EXHIBIT 1
CONSENT TO ASSIGNMENT AND AMENDMENT AGREEMENT
This Consent to Assignment and Amendment Agreement ("Agreement") is
made by and among ImageWare Systems, Inc. ("Company"), and L.F. Global Holdings,
LLC ("LF"), and Laurus Master Fund, Ltd. ("Laurus")(collectively, "Purchaser")
as of June 13, 2003 ("Agreement Date").
RECITALS
A. By this Agreement the parties intend to acknowledge the
assignment by Perseus 2000, L.L.C., a Delaware limited liability company
("Perseus") of the Promissory Notes (defined below) to Purchaser and Purchaser's
anticipated amendment of the Note Purchase Agreement (defined below) to enable
Purchaser's acquisition of additional notes from Company.
B. As of June 6, 2003, the Company is indebted to Perseus or
assignee ("Lender") under the Promissory Notes in the amount of $3,063,170.05,
with daily accrual of interest of $1,111.42 (collectively "Existing Debt").
C. Such Existing Debt is evidenced by: (i) a Note and Warrant
Purchase Agreement entered into between Company and Lender and dated as of May
22, 2002 ("Note Purchase Agreement"); (ii) Pledge and Security Agreement entered
into between Company and Lender and dated as of May 22, 2002 ("Company Security
Agreement"); (iii) Registration Rights Agreement entered into between Company
and Lender and dated as of May 22, 2002 ("Rights Agreement"); (iv) the Pledge
and Security Agreement entered into between ImageWare Systems ID Group, Inc., a
Delaware corporation, and Assignor and dated as of May 22, 2002 ("Subsidiary
Security Agreement"); (v) Senior Secured Convertible Promissory Note in the
original principal amount of $2,000,000.00 executed by Company in favor of
Lender and dated as of May 22, 2002 ("Senior Note"); and (vi) Demand Promissory
Note in the original amount of $500,000.00 executed by the Company in favor of
Lender and dated as of September 23, 2002 ("Demand Note" and, collectively with
the Senior Note, referred to herein as "Promissory Notes"). The Company Security
Agreement and Subsidiary Security Agreement are referred to herein as the
"Pledge Agreements."
D. Collateral for the Promissory Notes consists of by a perfected
first lien against: (i) all of the assets of Company and its subsidiary
ImageWare Systems ID Group, Inc.; (ii) all of the outstanding shares of capital
stock of each of the Company's United States subsidiaries; and (iii) sixty-six
and two-thirds percent (66.67%) of all of the outstanding shares of Company's
foreign subsidiaries (collectively "Collateral").
E. The Purchaser will purchase the Existing Debt represented by
the Promissory Notes from Perseus at Closing (defined below), pursuant to the
Purchase and Sale Agreement entered into by and among Perseus and Purchaser, and
the Company concurrently therewith will retire the Promissory Notes and issue
the Laurus Note (defined below) and the LF Note (defined below), which
collectively shall constitute the Recast Promissory Notes (defined below).
1
E. For purposes of this Agreement, the Closing Date shall be the
date on which the parties execute their agreement to purchase the Promissory
Note and contribute the Additional Advance ("Closing").
F. At Closing Laurus will be obligated to fund an amount equal to
$1,500,000.00 ("Initial Laurus Investment"). Such Initial Laurus Investment will
be funded at Closing by wire transfer to Dechert, LLP, as escrow agent for the
benefit of Perseus as partial payment for the purchase of the Promissory Notes,
which Initial Laurus Investment shall be evidenced by the Laurus Note (defined
below).
G. At Closing LF will be obligated to fund an amount equal to
$2,650,000.00 ("Initial LF Investment"). Such Initial LF Investment will be
funded at Closing by wire transfer to: (i) Perseus as partial payment for the
purchase of the Promissory Note; and (ii) the balance to Company which Initial
LF Investment shall be evidenced by the LF Note (defined below).
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereby agree as follows:
1. Assignment of Promissory Notes. Company hereby consents to the
assignment, transfer and conveyance to Purchaser of all of Lender's right, title
and interest in and to the Promissory Notes and related rights and agrees that
Purchasers shall each be entitled to the same benefits and protections as
Perseus as purchaser of the Promissory Notes under the Note Purchase Agreement
and each and every document and agreement entered into or delivered in
connection therewith. Purchaser agrees that Company shall be entitled to the
same benefits and protections under the Promissory Notes and each and every
document and agreement entered into or delivered in connection therewith to the
extent not altered herein.
