INFORMATION STATEMENT
_____________________________________________________________________________________________
This
Information Statement is being furnished by the Board of Directors
of ImageWare Systems, Inc., a Delaware Corporation (the
“Company”,
“we”,
“our” or
“us”), to the
holders of record of shares of our common stock, par value $0.01
per share (“Common
Stock”), as well as each series of our preferred
stock, par value $0.01 per share (“Preferred Stock”), consisting of
Series A Convertible Preferred Stock, par value $0.01 per share
(“Series A
Preferred”), Series A-1 Convertible Preferred Stock,
par value $0.01 per share (“Series A-1 Preferred”), Series B
Convertible Preferred Stock, par value $0.01 per share
(“Series B
Preferred”), and Series C Convertible Preferred Stock,
par value $0.01 per share (“Series C Preferred”), as of the
close of business on September
4, 2020 (the “Record
Date”), to provide information with respect to the
following actions (the “Corporate Actions”) that were
approved by majority of our outstanding voting securities, on an as
converted basis (the “Majority Shareholders”),
following a recommendation that shareholders approve the Corporate
Actions by our Board of Directors acting by written
consent:
(i) amending and restating the
Certificate of Designations, Preferences and Rights of the Series A
Convertible Preferred Stock (the "Series A Certificate") and the
Certificate of Designations, Preferences, and Rights of the Series
A-1 Convertible Preferred Stock (the "Series A-1 Certificate") to, without
limitation, provide for (i) the voluntary conversion of all
outstanding shares of the Company's Series A Preferred and Series
A-1 Preferred into shares of the Company’s Common Stock at a
reduced conversion price of $0.20 per share of Common Stock, and
(ii) the automatic conversion of all issued and outstanding shares
of Series A Preferred and Series A-1 Preferred into shares of
Common Stock at a rate of 10% per month, beginning on November 1,
2020, and ending on August 1, 2021, at the reduced conversion price
of $0.20 per share of Common Stock;
(ii) amending and restating the
Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock (the "Series C Certificate") to, without
limitation, provide for a drag-along right whereby upon the
voluntary exchange of such Series C Preferred into shares of the
Company’s Series D Convertible Preferred Stock, par value
$0.01 (the "Series D
Preferred"), by a majority of the holders of the Company's
Series C Preferred, the remaining issued and outstanding shares of
Series C Preferred would be automatically exchanged for Series D
Preferred on the same terms as the majority holders so electing to
exchange their shares of Series C Preferred;
(iii) increasing the number of authorized
shares of the Company’s Common Stock from 345,000,000 shares
to 1,000,000,000 shares (the
“Capital
Increase”);
(iv) amending and restating the
Company’s Certificate of Incorporation, as amended (the
“Certificate of
Incorporation”) in its entirety to give effect to the
Capital Increase, among other amendments (the “Amended and Restated
Certificate”); and
(v) authorizing our Board of Directors,
in its sole and absolute discretion, without further action of the
shareholders, to amend the Amended and Restated Certificate to
implement a reverse stock split of our issued and outstanding
shares of Common Stock at a specific ratio, ranging from
one-for-thirty (1:30) to one-for-one hundred (1:100), within one
year from September 28, 2020,
the date the Majority Shareholders approved of the action (the
“Reverse
Split”).
The
following actions were approved by the affirmative vote of the
holders of the requisite number of shares of the below-referenced
series of the Company's Preferred Stock, consisting of Series A
Preferred, Series A-1 Preferred, Series B Preferred and Series C
Preferred, with each series voting as a separate
class:
(i) for the Series A Preferred, (a)
amending and restating the Series A Certificate in the form
attached hereto as Annex
B (the "Amended and
Restated Series A Certificate"), and (b) waiving the
protective provisions set forth in Section 9(a) and Section 9(c) of
the Series A Certificate, thereby consenting to (i) the creation of
a series of Preferred Stock ranking senior to the Series A
Preferred, and (ii) the Company incurring additional indebtedness
in the form of a bridge loan from certain Investors (defined below
in the section entitled “Background of the Corporate
Actions”) in an amount not to exceed $3.0 million (the
“Bridge Loan”),
which Bridge Loan shall be exchanged for shares of Series D
Preferred upon the filing of the Certificate of Designations,
Preferences and Rights of the Series D Preferred (the
“Series D
Certificate”);
(ii) for the Series A-1 Preferred, (a)
amending and restating the Series A-1 Certificate in the form
attached hereto as Annex
C (the “Amended and
Restated Series A-1 Certificate”), and (b) waiving the
protective provisions set forth in Section 9(a) and Section 9(c) of
the Series A-1 Certificate, thereby consenting to (i) the creation
of a series of Preferred Stock ranking senior to the Series A-1
Preferred, and (ii) the Company incurring additional indebtedness
by way of the Bridge Loan, which the Bridge Loan shall be exchanged
for shares of Series D Preferred upon filing of the Series D
Certificate; and
(iii) for the Series C Preferred, (a)
amending and restating the Series C Certificate in the form
attached hereto as Annex
D (the "Amended and
Restated Series C Certificate"), and (b) waiving the
protective provisions set forth in Section 9(a) and Section 9(f) of
the Series C Certificate, thereby consenting to (i) the creation of
a series of Preferred Stock ranking senior to the Series C
Preferred, and (ii) the Company incurring additional indebtedness
by way of the Bridge Loan, which the Bridge Loan shall be exchanged
for shares of Series D Preferred upon the filing of the Series D
Certificate.
Our
Board of Directors’ authority to implement the Corporate
Actions will not become effective until 20 calendar days after this
Information Statement is first mailed or otherwise delivered to our
shareholders of record as of the close of business on the Record
Date.
AUTHORIZATION BY THE BOARD OF DIRECTORS AND THE MAJORITY
SHAREHOLDERS
Under
the Delaware General Corporation Law (the “DGCL”), our Certificate of
Incorporation and amended and restated Bylaws (the
“Bylaws”), any
action that can be taken at an annual or special meeting of
shareholders may be taken without a meeting, without prior notice
and without a vote if the holders of outstanding stock having not
less than the minimum number of votes necessary to authorize or
take such action at a meeting at which all shares entitled to vote
thereon were present and consent to such action in writing.
Accordingly, approval of the Corporate Actions required the
affirmative vote or approval by written consent of a majority of
our issued and outstanding voting securities on an as-converted
basis, including our Common Stock, Series A Preferred, Series A-1
Preferred, Series B Preferred and Series C Preferred. As of the
Record Date for the determination of shareholders entitled to
receive notice of the approval of the Corporate Actions and to
receive a copy of this Information Statement, we had (i)
137,162,877 shares of
Common Stock, (ii) 19,320 shares of Series A Preferred, (iii)
18,148 shares of Series A-1 Preferred, (iv) 239,400 shares of
Series B Preferred, and (v) 1,000 shares of Series C Preferred
outstanding, each of which are entitled to act with respect to the
Corporate Actions. As of the Record Date, outstanding shares
represented 191,928,260 votes, consisting of 137,162,877
attributable to Common Stock, 16,800,000, attributable to Series A
Preferred, 27,920,000
attributable to Series A-1 Preferred, 45,384 attributable to Series B Preferred,
and 10,000,000 attributable to
Series C Preferred.
