion” means the conversion of all outstanding Loan and
all interest thereon that has come due and payable into Shares in
accordance with the terms of this Agreement.
“Loan
Conversion Date” has the meaning assigned to such term in
Section 2.2(b).
“Loan
Conversion Suspension Event” means the occurrence of any of
the following: (i) any Event of Default; (ii) a Material Adverse
Effect; or (iii) the non-compliance by the Borrower with any
requirement of law.
“Loan
Documents” means, collectively, this Agreement, any note or
notes executed by Borrower, and any other document, instrument or
agreement entered into in connection with this Agreement, all as
amended or extended from time to time.
“Material
Adverse Effect” means (i) a material impairment in the
perfection or priority of Lenders’ Lien in the Collateral or
in the value of such Collateral; (b) a material adverse change in
the business, operations, or condition (financial or otherwise) of
Borrower; or (c) a material impairment of the prospect of repayment
of any portion of the Obligations.
“Maturity
Date” means the six-month anniversary of the Closing
Date.
“Obligations”
means all debt, principal, interest, Lender Expenses and other
amounts owed to Lender by Borrower pursuant to this Agreement or
any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any
interest that accrues after the commencement of an Insolvency
Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Lender may have obtained by assignment
or otherwise.
“Parties”
means the Borrower and the Lenders and any Additional Lenders that
may be joined to this Agreement from time to time.
“Periodic
Payments” means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay
to Lender pursuant to the terms and provisions of any instrument,
or agreement now or hereafter in existence between Borrower and
Lender.
“Permitted
Liens” means the following:
(a)
Any Liens existing
on the Closing Date, including those set forth on the
Schedule;
(b)
Liens arising under
this Agreement or the other Loan Documents; and
(c)
Liens to which the
Required Lenders have consented in writing in their sole and
absolute discretion.
Exhibit
A-2
“Person”
means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or
governmental agency.
“Purchaser”
has the meaning set forth in the Securities Purchase
Agreement.
“Required
Lenders” means Lenders holding at least 50% of the aggregate
principal amount of loans outstanding at any time.
“Responsible
Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller
of Borrower.
“Schedule”
means the schedule of exceptions attached hereto and approved by
Lenders, if any.
“Securities
Purchase Agreement” means that certain Securities Purchase
Agreement, dated as of [ ], 2020 by and among the Borrower and each
of the purchasers set forth on the signature pages
thereto.
“Segregated
Account” means an account of the Escrow Agent with the
account number ending in [ ], maintained at Citibank, N.A., which
shall at all times be subject to the Escrow Agreement.
“Shares”
means the Borrower’s Series D Convertible Preferred Stock,
par value $0.01 per share, which Preferred Stock has the rights and
privileges set forth in the Borrower’s Certificate of
Designations, Preferences and Rights of Series D Convertible
Preferred Stock filed with the Secretary of State for the State of
Delaware.
“Subsidiary”
means any corporation, partnership or limited liability company or
joint venture in which (i) any general partnership interest or (ii)
more than fifty percent (50%) of the stock, limited liability
company interest or joint venture of which by the terms thereof
ordinary voting power to elect the Board of Directors, managers or
trustees of the entity, at the time as of which any determination
is being made, is owned by Borrower, either directly or through an
Affiliate.
Exhibit
A-3
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DEBTOR
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IMAGEWARE SYSTEMS, INC.
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SECURED PARTIES:
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FUND AND SEPARATE ACCOUNT LENDERS UNDER THE MANAGEMENT OF NANTAHALA
CAPITAL MANAGEMENT, LLC AND THE OTHER LENDERS LISTED ON THE
SIGNATURE PAGES TO THE LOAN AND SECURITY AGREEMENT
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EXHIBIT B
COLLATERAL
DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
The
following property of Borrower and its Subsidiaries whether
presently existing or hereafter created or acquired, and wherever
located:
(a)
any right or
interest in or to property of any kind whatsoever, whether real,
personal or mixed and whether tangible or intangible including
Equity Interests; and
any and
all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all
supporting obligations and the security therefor or for any right
to payment. All terms above have the meanings given to them in the
New York Uniform Commercial Code, as amended or supplemented from
time to time.
Exhibit
B-1
EXHIBIT C
DISBURSEMENT LETTER
IMAGEWARE SYSTEMS, INC.
The
undersigned duly elected and acting officer of IMAGEWARE SYSTEMS, INC.
(“Borrower”) does hereby certify to the Lenders, in
connection with that certain Loan and Security Agreement dated as
of September [ ], 2020, by and between Borrower, the Lenders and
any Additional Lenders from time to time party thereto (as
modified, amended and/or restated from time to time, the
“Loan Agreement”; with other capitalized terms used
below having the meanings ascribed thereto in the Loan Agreement)
that:
1. The representations
and warranties made by Borrower in Section 5 of the Loan
Agreement and in the other Loan Documents are true and correct in
all material respects as of the date hereof.
2. No event or
condition has occurred that would constitute an Event of Default
under the Loan Agreement or any other Loan Document.
3. Borrower is in
compliance with the covenants and requirements contained in
Sections 4, 6 and 7 of the Loan Agreement.
4. All conditions
referred to in Section 3 of the Loan Agreement to the making
of the Loan(s) to be made on or about the date hereof have been
satisfied or waived by Lenders.
5. No event having a
Material Adverse Effect has occurred.
6. The undersigned is
a Responsible Officer.
7. The proceeds of the
Loan, as set forth below, shall be disbursed from the Segregated
Account in accordance with the Joint Release Instruction (as
defined in the Escrow Agreement) to the Borrower’s account
set forth below.
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AmountPlus
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$
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___________________
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Accrued
interest
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$
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Net Proceeds of the Loan
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$
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Balance – credited to
Borrower’s wire account as follows:
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Beneficiary
Name
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Beneficiary
Account Number
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Beneficiary
Address
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ABA
Routing Number (9 Digits)
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Receiving
Institution Name
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Receiving
Institution Address
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[Balance of Page Intentionally Left Blank]
Exhibit
C-1
Dated
as of the date first set forth above.
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BORROWER:
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IMAGEWARE
SYSTEMS, INC.
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By:
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Name:
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Xxxxxxx
Xxxxxx
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Title:
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Chief
Executive Officer
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[ADDITIONAL] LENDER:
|
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[ ].
|
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By:
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Name:
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Title:
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Exhibit
C-2
SCHEDULE A
COMMITMENTS
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Lender
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Commitment
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Exhibit
C-3
SCHEDULE B
SHARES
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Lender
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No. of Shares
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Schedule of Exceptions
SCHEDULE OF EXCEPTIONS
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Permitted
Liens
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None.
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Schedule of Exceptions
