EXCHANGE AGREEMENT
Exhibit
10.2
This
Exchange Agreement (this “Agreement”) is dated as of
September __, 2017, by and among ImageWare Systems, Inc., a
Delaware corporation (the “Company”), and each of the
signatories to this Agreement (each, a “Stockholder”).
RECITALS
WHEREAS, as of the date hereof, the
Stockholder beneficially owns that number of shares of the
Company’s Preferred Stock, $0.01 par value, and in such
series, as more particularly set forth below the
Stockholder’s name on the signature page to this
Agreement;
WHEREAS, in connection with a public
offering (the “Public
Offering”) of the Company’s Series A Convertible
Preferred Stock (“Series A
Preferred”), and as a condition to the consummation of
the Public Offering, Stockholders owning at least 66.6% of the
issued and outstanding shares of the Company’s (i) Series E
Convertible Preferred Stock, (ii) Series F Convertible Preferred
Stock, and (iii) Series G Convertible Preferred Stock (such
preferred stock collectively the “Exchanged Preferred”), are
required to exchange their Exchanged Preferred for Series A
Preferred, the designations, powers, preferences and relative and
other special rights of which are set forth in the Certificate of
Designations, Preferences and Rights attached hereto as
Exhibit A (the
“Certificate of
Designations”); and
WHEREAS, the Stockholder desires to
cancel the Exchanged Preferred currently held by the Stockholder,
in exchange for that number of shares of Series A Preferred set
forth below the Stockholder’s name on the signature page to
this Agreement, in accordance with the terms and conditions set
forth herein.
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby
agreed and acknowledged, the parties hereby agree as
follows:
AGREEMENT
1. Securities
Exchange.
1.1 In consideration of
and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the Stockholder
agrees to exchange that number of shares of Exchanged Preferred
appearing on the signature page to this Agreement
(“Exchange
Shares”), for that number of shares of Series A
Preferred indicated below the Stockholder’s name on the
signature page to this Agreement. In consideration for the
foregoing, the Company agrees to issue and deliver the Series A
Preferred to each Stockholder (the “Exchange”).
1.2
The closing under this Agreement (the “Closing”) shall take place upon
the satisfaction of each of the conditions set forth in Sections 4
and 5 hereof (the “Closing
Date”).
1.3
Within five (5) business days after the Closing, the Company shall
issue and deliver to each Stockholder a certificate evidencing the
Series A Preferred.
2. Representations, Warranties and
Covenants of the Stockholders. Each Stockholder, individually and
not jointly, hereby makes the following representations and
warranties to the Company, and covenants for the benefit of the
Company, as follows:
2.1 This Agreement has
been duly authorized, validly executed and delivered by or on
behalf of such Stockholder and is a valid and binding agreement and
obligation of such Stockholder enforceable against such Stockholder
in accordance with its terms, subject to limitations on enforcement
by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies, and such Stockholder has full
power and authority to execute and deliver the Agreement and the
other agreements and documents contemplated hereby and to perform
its obligations hereunder and thereunder.
2.2
Such Stockholder understands that the shares of Series A Preferred
are being offered and sold in reliance on specific provisions of
Federal and state securities laws, and that the Company is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Stockholder
set forth herein for purposes of qualifying for exemptions from
registration under the Securities Act of 1933, as amended (the
“Securities
Act”), and applicable state securities
laws.
2.3
Such Stockholder is an “accredited investor” as defined
under Rule 501 of Regulation D, promulgated under the Securities
Act.
2.4 Such Stockholder
will be acquiring the Series A Preferred for their own account, for
investment purposes, and not with a current view to any resale or
distribution in whole or in part, in violation of the Securities
Act or any applicable securities laws; provided, however, that notwithstanding
the foregoing, such Stockholder does not covenant to hold the
Series A Preferred for any minimum period of time.
2.5 Such Stockholder
understands that the shares Series A Preferred have not been
registered under the Securities Act, are being issued pursuant to
an exemption under Section 3(a)(9) of the Securities Act and may
not be resold except in accordance with Rule 144 promulgated under
the Securities Act or pursuant to another available exemption from
the registration requirements of the Securities Act or pursuant to
a registration statement.
2.6
Such Stockholder owns and holds, beneficially and of record, the
entire right, title, and interest in and to the Exchange Shares
free and clear of all rights and Encumbrances (as defined below),
and each Stockholder has full power and authority to transfer and
dispose of the Exchange Shares free and clear of any right or
Encumbrance. Other than the transactions contemplated by this
Agreement, there is no outstanding plan, pending proposal, or other
right of any person to acquire all or any of the Exchange Shares.