2. Additional Capital Advances. Concurrent with the execution of
this Agreement, LF shall advance to Company the sum of approximately $1,088,000
as additional working capital ("Additional Advance"). The Additional Advance
shall be included by the Company within the principal balance of the LF Note
(defined below). The proceeds of the Additional Advance shall be used by Company
to (i) pay costs associated with this transaction; and (ii) for general ongoing
working capital for the Company.
3. Amendment of Note Purchase Agreement. The Note Purchase
Agreement is hereby amended to provide that concurrently with the execution of
this Agreement, Purchaser shall have the right under the Section 1(b) thereof to
make the Additional Advance and acquire an Additional Note up to an aggregate
principal amount of approximately $1,088,000.00, on the terms set forth in
Section 1 of the Note Purchase Agreement, subject to the terms of this
Agreement.
2
4. Promissory Note Recast.
4.1 In consideration of the Additional Advance and the
amendments to the Promissory Notes provided for herein, the parties acknowledge
that the Company shall:
4.1.1 Upon delivery to escrow of the original
Promissory Notes, cause the Promissory Notes to be reissued such that two serial
notes in the total combined amount of the Initial LF Investment in the form and
content of Exhibit A attached hereto ("LF Note") and the Initial Laurus
Investment in the form and content of Exhibit B attached hereto ("Laurus Note"),
which reissued promissory notes when issued by the Company will amend, restate
and replace the Promissory Notes and evidence the additional advance
(collectively "Recast Promissory Notes");
4.1.2 Cause, no later than ninety (90) days
following Closing, all shares which may be issued pursuant to the conversion of
Recast Promissory Notes and the exercise of the Purchaser's Warrants and the
Warrant issued pursuant to the Note Purchase Agreement to be registered pursuant
to the Rights Agreement and declared effective by the Securities and Exchange
Commission, including the shares underlying the Purchaser's Warrants described
below;
4.1.3 Without causing an increase in the size of
Company's Board of Directors, appoint Xxxxxx Xxxx, Xxxxxxx Xxxxxx and Xxxxx
Xxxxxxxx to the Company's Board of Directors, one of whom shall be appointed as
soon as reasonably practical and the other two no later than the Company's next
annual meeting, which appointments shall be in lieu of the requirements set
forth in Section 4(f) of the Note Purchase Agreement;
4.1.4 In lieu of the "Additional Warrant" provided
for in Section 1(b)(i), issue in favor of Purchaser six (6) year warrants to
purchase 1,600,000 shares of common stock of Company ("Purchaser's Warrants")
exercisable at $2.11 per share in the form and content of Exhibit C attached
hereto;
4.1.5 Pay Laurus a closing fee in cash in an
amount equal to four percent (4.0%) of the Initial Laurus Investment ("Closing
Fee"). Additionally, Company will deliver to LF a convertible note in the form
of the LF Note in the principal amount equal to four percent (4.0%) of the
Initial LF Investment ("LF Closing Fee");
4.1.6 Reimburse Purchaser for all closing costs of
Purchaser to a maximum of $25,000 upon request and presentation of invoices from
third party service providers for costs incurred by Purchaser. Company will be
responsible for its own closing costs;
4.1.7 Limit the amount of permitted borrowings by
Company's German subsidiary to an amount no greater than that outstanding as of
the date of Closing; and
4.1.8 Take such good faith actions as are
reasonably required to secure the consent of Company's shareholders required to
effectuate this transaction, if any, at
3
Company's next annual meeting and to include within its proxy materials a
solicitation of the same at Company's expense and at such other times as may be
required.
5. AMEX Application. Immediately following the Closing, the
Company will file an application for the listing of additional shares with the
American Stock Exchange as required by the American Stock Exchange Listing
Standards, Policies and Requirements. In the event that as a condition to
approving such application, the American Stock Exchange requires one or more
modification s to the terms and conditions of the Transaction Documents (as
defined in the Recast Promissory Notes), the Company, LF and Laurus will all
work together reasonably and in good faith to effect such modifications to the
Transaction Documents, with a view towards preserving the overall economic terms
and conditions contained in the Transaction Documents.]