Our
Board of Directors approved the Corporate Actions by unanimous
resolution, subject to shareholder approval, on August 21, 2020,
and on September 28, 2020 we received executed written consents
approving the Corporate Actions from holders of our Common Stock
and Preferred Stock representing 104,228,110 voting shares, or
approximately 54.3% of our outstanding voting class.
Accordingly, we
have obtained all corporate approvals necessary to approve and
authorize the Corporate Actions. We are not seeking written consent
from any other shareholder, and each of the Company’s
shareholders will not be given an opportunity to vote with respect
to the actions described in this Information Statement. This
Information Statement is furnished solely for the purposes of
advising our shareholders of the approval of the Corporate
Actions by written consent and giving shareholders notice of
the Corporate Actions as required by Section 228(e) of the DGCL and
Regulation 14C under the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”).
SUMMARY
The following summary highlights selected information from this
Information Statement and may not contain all of the information
that is important to you. Accordingly, we encourage you to read
carefully this entire Information Statement, its annexes and the
documents referred to in this Information Statement.
Unless we otherwise indicate or unless the context requires
otherwise, all references in this Information Statement to
“Company,” “ImageWare” “we,”
“our” and “us” refer to ImageWare Systems,
Inc., a Delaware corporation.
Background of the Corporate Actions
Due to
an immediate need for capital to allow the Company to continue as a
going concern and to execute the Company’s business plan,
management engaged in discussions with several of its largest
shareholders to secure such working capital and to execute a plan
of restructuring. The Company received an offer to purchase shares
of a newly created series of Preferred Stock of the Company, to be
designated Series D Convertible Preferred Stock, par value $0.01
(the “Series D
Preferred”), for a purchase price of $1,000 per share,
from certain accredited investors (collectively, the
“Investors”),
in a private placement transaction pursuant to Rule 506 under the
Securities Act of 1933, as amended (the “Securities Act”). The discussions
resulted in the execution of a Securities Purchase Agreement, a
copy of which is attached hereto as Annex A (“Purchase Agreement”). The
Purchase Agreement provides for the issuance of shares of Series D
Preferred at closing (the “Closing”) resulting in gross
proceeds to the Company of up to $15.0 million (the
“Series D
Financing”). In addition, consummation of the Series D
Financing is conditioned on (i) the holders of the Company’s
Series C Preferred exchanging their shares of Series C Preferred,
with an aggregate liquidation value of approximately $10.0 million,
for shares of Series D Preferred; (ii) the holders of certain debt
of the Company totaling approximately $550,000 converting such debt
into shares of Series D Preferred; (iii) all shares of Series A
Preferred and Series A-1 Preferred converting such shares into
Common Stock; (iv) an increase in the authorized shares of Common
Stock to 1.0 billion shares (“Share Increase”); and (v) the
amendment and restatement of the Company’s Certificate to
give effect to the Share Increase and the creation of the Series D
Preferred, among other amendments, as set forth in this Information
Statement (the “Restructuring”).
In
considering the Series D Financing, the Board of Directors
considered alternatives to the Series D Financing as well as the
Company’s immediate need for capital. The Board of Directors
reviewed all indications of interest for potential sources of
financing, and the likelihood of being able to secure such
financing before the Company exhausted its then current available
cash. The Board of Directors determined that, because no
alternative options to the Series D Financing provided any
certainty of success given the current financial condition of the
Company, and following substantial discussion regarding the process
and each of the indications of interest, the Board determined to
pursue the Series D Financing and authorized management to
negotiate definitive transaction documents.
On
August 3, 2020, the Company executed a letter of intent which set
forth the terms and conditions of the Series D Financing and
required Restructuring, which included the automatic conversion of
the Company’s Series A Preferred and Series A-1 Preferred
under a graduated conversion schedule at a reduced conversion price
of $0.20 per share, in consideration for a waiver of the protective
provisions set forth in Section 9 of the Amended and Restated
Series A Certificate and the Amended and Restated Series A-1
Certificate.
The
graduated conversion schedule provides that holders of the Series A
Preferred and Series A-1 Preferred will have the option to
voluntarily convert any or all of their shares of Series A
Preferred and Series A-1 Preferred prior to August 1, 2021. In the
event the holders of Series A Preferred and Series A-1 Preferred do
not voluntarily convert their shares, such shares will
automatically convert into Common Stock at a rate of 10% on the
first day of each month, beginning on November 1, 2020 until August
1, 2021, at which time 100% of the Series A Preferred and Series
A-1 Preferred will have automatically converted into Common
Stock.
On
September 28, 2020, the Company and the Investors executed the
Purchase Agreement. Under the terms of the Purchase Agreement, at
Closing, the holders of Series D Preferred will own approximately
50% of the voting securities of the Company on an as-converted
basis, with the holders of the Common Stock and remaining classes
of Preferred Stock owning the remaining approximate 50% on an
as-converted basis. Additionally, all current members of the
Company’s Board of Directors will resign upon Closing, with
the exception of Kristin Taylor, the Company’s Chief
Executive Officer, and the new members of the Board of Directors
shall be appointed as follows: (i) the holders of Series D
Preferred will appoint two directors; (ii) Kristin Taylor will
remain on the Board of Directors; and (iii) Kristin Taylor and the
two Series D Directors will appoint two additional, independent
directors.
The
Purchase Agreement contains covenants, requiring the Company to,
among other things, file an application to list its Common Stock on
the NASDAQ Global Select Market, the NASDAQ Global Market or the
NASDAQ Capital Market on or before December 31, 2020, which listing
requires the Company to effect the Reverse Split. No assurances can
be given that the Company will be successful in its application to
list its Common Stock on the NASDAQ Markets.
Summary of Designations, Preferences, and Rights of Series D
Preferred
The
Series D Preferred will rank senior to all Common Stock and all
other present and future classes or series of capital stock, except
for Series B Preferred, and upon liquidation will be entitled to
receive the liquidation preference amount of $1,000 per share
(subject to appropriate adjustments for any stock dividends,
splits, combinations and similar events affecting the Series D
Preferred) plus any accrued and unpaid dividends, before the
payment or distribution of the Company’s assets or the
proceeds thereof is made to the holders of any junior securities.
Additionally, dividends on shares of Series D Preferred will be
paid prior to any junior securities, and are to be paid at the rate
of 4% per share per annum in the form of cash or shares of Series D
Preferred. Holders of Series D Preferred shall vote together with
holders of Common Stock on an as-converted basis, and not as a
separate class, except (i) the holders of Series D Preferred,
voting as a separate class, shall be entitled to elect two
directors, (ii) the holders of Series D Preferred have the right to
vote as a separate class regarding the waiver of certain protective
provisions set forth in the Series D Certificate, and (iii) as
otherwise required by law. Holders of Series D Preferred may
voluntarily convert their shares of Series D Preferred into Common
Stock at any time that is at least ninety days following the
issuance date, for which such shares of Common Stock issuable upon
conversion of the Series D Preferred shall be subject to the
following registration rights: (i) one demand registration starting
three months after the Closing, (ii) two demand registrations
starting one year after the closing, and (iii) unlimited piggy-back
and Form S-3 registration rights with reasonable and customary
terms.
QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING AND SERIES D
FINANCING
The following questions and answers are intended to address briefly
some commonly asked questions regarding the Series D Financing and
Restructuring contemplated thereby. These questions and answers may
not address all questions that may be important to you as an
ImageWare stockholder. Please refer to the additional information
contained elsewhere in this Information Statement, the annexes to
this Information Statement and the documents referred to in this
Information Statement
Q.
WHY
DID I RECEIVE THIS INFORMATION STATEMENT?
A.
The
Majority Shareholders adopted the Corporate Actions and approved
the Restructuring, which is anticipated to occur on or promptly
after twenty days after this Information Statement is first mailed
to shareholders. Applicable provisions of the DGCL require us to
provide you with notice of the actions approved by the Majority
Shareholders and adopting the Corporate Actions and information
regarding the Restructuring and the Series D Financing, even though
your vote or consent was neither required nor requested to adopt
the Corporate Actions, approve the Purchase Agreement, or complete
the Series D Financing.
Q.
WHY
DID THE BOARD OF DIRECTORS APPROVE THE RESTRUCTURING AND SERIES D
FINANCING?
A.
After
careful consideration and evaluation of the Series D Financing, and
the Restructuring contemplated by the Purchase Agreement, and,
among other factors, in recognition of (i) the continued operating
losses incurred by the Company, (ii) the availability of capital on
terms acceptable to the Company, and (iii) the exhaustive financing
process involving the Company, the Board of Directors determined
the Series D Financing and Restructuring, contemplated by the
Purchase Agreement, represented the best alternative for the
Company to continue as a going concern and create value for its
shareholders. The Board of Directors therefore determined that the
Series D Financing and Restructuring were advisable and fair to the
holders of the Company’s capital stock, taken as a
whole.
Q.
WHY
WAS I NOT ASKED TO VOTE ON CORPORATE ACTIONS?
A.
Under
Section 251 of the DGCL, the Certificate of Incorporation and
the Bylaws, the adoption of the Corporate Actions required the
affirmative vote of the holders of a majority of the voting power
of the outstanding shares of stock of the Company entitled to vote
on the matter, and the affirmative vote of the holders of a
majority of the Series A Preferred, Series A-1 Preferred, and
Series C Preferred voting as a separate class. Under Section
228 of the DGCL, unless otherwise provided in the
corporation’s certificate of incorporation, any action that
can be taken at an annual or special meeting of shareholders can be
taken without a meeting, without prior notice and without a vote,
if a consent or consents in writing setting forth the action so
taken are signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to
take such action at a meeting at which all shares are present is
delivered to the corporation at its principal place of
business.
On
September 28, 2020, the
Majority
Shareholders, which together beneficially own approximately
54.3% of the voting power of the issued and outstanding stock of
the Company, 92.1% of the Series A Preferred, 94.9% of the Series
A-1 Preferred, and 85% of the Series C Preferred delivered, or
caused to be delivered to the Company written consents adopting the
Corporate Actions and approving the Restructuring and the other
transactions contemplated by the Purchase Agreement. Accordingly,
the Corporate Actions and other transactions contemplated by the
Purchase Agreement were adopted and approved by the requisite
stockholder vote as of September 28, 2020. No further vote or
approval of the shareholders of the Company is required with
respect to the Corporate Actions, Series D Financing and other
transactions contemplated by the Purchase Agreement.
Q.
WHO
CAN HELP ANSWER MY QUESTIONS?
A.
If you have
questions about the Corporate Actions or the Series D Financing
after reading this Information Statement, please call the
Company’s Corporate Secretary at (858)
673-8600.
DESCRIPTION OF CORPORATE ACTIONS
___________________________________
CORPORATE
ACTION NO. 1
AMENDING AND RESTATING THE SERIES A CERTIFICATE AND THE SERIES
A-1
CERTIFICATE TO AMEND THE VOLUNTARY CONVERSION PROCESS AND ALLOW FOR
AN AUTOMATIC CONVERSION OF
THE SHARES OF SERIES A PREFERRED AND SERIES A-1 PREFERRED INTO
SHARES OF COMMON STOCK.
General
On
August 21, 2020, the Board of Directors unanimously adopted
resolutions approving an amendment to the Company’s
Certificate of Incorporation by an amendment to Section
5 of each of the Series A
Certificate and the Series A-1 Certificate (the “Preferred Amendment”) to, without
limitation, (i) provide for an amended conversion price of $0.20
per share of Common Stock, (ii) amend the voluntary conversion
process by providing a voluntary conversion window, beginning on
the Closing of the Series D Financing and ending on August 1, 2021
(the “Conversion
Period”), to voluntarily convert all shares of Series
A Preferred and Series A-1 Preferred into Common Stock, and (iii)
for holders of Series A Preferred and Series A-1 Preferred that do
not voluntarily convert all shares of Series A Preferred and Series
A-1 Preferred into Common Stock, a mandatory, automatic conversion
of each such holder’s shares of Series A Preferred and Series
A-1 Preferred at a rate of 10% per month beginning on November 1,
2020, with all shares converting by August 1, 2021. Furthermore,
the dividends have been amended to reduce the specified rate from
10% to 4%, and are now payable only in Common Stock through the end
of the Conversion Period. The Amended and Restated Series A
Certificate and the Amended and Restated Series A-1 Certificate are
set forth in their entirety as Annex B and Annex C, respectively, attached
hereto, and are incorporated herein by this reference. The Amended
and Restated Series A Certificate and the Amended and Restated
Series A-1 Certificate will become effective upon filing of such
certificates with the Secretary of State of the State of Delaware,
which filing the Company currently plans to make as soon as
reasonably practicable after twenty days following the date that
this Information Statement is first mailed to
shareholders.
Purpose and Rationale of the Preferred Amendment
The
Company is in immediate need of additional capital in order to meet
its working capital requirements and continue as a going concern.
In addition, the Company’s capital structure consisting of
several classes of equity securities, including Preferred Stock
requiring the payment of dividends, presented a challenge to
obtaining financing on terms acceptable to the Company. The Series
D Financing and Restructuring would provide the Company with the
necessary working capital to continue operations and execute its
business plan, as more specifically set forth above in the Summary
of the Series D Financing and Restructuring.
Due to
the constraint placed upon the Company due to the numerous classes
of Preferred Stock outstanding, the Investors, as a condition to
the Closing the Series D Financing, required the conversion of the
Series A Preferred and the Series A-1 Preferred into Common Stock
and the exchange of Series C Preferred into Series D Preferred.