“Encumbrances”
shall mean any security or other property interest or right, claim,
lien, pledge, option, charge, security interest, contingent or
conditional sale, or other title claim or retention agreement,
interest or other right or claim of third parties, whether
perfected or not perfected, voluntarily incurred or arising by
operation of law, and including any agreement (other than this
Agreement) to grant or submit to any of the foregoing in the
future.
2.7
Such Stockholder, in its capacity as a holder of Series E
Convertible Preferred Stock, Series F Convertible Preferred Stock,
and/or Series G Convertible Preferred Stock, as the case may be,
hereby approves, subject to and effective upon the consummation of
both the Exchange and the Qualified Financing (as defined below),
the designation of a series of the Series A Preferred with the
preferences and rights set forth in the Certificate of
Designations.
3. Representations, Warranties and
Covenants of the Company. The Company represents and
warrants to the Stockholders, and covenants for the benefit of the
Stockholders, as follows:
3.1 The Company has
been duly incorporated and is validly existing and in good standing
as a corporation under the laws of the state of Delaware, with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted, and
is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such
registration or qualification, except where the failure to register
or qualify would not have a Material Adverse Effect. For purposes
of this Agreement, “Material
Adverse Effect” shall mean any material adverse effect
on the business, operations, properties, prospects, or financial
condition of the Company and its subsidiaries and/or any condition,
circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to perform any
of its obligations under this Agreement in any material
respect.
3.2 The Series A
Preferred have been duly authorized by all necessary corporate
action and, when paid for or issued in accordance with the terms
hereof, the Series A Preferred shall be validly issued and
outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind. The offer
and issuance of the Series A Preferred is exempt from registration
under the Securities Act, pursuant to the exemption provided by
Section 3(a)(9) thereof. Based in part on the representations and
warranties of the Stockholders herein contained and the structure
of the transaction, the shares of Series A Preferred, the shares of
Common Stock issuable upon conversion of the Series A Preferred and
the shares of Common Shares that may be issued as dividends on the
Series A Preferred pursuant to the Certificate of Designations,
upon issuance, will be issued to the Stockholders without any
restrictive legend and such shares will be freely tradable by the
Stockholders, subject to volume or manner-of-sale restrictions or
current public information requirements that may be applicable
under Rule 144 promulgated under the Securities Act to such
Stockholders who are “affiliates” of the Company for
purposes of Rule 144(a)(1).
3.3 This Agreement has
been duly authorized, validly executed and delivered on behalf of
the Company and is a valid and binding agreement and obligation of
the Company enforceable against the Company in accordance with its
terms, subject to limitations on enforcement by general principles
of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights
and remedies, and the Company has full power and authority to
execute and deliver the Agreement and the other agreements and
documents contemplated hereby and to perform its obligations
hereunder and thereunder.
3.4 The Company has
complied and will comply with all applicable federal and state
securities laws in connection with the offer, issuance and delivery
of the Series A Preferred hereunder.
3.5
The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this agreement will not
contravene any (i) provision of applicable law, (ii) the charter or
bylaws of the Company, (iii) any agreement or other instrument
binding upon the Company or any of its subsidiaries, (iv) any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any of its subsidiaries or
(v) applicable rules and regulations of OTCQB Marketplace, and no
consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement
other than those consents, approvals, authorizations, orders or
qualifications which have been obtained.
3.6
Since January 1, 2016, the Company has filed all required reports
and other documents of the Company identified in Rule 144(c)(1)
under the Securities Act. The documents of the Company filed with
the Securities and Exchange Commission (the “SEC”) in accordance with
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), from
the commencement of the fiscal year covered by the Company’s
most recent Annual Report on Form 10-K to the date of this
agreement (the “SEC
Documents”), as of their respective dates, complied in
all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading. As of their respective dates, the
audited financial statements and unaudited interim financial
statements of the Company included in the SEC Documents complied in
all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto
as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim financial statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations
and cash flows for the periods then ended (subject, in the case of
unaudited interim financial statements, to normal year-end audit
adjustments which will not be material, either individually or in
the aggregate).
3.7
Since the date of the most recent balance sheet included in the
Company’s audited financial statements contained in the
Company’s most recent Annual Report on Form 10-K, except as
disclosed in the SEC Documents filed subsequent to such Form 10-K,
there has been no Material Adverse Effect. Since the date of the
most recent balance sheet included in the Company’s audited
financial statements contained in the Company’s most recent
Annual Report on Form 10-K, except as disclosed in the SEC
Documents filed subsequent to such Form 10-K, neither the Company
nor any of its subsidiaries has (i) declared or paid any dividends
other than regular quarterly dividends on the Company’s
securities, (ii) sold any assets outside of the ordinary course of
business or (iii) made any material capital expenditures (either
individually or in the aggregate). Neither the Company nor any of
its subsidiaries has taken any steps to seek protection pursuant to
any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does
the Company or any subsidiary have any knowledge or reason to
believe that any of their respective creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so.