6. Representations and Warranties. Except as set forth in the
schedule of exceptions delivered to Purchaser concurrent with the execution of
this Agreement, the Company hereby makes and reaffirms all representations,
warranties, and covenants set forth in Section 2 and 4 of the Note Purchase
Agreement and as set forth in the Pledge Agreements as if made on the date
hereof. Further, under this Agreement the Company shall deliver to Purchaser an
opinion of counsel to the Company, encompassing in form and substance the
matters set forth in Exhibit F to the Note Purchase Agreement and each other
certificate or document required by Section 1 of the Note Purchase Agreement in
connection with the closing of the acquisition or an Additional Note. Purchaser,
each as to itself, hereby makes and reaffirms all representations and warranties
set forth in Section 3 of the Note Purchase Agreement as if made by and as to
such Purchaser on the date hereof.
7. Additional Remedies. If either party violates any of the terms
of this Agreement, in addition to any remedies in law, equity or otherwise, the
non-violating party may restrain such violation in any court of law and may
interpose this Agreement as a defense in any action by the violating party.
8. Waivers. No waiver shall be deemed to be made by any party of
any of their respective rights hereunder unless it is in writing and signed by
the waiving party. Each such waiver shall be a waiver only with respect to the
specific instance involved and shall in no way impair the rights of the waiving
party or the obligations of the other party to the waiving party in any other
respect at any other time.
9. Third Party Beneficiaries. This Agreement is solely for the
benefit of the Company, Laurus, LF and their respective successors and assigns,
and no any other persons or entities are intended to be third party
beneficiaries hereunder or to have any right, benefit, priority or interest
under, or because of the existence of, or to have any right to enforce, this
Agreement.
10. Notices. For the purposes of this Agreement, written notices
shall be sent by U.S. certified mail, return receipt requested, postage prepaid;
or by personal delivery; or by facsimile confirmed by the recipient; and
addressed to the notified party at its address set forth below its signature
line, or such other address specified by the party with like notice. Notices
shall be deemed received three (3) business days after deposit in the U.S. mail,
if sent by first class mail;
4
upon the date set forth in the return receipt, if by certified mail; on the day
of confirmation of delivery by the recipient, if by facsimile; or on the day of
transmittal by personal delivery.
11. Costs and Attorneys' Fees. In the event that any party hereto
shall institute any litigation or other proceeding arising out of or relating to
this Agreement, the prevailing party therein shall be entitled to recover its
reasonable attorney's fees and costs incurred in connection therewith.
12. Mediation/Arbitration. The parties mutually agree that any
claim or controversy arising out of or relating to this Agreement shall be
resolved by first submitting to mediation under the rules of the American
Arbitration Association, and should a resolution not be reached, by submitting
to binding arbitration administered by the American Arbitration Association in
accordance with its Arbitration Rules in San Diego, California and shall be
governed by the laws of the State of California, including, but not limited to,
California Code of Civil Procedure Section 1283.05 relating to depositions and
discovery, and judgment on the award rendered by the arbitrator(s) may be
entered in any court in San Diego County having jurisdiction thereof. The
arbitrator shall have the authority to order such discovery, by way of
deposition, interrogatory, document production, or otherwise, as the arbitrator
considers necessary to a full and fair exploration of the issues in dispute,
consistent with the expedited nature of arbitration.
13. Governing Law. This Agreement has been delivered and accepted
at and shall be deemed to have been made in the State of New York, and shall be
interpreted, and the rights and liabilities of the parties hereto determined, in
accordance with the internal laws of the State of New York.
14. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties' respective successors and
assigns, subject to the provisions hereof.
15. Integrated Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the within matters and may not be
modified or amended except upon a writing signed by all parties.
16. Authority. Each of the signatories hereto certifies that such
party has all necessary authority to execute this Agreement.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each one of which when so executed shall be deemed to be an
original, and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
5
"LAURUS"
Laurus Master Fund, Ltd.,
a Cayman Islands Corporation
By:__________________________________________
Name: ______________________________________
Title: ___________________________________
Address for notices: 000 Xxxx 00xx Xxxxxx
Xxxxxx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxx X. Xxxxxx, Esq.
"LF"
L.F. Global Holdings, LLC,
a California limited liability company
By: ____________________________________
Name: Xxxxxx Xxxxxxxx
Title: Managing Member
Address for notices: 00000 Xx Xxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Facsimile:______________
Attention: Xxxxxx Xxxxxxxx
"COMPANY"
ImageWare Systems, Inc.,
a California corporation.
By: ______________________________
Name: S. Xxxxx Xxxxxx, Jr.
Title: Chairman and Chief Executive Officer
Address for notices: 00000 Xxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
6
Facsimile: ____________________
Attention: S. Xxxxx Xxxxxx, Jr.
7