Management believes that the conversion and/or exchange of its
Preferred Stock into Common Stock or Series D Preferred, as the
case may be, further benefits the Company by relieving the Company
from its requirement to pay dividends on a quarterly basis to the
Series A Preferred and Series A-1 Preferred at a rate of 8% if paid
in cash and 10% if paid in shares of Common Stock, and Series C
Preferred at a rate of 8% if paid in cash and 10% if paid in shares
of Common Stock. As an incentive for the holders of Series A
Preferred and Series A-1 Preferred to convert to Common Stock,
management has agreed to the decrease the conversion price of the
Series A Preferred and Series A-1 Preferred from $1.15 and $0.65,
respectively, to $0.20 for each class, as well as provide holders
of Series A Preferred and Series A-1 Preferred with the opportunity
to receive dividends at a rate of 4%, in the form of Common
Stock.
Based
on a stated value per share of Series A Preferred Stock of $1,000
per share, as set forth in the Series A Certificate, and a proposed
conversion price of $0.20 per
share of Common Stock, each share of Series A Preferred will be
convertible into 5,000 shares of Common
Stock.
Based
on a stated value per share of Series A-1 Preferred Stock of $1,000
per share, as set forth in the Series A-1 Certificate, and a
proposed conversion price of $0.20 per share of Common Stock, each
share of Series A-1 Preferred will be convertible into 5,000 shares
of Common Stock.
The
Series A Preferred and Series A-1 Preferred, as proposed to be
amended, will convert into an aggregate of approximately
187,340,000 shares of Common Stock, resulting in substantial
dilution to existing holders of our Common Stock.
Effect
of Preferred Amendment
The
Series A Certificate and Series A-1 Certificate, included as part
of the Certificate of Incorporation, as currently in effect, does
not provide for the automatic conversion of the Series A Preferred
or Series A-1 Preferred into Common Stock. As a result,
the Preferred Amendment will have the effect of forcing the holders
of Series A Preferred and Series A-1 Preferred to convert their
holdings into shares of Common Stock when such holders would not
otherwise voluntarily elect to exercise their right to convert. As
a result, holders would lose certain favorable rights afforded
holders of Series A Preferred and Series A-1 Preferred, including
the preferential right to distributions, if any, in the event of a
liquidation of the Company, as well as the right to receive
dividends.
The
following chart outlines certain rights and preferences to which
the current holders of Series A Preferred and Series A-1 Preferred
are entitled, and the impact on such rights and preferences in the
event such shares are converted into Common Stock. The
description below is qualified in its entirety by reference to the
Series A Certificate and the Series A-1 Certificate, which set
forth all of the rights and preferences of the of Series A
Preferred and Series A-1 Preferred.
The
Series A Certificate was filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed on September 19, 2017, and amended by Exhibit 3.2 to
the Company’s Current Report on Form 8-K, filed on September
13, 2018.
The
Series A-1 Certificate was filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed on and
July 9, 2020.
Only
Section 1, Section 2, and Section 5 of each of the Series A
Certificate and Series A-1 Certificate will be amended. The
principal revision to Section 1 is the
amendment set forth in Section 1(b) setting forth that the Series A
Preferred and Series A-1 Preferred will rank junior to the newly
issued Series D Preferred. The principal revision to Section
2 is the revision set forth in Section 2(a)(i) of each of
the Series A Certificate and Series A-1 Certificate removing the
right of the holders of Series A Preferred and Series A-1 Preferred
to receive dividends in cash, as well as the modification of the
definition of the "Specified Rate" resulting in a decrease in the
dividend rate from 10% to 4% when paid in the form of Common Stock.
The principal revision to Section 5 is the addition of the
provision, in Section 5(a) of each of
the Series A Certificate and the Series A-1 Certificate,
that provides for a voluntary conversion window from November 1,
2020 to August 1, 2021, and the automatic conversion of the Series
A Preferred and Series A-1 Preferred into Common Stock pursuant to
the conversion schedule set forth in the table below. Certain other
conforming revisions, and revisions deemed necessary for a holder
of Series A Preferred and Series A-1 Preferred to understand the
conversion process, have also been made to Section 5(a). The revisions that a
shareholder may consider important are, without limitation, set
forth in the following chart. The description of
differences is illustrative only, and shareholders should read
Annex B and
Annex C attached to
this Information Statement carefully.
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Rights of Existing Series A Preferred and Series A-1
Preferred
|
|
Rights of Amended Series A Preferred and Series A-1
Preferred
|
|
Seniority – Only the
Series B Preferred and the Series C Preferred rank senior to the
Series A Preferred and Series A-1 Preferred.
Payment of Dividends –
The Series A Certificate and the Series A-1 Certificate provide
that holders may receive dividends at a Specified Rate of 8% in the
form of cash or 10% if in the form of shares of Common
Stock.
Voluntary Conversion – The Series A Certificate and the Series A-1
Certificate provide that the holders of Series A Preferred and
Series A-1 Preferred may voluntarily convert their shares into the
number of shares of Common Stock at a Conversion Price of $1.15 and
$0.65, respectively.
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|
Seniority – The Series D
Preferred, along with the Series B Preferred and Series C
Preferred, rank senior to the Series A Preferred and Series A-1
Preferred
Payment of Dividends – Holders of Series A Preferred and Series A-1
Preferred still may receive dividends, but at the Specified Rate of
4% and only in shares of Common Stock.
Voluntary Conversion – Series A Preferred and Series A-1 Preferred can be
voluntary converted at any time from the Closing of the Series D
Financing until August 1, 2021 (the "Optional Conversion
Period"), into shares of Common
Stock at the conversion price of $0.20.
|
|
Automatic Conversion – The Series A Certificate and Series A-1
Certificate do not provide for the automatic conversion of their
shares into Common Stock.
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|
Automatic Conversion – Beginning on November 1, 2020, the Series A
Preferred and Series A-1 Preferred will automatically convert into
Common Stock as follows:
November 1,
2020
10%
December 1,
2020
20%
January 1,
2021
30%
February 1,
2021
40%
March 1,
2021
50%
April 1,
2021
60%
May 1,
2021 70%
June 1,
2021 80%
July 1,
2021
90%
August 1,
2021
100%
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|
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While conversion of
the Series A Preferred and Series A-1 Preferred into Common Stock
upon consummation of the Series D Financing will result in the loss
of certain rights by holders of Series A Preferred and Series A-1
Preferred, and substantial dilution to current holders of Common
Stock, the Board of Directors believes that the financing
flexibility provided the Company, among other factors,
substantially offsets the effects of such loss and dilution, and
positions the Company to obtain financing on terms far more
favorable to the Company and its shareholders, thereby allowing the
Company to execute is business plan and continue as a going
concern.
CORPORATE ACTION NO. 2
AMENDING AND RESTATING THE SERIES C CERTIFICATE TO, WITHOUT
LIMITATION,
AMEND THE CERTIFICATE OF DESIGNATIONS TO REQUIRE A DRAG-ALONG RIGHT
TO FORCE
THE EXCHANGE OF SERIES C PREFERRED STOCK FOR SHARES OF SERIES D
PREFERRED.