3.8
The Company and each of its subsidiaries has timely filed and will
timely file true, correct and complete income and other material
tax returns required to be filed by or on behalf of such entities
and has timely paid and will timely pay all income and other
material taxes required to be paid by or on behalf of such entities
(whether or not shown as due on any tax return).
4. Conditions Precedent to the Obligation
of the Company to Consummate the Exchange. The obligation
hereunder of the Company to issue and deliver the Series A
Preferred to each Stockholder and consummate the Exchange is
subject to the satisfaction or waiver, at or before the Closing
Date, of each of the conditions set forth below. These conditions
are for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion.
4.1 The Stockholder
shall have executed and delivered this Agreement.
4.2 The Stockholder
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by each
Stockholder at or prior to the Closing Date, including, but not
limited to delivering the Exchange Shares to the
Company.
4.3 The representations
and warranties of each Stockholder shall be true and correct in all
material respects as of the date when made and as of the Closing
Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which
shall be true and correct in all material respects as of such
date.
4.4 Stockholders
holding at least 66.6% of the issued and outstanding shares of
Exchanged Preferred shall have executed this
Agreement.
4.5 The
Company shall have consummated the Public Offering, resulting in
gross proceeds to the Company of at least $7.0 million
(“Qualified
Financing”).
5. Conditions Precedent to the Obligation
of the Stockholder to Consummate the Exchange. The
obligation hereunder of the Stockholder to accept the Series A
Preferred and consummate the Exchange is subject to the
satisfaction or waiver, at or before the Closing Date, of each of
the conditions set forth below. These conditions are for the
Stockholder’s sole benefit and may be waived by any
Stockholder at any time in their sole discretion.
5.1 The Company shall
have executed and delivered this Agreement.
5.2 The Company shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
5.3 Each of the
representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of
the Closing Date as though made at that time, except for
representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such
date.
5.4 Stockholders
holding at least 66.6% of the issued and outstanding shares of
Exchanged Preferred shall have executed this
Agreement.
5.5
The Company shall have consummated the Qualified
Financing.
5.6
In accordance with the terms of the Series A Preferred set forth in
the Certificate of Designations, Xxxxxx X. Xxxxxxxxxxx and Xxxxxxx
Xxxxxxxx shall have been elected as directors of the Company,
effective as of the Closing Date.
5.7
The Company shall have paid, at the Closing, the fees and
disbursements (up to a maximum of $32,500) of counsel to certain of
the Stockholders, in connection with the negotiation of this
Agreement and the other transaction documents contemplated hereby
and the closing of the transactions contemplated
hereby.
6. Company
Covenant. The Company covenants and agrees to use its best
efforts to obtain executed Agreements from Stockholders owing 100%
of the issued and outstanding shares of each series of Exchanged
Preferred; at such time that the Company has executed Agreements
from Stockholders owning 100% of the issued and outstanding shares
of a series of Exchanged Preferred, the Company shall promptly file
a Certificate of Elimination of such series of Exchanged Preferred
under the provisions of Section 151(g) of the General Corporation
Law of the State of Delaware.
7. Governing Law; Consent to
Jurisdiction. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California
without giving effect conflicts of law principles that would result
in the application of the substantive laws of another jurisdiction.
Each of the Parties consents to the exclusive jurisdiction of the
Federal courts whose districts encompass any part of the State of
California in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by
law, any objection, including any objection based on forum non conveniens, to the bringing
of any such proceeding in such jurisdictions. Each Party waives its
right to a trial by jury. Each Party to this Agreement irrevocably
consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage
prepaid, to such Party at its address set forth herein. Nothing
herein shall affect the right of any Party to serve process in any
other manner permitted by law.
8. Entire Agreement. This Agreement constitutes the
entire understanding and agreement of the parties with respect to
the subject matter hereof and supersedes all prior and/or
contemporaneous oral or written proposals or agreements relating
thereto all of which are merged herein. This Agreement may not be
amended or any provision hereof waived in whole or in part, except
by a written amendment signed by both of the Parties.
9. Counterparts. This Agreement may be executed by
facsimile signature and in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
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REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Agreement was
duly executed on the date first written above.
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IMAGEWARE SYSTEMS, INC.
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By:______________________________________
Name:
Title:
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STOCKHOLDER:
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By:______________________________________
Name:
Title:
Series
of Exchanged Preferred owned by the Stockholder:
______________
No. of
Exchange Preferred to be delivered to the Company:
_____________
No. of
Series A Preferred to be issued to the Stockholder:
______________
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