General
Effective as of
September 28, 2020 the Board of Directors and Majority Shareholders
approved and authorized amending and restating the Company’s
Certificate of Incorporation by approving the Amended and Restated
Series C Certificate to, without limitation, provide for a
drag-along right whereby if at any time one or more holders of
Series C Preferred then holding, in the aggregate, more than 50% of
the outstanding shares of Series C Preferred, exchange all (but not
less than all) of each such exchanging shareholder’s shares
of Series C Preferred for shares of Series D Preferred, then such
initiating shareholder(s), in their sole discretion, shall have the
right to require that all the holders of Series C Preferred
similarly exchange their shares of Series C Preferred into shares
of Series D Preferred on identical terms and conditions to the
majority shareholders that elected to exchange their Series C
Preferred into Series D Preferred.
The
Amended and Restated Series C Certificate is set forth in its
entirety as Annex D
attached hereto, and are incorporated herein by this
reference. The Amended and Restated Series C Certificate
will become effective upon filing the Amended and Restated Series C
Certificate with the Secretary of State of the State of Delaware,
which filing the Company currently plans to make as soon as
reasonably practicable after twenty days following the date that
this Information Statement is first mailed to
shareholders.
Purpose and Rationale of the Amended and Restated Series C
Certificate
In
order to facilitate the Series D Financing and expedite the
transactions contemplated by the Purchase Agreement, all holders of
Series C Preferred are required to exchange their shares of Series
C Preferred for shares of Series D Preferred. Management and the
Investors, many of which are current holders of Series C Preferred,
determined that the inclusion of drag-along rights in the Amended
and Restated Series C Certificate was the most efficient way to
achieve the exchange of all shares of Series C Preferred for Series
D Preferred, which will allow the Company to receive the
much-needed infusion of working capital upon the Closing of the
Series D Financing. In addition, the elimination of additional
classes of Preferred Stock will improve the Company's balance sheet
through a reduced obligation to pay dividends to the holders of
numerous classes of Preferred Stock, and will further simplify the
Company’s capital structure.
Based
on a stated value per share of Series C Preferred of $10,000 per
share, as set forth in the Series C Certificate, and a current
conversion price of $1.00 per
share, each share of Series C Preferred is currently convertible
into 10,000 shares of Common
Stock.
Effect of Amended and Restated Series C Certificate
The
Series C Certificate, included as part of the Certificate of
Incorporation of the Company, as currently in effect, does not
provide for a drag-along right of the majority of the holders of
Series C Preferred. As a result, the Amended and
Restated Series C Certificate will have the effect of forcing the
holders of Series C Preferred to exchange all of their shares
Series C Preferred for shares of Series D Preferred when such
holders would not otherwise voluntarily elect to exchange their
shares. The principal revision to Section 1 is to provide that the
Series C Preferred will rank junior to the Series D Preferred, with
the most material change being the addition of Section 9 into the
Amended and Restated Series C Certificate which sets forth the
drag-along rights discussed above.
While
exchange of the Series C Preferred for Series D Preferred upon the
election of the holders holding a majority of the Series C
Preferred will result in the loss of certain rights by holders of
Series C Preferred, and potential substantial dilution to current
holders of Common Stock upon conversion of the Series D Preferred
into Common Stock, the Board of Directors believes that the
financing flexibility provided the Company, among other factors,
substantially offsets the effects of such loss and dilution, and
positions the Company to obtain financing on terms far more
favorable to the Company and its shareholders, thereby allowing the
Company to execute is business plan and continue as a going
concern.
The
original Series C Certificate was filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on
September 13,
2018.
CORPORATE ACTION NO. 3
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO
INCREASE
THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
General
Our
Certificate of Incorporation currently authorizes a total of 345
million shares of Common Stock for issuance. Effective as of
September 28, 2020 our Board of Directors and the Majority
Shareholders approved and authorized an amendment to our
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 345 million shares to 1.0 billion shares, resulting in a total
increase of 655 million shares
of Common Stock. The Company is not increasing the number of
authorized shares of Preferred Stock. The increase in the number of
authorized shares of Common Stock will become effective upon filing
the Amended and Restated Certificate with the Delaware Division of
Corporations, which will reflect the 655 million share increase in the number of
authorized shares of our Common Stock. We expect to file the
Amended and Restated Certificate with the State of Delaware as soon
as practicable after twenty days following the date that this
Information Statement is first mailed to shareholders. The Amended
and Restated Certificate is provided with this Information
Statement as Annex
E.
Purpose of and Rationale for Capital Increase
The
objective of the Capital Increase is to ensure that we have a
sufficient number of shares authorized for future issuances,
including, by way of example, to ensure that we have a sufficient
number shares of Common Stock to issue in connection with the
Series D Financing and Restructuring, as well as future equity
financings and strategic acquisitions. In addition, our objective
is to ensure we have a sufficient number of authorized shares of
Common Stock that may be issued upon conversion of currently issued
and outstanding derivative securities.
Currently, the
Company has sufficient authorized and unissued shares of Common
Stock to provide for the conversion of all outstanding derivative
securities at the stated and respective conversion prices and/or
conversion rates. However, if the Amended and Restated Certificate
increasing the authorized number of shares of Common Stock were not
approved, the Company would not have a sufficient number of
authorized shares of Common Stock to provide for the conversion of
all outstanding derivative securities at the amended conversion
prices set forth above in Corporate Action No. 1, specifically, the
conversion of Series A Preferred and Series A-1 Preferred into
Common Stock at the amended conversion price of $0.20 per
share.
As of
September 4, 2020, there were approximately 137,162,877 shares of Common Stock issued and
outstanding, and another 63,770,333 shares required to be issued under
our incentive plans, Common Stock purchase warrants, outstanding
shares of Preferred Stock, convertible promissory notes and other
written agreements. Specifically, as of the Record
Date:
●
137,162,877
shares of our Common Stock were issued and
outstanding;
●
54,765,384
of our Common Stock were reserved for issuances upon conversion of
our Preferred Stock;
●
9,107,946
shares of our Common Stock are required to be issued upon exercise
of outstanding Common Stock purchase warrants, options and other
written agreements.
To
allow for the conversion of all of our outstanding derivative
securities, and to provide the Company with the flexibility to
issue shares in connection with future financings and strategic
acquisitions, debt restructurings or resolutions, equity
compensation and incentives to employees and officers and other
corporate purposes, our Board of Directors believes the number of
shares of Common Stock available for issuance should be increased
in order to avoid the delay and expense associated with obtaining
special stockholder approval each time an opportunity requiring the
issuance of shares of Common Stock arises. Such a delay might
deny us the flexibility that the Board of Directors views as
important in facilitating the effective use of our
securities.
In
addition to shares of Common Stock issuable upon conversion or
exercise of our outstanding derivative securities, and the shares
issuable pursuant to the Series D Financing and Restructuring, we
may desire to issue and sell shares of our Common Stock in capital
raising transactions to fund our working capital
requirements. These financings are often conducted at a
discount to the prevailing market price of our Common
Stock. The last reported sales price of our Common Stock was
$0.12 per share on
September 4, 2020, as reported on the OTCQB Marketplace. As a
result, any financing that involves the issuance of shares of
Common Stock or securities convertible into Common Stock, even at
prices that are at or above the prevailing market price, may
require that a substantial number of shares of Common Stock be
available for issuance. These financing transactions may also
result in substantial dilution to the Company’s existing
shareholders. Financing transactions may not be available on
terms favorable to the Company, or at all, but the Board of
Directors believes that the Company should have sufficient shares
of Common Stock available for issuance in the event that the
issuance of shares of Common Stock is desirable and in the best
interests of shareholders. Although the Company will seek
additional sources of working capital, the Company currently does
not have any commitments, arrangements, understandings or
agreements, written or oral, regarding the issuance of additional
shares of Common Stock.
Effect of Capital Increase
The
increase of our authorized shares of Common Stock will not have any
immediate effect on the rights of existing shareholders. Our
Board of Directors may cause the issuance of additional shares of
Common Stock (up to the new total number of authorized shares of
Common Stock) without further vote of our shareholders, except as
provided under the DGCL or to the extent the Company chooses to
comply with any limiting rules of any securities exchange or
quotation system on which shares of Common Stock is then listed or
traded. Current holders of Common Stock do not have preemptive
or similar rights, which means that current shareholders do not
have a right to purchase any new issue of capital stock of the
Company in order to maintain their proportionate
ownership. The issuance of additional shares of Common Stock
may have a dilutive effect on earnings per share and on the equity
and voting power of existing holders of our Common Stock. It
may also adversely affect the market price of our Common
Stock. However, in the event additional shares are issued in
transactions that position us to take advantage of favorable
business opportunities or provide working capital sufficient to
allow us to pursue and/or expand our business plan, the market
price of our Common Stock may increase.
The
Capital Increase will not otherwise alter or modify the rights,
preferences, privileges or restrictions of outstanding shares of
our Common and Preferred Stock.
Anti-Takeover Effects
Although the
Capital Increase is not motivated by anti-takeover concerns and is
not considered by the Board of Directors to be an anti-takeover
measure, the availability of additional authorized shares of Common
Stock could enable our Board of Directors to issue shares
defensively in response to a takeover attempt or to make an attempt
to gain control of the Company more difficult or
time-consuming. For example, shares of Common Stock could be
issued to purchasers who might side with management in opposing a
takeover bid which our Board of Directors determines is not in the
best interests of the Company and its shareholders, thus diluting
the ownership and voting rights of the person seeking to obtain
control of the Company. In certain circumstances, issuance of
shares of our Common Stock without further action by the
shareholders may have the effect of delaying or preventing a change
of control of the Company, may discourage bids for the
Company’s Common Stock at a premium over the market price of
the Common Stock, and may adversely affect the market price of the
Common Stock. Thus, increasing the authorized number of shares
of our Common Stock could render more difficult and less likely a
hostile merger, tender offer or proxy contest, assumption of
control by a holder of a large block of our stock, and the possible
removal of our incumbent management. We are not aware of any
proposed attempt to take over the Company or of any attempt to
acquire a large block of our Common Stock.
CORPORATE ACTION NO. 4
ADOPTION OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
Effective as of
September 28, 2020, our Board of Directors and the Majority
Shareholders approved and authorized the Amended and Restated
Certificate substantially in the form attached hereto as
Annex
E.
Purpose and Rationale of the Amendment and Restatement of the
Certificate of Incorporation
The
objective of the Amended and Restated Certificate is to give effect
to the Capital Increase. Since its initial incorporation, the
Company has gone through several amendments to its charter
documents. The Amended and Restated Certificate is intended to
incorporate into one single, simplified document, all current
charter provisions for the Company.
Effect of the Amendment and Restatement of the Certificate of
Incorporation
The
Amended and Restated Certificate will amend the current Certificate
of Incorporation to give effect to the Capital Increase. The
Amended and Restated Certificate further amends the Certificate of
Incorporation through the addition of Section 12, in which the
Company renounces its interest or expectancy in any matter,
transaction, or interest that is presented, acquired, created or
developed by a non-employee director or holder of Preferred Stock
that is not an employee.
In
addition, the Amended and Restated Certificate includes a new
Section 13, which provides that Delaware is the exclusive
jurisdiction, and the Delaware Court of Chancery as the exclusive
forum, for all disputes relating to the internal affairs of the
Company, and the federal district courts of United States of
America as the exclusive forum for the resolution of any causes of
action arising under the Securities Act. New Section 13 is not
intended to apply to derivative actions brought by shareholders for
claims arising under the Exchange Act, as the federal district
courts have exclusive jurisdiction over all matters arising
thereunder.
The
revisions that a shareholder may consider important are, without
limitation, set forth in the following chart. The
description of differences is illustrative only, and shareholders
should read Annex E
attached to this Information Statement carefully.
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Existing Rights under Certificate of Incorporation
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Rights under Amended and Restated Certificate
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Authorized Shares
– The authorized number
of shares of Common Stock is 345
million
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Authorized Shares
– The authorized number
of shares of Common Stock is increased to 1.0
billion
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|
|
|
Corporate Opportunities
– The Certificate of
Incorporation did not have a clause renouncing corporate
opportunities
|
|
Corporate Opportunities
– The Amended and
Restated Certificate sets forth that the Company renounces its
interest or expectancy in any matter, transaction, or interest that
is presented, acquired, created or developed by a non-employee
director or holder of Preferred Stock that is not an
employee.
|
|
|
|
|
|
Exclusive Jurisdiction
– The Certificate of Incorporation did not include a
provision regarding exclusive jurisdiction.
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|
Exclusive Jurisdiction
– The Amended and
Restated Certificate sets forth that Delaware is the
exclusive jurisdiction, and the Delaware Court of Chancery as the
exclusive forum, for all disputes relating to the internal affairs
of the Company, and the federal district courts of United States of
America as the exclusive forum for the resolution of any causes of
action arising under the Securities Act. This provision does not affect the jurisdiction
for claims brought under the Exchange Act over which federal courts
have exclusive jurisdiction
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Amendment of Certificates of Designation for Preferred Stock
– Any amendments to
certificates of designation for Preferred Stock has to be approved
by the holders of Common Stock and the respective class of
Preferred Stock.
|
|
Amendment of Certificate of Designation for Preferred Stock
– The Amended and
Restated Certificate requires only the vote of the respective class
of Preferred Stock to amend that class's certificate of
designation.
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|
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Effective Time of the Amendment and Restatement of the Certificate
of Incorporation
The
Amended and Restated Certificate will become effective on the date
that it is accepted for filing by the Delaware Secretary of State.
The text of the Amended and Restated Certificate is subject to
modification to include such changes as may be required by the
Delaware Secretary of State to effectuate the amendments set forth
in this Corporate Action.
Our
Board of Directors expects to file the Amended and Restated
Certificate promptly, but not sooner than twenty calendar days
after this Information Statement has been first mailed or otherwise
delivered to shareholders entitled to receive notice
thereof.
CORPORATE ACTION NO. 5
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO AUTHORIZE OUR
BOARD
OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT
General
Effective as of
September 28, 2020 (the “Approval Date”), our Board of
Directors and the Majority Shareholders approved resolutions
that authorizes our
Board of Directors, in its sole and absolute discretion, without
further action of the shareholders, to amend our Certificate of
Incorporation to implement a reverse stock split of our issued and
outstanding Common Stock, at a specific ratio, ranging from
one-for-thirty (1:30) to
one-for-one hundred
(1:100), (the “Approved Split
Ratio”), within one year
from the Approval Date. If implemented, the Reverse Split will have the
effect of decreasing the number of shares of our Common Stock
issued and outstanding. In addition, in the event the Reverse Split
is implemented, the number of authorized shares of Common Stock
will similarly be reduced by the Approved Split Ratio selected by
our Board of Directors.
Accordingly, our
Board of Directors currently has the authority, but not the
obligation, in its sole and absolute discretion, and without
further action on the part of the shareholders, to affect the
Reverse Split by filing a Certificate of Amendment to our
Certificate of Incorporation with the Delaware Secretary of
State on or before the one-year anniversary of the Approval Date
subject to the requirements of Regulation 14C under the Exchange
Act. If the Amendment has not been filed with the Delaware
Secretary of State on or before the one-year anniversary of the
Approval Date, the Board of Directors will abandon the Reverse
Split.
Purpose and Rationale for the
Reverse Split
The
Purchase Agreement contains covenants, requiring the Company to,
among other things, file an application to list its Common Stock on
the NASDAQ Global Select Market, the NASDAQ Global Market or the
NASDAQ Capital Market on or before December 31, 2020, which listing
requires the Company to effect the Reverse Split in order to
increase the price of our Common Stock as currently quoted on the
OTCBB to at least $3.00 per share. No assurances can be given that
the Company will be successful in its application to list its
Common Stock on the NASDAQ Markets.
Other
Effects. The Board of
Directors also believes that the increased market price of our
Common Stock expected as a result of implementing the Reverse Split
could improve the marketability and liquidity of our Common Stock
and will encourage interest and trading in our Common Stock. The
Reverse Split, if effected, could allow a broader range of
institutions to invest in our Common Stock (namely, funds that are
prohibited from buying stock whose price is below a certain
threshold), potentially increasing the trading volume and liquidity
of the Company’s Common Stock. The Reverse Split could help
increase analyst and broker’s interest in Common Stock, as
their policies can discourage them from following or recommending
companies with low stock prices. Because of the trading volatility
often associated with low-priced stocks, many brokerage houses and
institutional investors have internal policies and practices that
either prohibit them from investing in low-priced stocks or tend to
discourage individual brokers from recommending low-priced stocks
to their customers. Some of those policies and practices may make
the processing of trades in low-priced stocks economically
unattractive to brokers. Additionally, because brokers’
commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced
stocks, a low average price per share of Common Stock can result in
individual shareholders paying transaction costs representing a
higher percentage of their total share value than would be the case
if the share price were higher.
Our
Board of Directors does not intend for this transaction to be the
first step in a series of plans or proposals effect a “going
private transaction” within the meaning of Rule 13e-3 of the
Exchange Act.
Risks of the Reverse Split
We cannot assure
you that the Reverse Split will increase the price of our Common
Stock.
If
the Reverse Split is implemented, our Board of Directors expects
that it will increase the market price of our Common Stock.
However, the effect of the Reverse Split upon the market price of
our Common Stock cannot be predicted with any certainty, and the
history of similar stock splits for companies in like circumstances
is varied. It is possible that (i) the per share price of our
Common Stock after the Reverse Split will not rise in proportion to
the reduction in the number of shares of our Common Stock
outstanding resulting from the Reverse Split, (ii) the market
price per post-Reverse Split share may not exceed or remain in
excess of a $3.00 bid price necessary to list our Common Stock on
the NASDAQ Market, or (iii) the Reverse Split may not result
in a per share price that would attract brokers and investors who
do not trade in lower priced stocks. Even if the Reverse Split is
implemented, the market price of our Common Stock may decrease due
to factors unrelated to the Reverse Split. In any case, the market
price of our Common Stock will be based on other factors which may
be unrelated to the number of shares outstanding, including our
future performance. If the Reverse Split is consummated and the
trading price of our Common Stock declines, the percentage decline
as an absolute number and as a percentage of our overall market
capitalization may be greater than would occur in the absence of
the Reverse Split.
A decline in the market price of our Common Stock after the Reverse
Split is implemented may result in a greater percentage decline
than would occur in the absence of a reverse stock
split.
If
the Reverse Split is implemented and the market price of our Common
Stock declines, the percentage decline may be greater than would
occur in the absence of a reverse stock split. The market price of
our Common Stock will, however, also be based upon our performance
and other factors, which are unrelated to the number of shares of
Common Stock outstanding.
The Reverse
Split may decrease the liquidity of our Common
Stock.
The
liquidity of our Common Stock may be harmed by the Reverse Split
given the reduced number of shares of Common Stock that would be
outstanding after the Reverse Split, particularly if the stock
price does not increase as a result of the Reverse
Split.
Determination of the Ratio for the Reverse Stock Split
If the
Board of Directors determines that it is in the best interests of
the Company and its shareholders to move forward with the Reverse
Split, the Approved Split Ratio will be selected by the Board of
Directors, in its sole discretion. However, the Approved Split
Ratio will not be less than a ratio of one-for-thirty (1:30) or
exceed a ratio of one-for-one hundred (1:100). In determining which
Approved Split Ratio to use, the Board of Directors will consider
numerous factors, including the historical and projected
performance of our Common Stock, prevailing market conditions and
general economic trends, and will place emphasis on the expected
closing price of our Common Stock in the period following the
effectiveness of the Reverse Split. The Board of Directors will
also consider the impact of the Approved Split Ratio on investor
interest. The purpose of selecting a range is to give the Board of
Directors the flexibility to meet business needs as they arise, to
take advantage of favorable opportunities and to respond to a
changing corporate environment. Based on the number of shares of
Common Stock issued and outstanding as of the Record Date, after
completion of the Reverse Split, we will have approximately between
4,572,096 and 1,371,629 shares of Common Stock issued and
outstanding, depending on the Approved Split Ratio selected by the
Board of Directors.
Principal Effects of the Reverse Split
After
the effective date of the proposed Reverse Split, each stockholder
will own a reduced number of shares of Common Stock. Except for
adjustments that may result from the treatment of fractional shares
as described below, the proposed Reverse Split will affect all
shareholders uniformly. The proportionate voting rights and other
rights and preferences of the holders of our Common Stock will not
be affected by the proposed Reverse Split. For example, a holder of
2% of the voting power of the outstanding shares of our Common
Stock immediately prior to a Reverse Split would continue to hold
2% (assuming there are no other shares of Common Stock issuable
upon exercise or conversion of any other derivative securities that
are issued) of the voting power of the outstanding shares of our
Common Stock immediately after such Reverse Stock Split. The
number of shareholders of record also will not be affected by the
proposed Reverse Split.
The following table contains approximate
number of issued and outstanding shares of Common Stock, and the
estimated per share trading price following a 1:30 to 1:100 Reverse
Split, without giving effect to any
adjustments for fractional shares of Common Stock or the issuance
of any derivative securities, as of the Record Date. The number of
shares of Common Stock authorized, as well as the number of shares
of Common Stock authorized but unissued and unreserved will
decrease by the same ratio as the Approved Split
Ratio.
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After
a 1:30
Reverse
Split
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After
a 1:40
Reverse
Split
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After
a 1:60
Reverse
Split
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After
a 1:80 Reverse Split
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After
a 1:100 Reverse Split
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Common Stock
Authorized
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345,000,000
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11,500,000
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8,625,000
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5,750,000
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4,312,500
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3,450,000
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Common Stock Issued
and Outstanding
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137,162,877
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4,572,096
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3,429,071
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2,286,048
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1,714,536
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1,371,629
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Number of Shares of
Common Stock Reserved for Issuance
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63,770,333
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2,125,678
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1,594,258
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1,062,839
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797,129
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637,703
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Number of Shares of
Common Stock Authorized but Unissued and Unreserved
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144,066,791
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4,802,226
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3,601,670
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2,401,113
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1,800,835
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1,440,668
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Price per share,
based on the closing price of our Common Stock on 4,
2020
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$0.12
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$3.60
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$4.80
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$7.20
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$9.60
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$12.00
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After
the effective date of the Reverse Split, our Common Stock would
have a new committee on uniform securities identification
procedures (CUSIP) number, a number used to identify our Common
Stock.
Our
Common Stock is currently registered under Section 12(g) of
the Exchange Act, and we are subject to the periodic reporting and
other requirements of the Exchange Act. The proposed Reverse Split
will not affect the registration of our Common Stock under the
Exchange Act. Our Common Stock would continue to be reported on
OTCQB under the symbol “IWSY,” although it is likely
that OTC Marketplace would add the letter “D” to the
end of the trading symbol for a period of twenty trading days after
the effective date of the Reverse Split to indicate that the
Reverse Split had occurred.
Effect on Warrants
The Reverse Split will require that proportionate
adjustments be made to the conversion rate, the per share exercise
price and the number of shares issuable upon the exercise or
conversion of the following outstanding derivative securities
issued by the Company, in accordance with the Approved Split Ratio
(all figures are as of September 4, 2020 and are on a pre-Reverse Split basis),
including warrants to purchase 928,779 shares of Common
Stock.
The
adjustments to the warrants, as required by the Reverse Split and
in accordance with the Approved Split Ratio, would result in
approximately the same aggregate price being required to be paid
under such securities upon exercise, and approximately the same
value of shares of Common Stock being delivered upon such exercise
or conversion, immediately following the Reverse Split as was the
case immediately preceding the Reverse Split.
Effect on Stock Option Plans
As of the Record Date, we had 2,474,670
shares of Common Stock reserved for
issuance pursuant to the exercise of outstanding options issued
under our 1999 Stock Award Plan
(the “1999 Plan”) and 2020 Omnibus Equity Incentive Plan
(the “2020 Plan” and collectively with the 1999 Plan, the
“Plans”), as well as 27,228,934
shares of Common Stock available for
issuance under the 2020 Plan.
Pursuant to the terms of the 2020 Plan, the Board of Directors, or a designated
committee thereof, as applicable, will adjust the number of shares
of Common Stock underlying outstanding awards, the exercise price
per share of outstanding stock options and other terms of
outstanding awards issued pursuant to the Plans to equitably
reflect the effects of the Reverse Split. The number of shares
subject to vesting under restricted stock awards and the number of
shares issuable as contingent consideration as part of an
acquisition by the Company will be similarly adjusted, subject to
our treatment of fractional shares. Furthermore, the number of
shares available for future grant under the 2020
Plan will be similarly
adjusted.
Effective Date
The
proposed Reverse Split would become effective on the date of filing
of the Certificate of Amendment to the Amended and Restated
Certificate with the office of the Secretary of State of the State
of Delaware. On the effective date, shares of Common Stock issued
and outstanding shares of Common Stock held in treasury, in each
case, immediately prior thereto will be combined and converted,
automatically and without any action on the part of our
shareholders, into new shares of Common Stock in accordance with
the Approved Split Ratio.
Treatment of Fractional Shares
No fractional shares of Common Stock will be
issued as a result of the Reverse Split. Instead, any fractional
share resulting from the Reverse Stock Split will be rounded up to
the nearest whole share. For
example, assuming the Board of Directors elected to consummate an
Approved Split Ratio of 1:30, if a shareholder held less than
thirty shares of Common Stock immediately prior to the Reverse
Split, then such shareholder would be issued one share of
Common Stock in lieu of a fractional share.
Record and Beneficial Shareholders
If
our Board of Directors elects to implement the Reverse Split,
shareholders of record holding some or all of their shares of
Common Stock electronically in book-entry form under the direct
registration system for securities will receive a transaction
statement at their address of record indicating the number of
shares of Common Stock they hold after the Reverse Split.
Non-registered shareholders holding Common Stock through a bank,
broker or other nominee should note that such banks, brokers or
other nominees may have different procedures for processing the
consolidation and making payment for fractional shares than those
that would be put in place by us for registered shareholders. If
you hold your shares with such a bank, broker or other nominee and
if you have questions in this regard, you are encouraged to contact
your nominee.
If
our Board of Directors elects to implement the Reverse Split,
shareholders of record holding some or all of their shares in
certificate form will receive a letter of transmittal, as soon as
practicable after the effective date of the Reverse Split. Our
transfer agent will act as “exchange agent” for the
purpose of implementing the exchange of stock certificates. Holders
of pre-Reverse Split shares will be asked to surrender to the
exchange agent certificates representing pre-Reverse Split shares
in exchange for post-Reverse Split shares in accordance with the
procedures to be set forth in the letter of transmittal. Until
surrender, each certificate representing shares before the Reverse
Split would continue to be valid and would represent the adjusted
number of whole shares based on the approved exchange ratio of the
Reverse Split selected by the Board of Directors. No new
post-Reverse Split share certificates will be issued to a
stockholder until such stockholder has surrendered such
stockholder’s outstanding certificate(s) together with the
properly completed and executed letter of transmittal to the
exchange agent.
SHAREHOLDERS SHOULD NOT DESTROY ANY PRE-SPLIT STOCK CERTIFICATE AND
SHOULD
NOT SUBMIT ANY CERTIFICATES UNTIL THEY ARE REQUESTED TO DO
SO.
Accounting Consequences
The
par value per share of Common Stock would remain unchanged at $0.01
per share after the Reverse Split. As a result, on the effective
date of the Reverse Split, the stated capital on our balance sheet
attributable to the Common Stock will be reduced proportionally,
based on the Approved Split Ratio selected by the Board of
Directors, from its present amount, and the additional paid-in
capital account shall be credited with the amount by which the
stated capital is reduced. The per share Common Stock net income or
loss and net book value will be increased because there will be
fewer shares of Common Stock outstanding. The shares of Common
Stock held in treasury, if any, will also be reduced
proportionately based on the Approved Split Ratio selected by the
Board of Directors. Retroactive restatement will be given to all
share numbers in the financial statements, and accordingly all
amounts including per share amounts will be shown on a post-split
basis. We do not anticipate that any other accounting consequences
would arise as a result of the Reverse Split.
No Appraisal Rights
The
Company’s shareholders are not entitled to dissenters’
or appraisal rights under the DGCL with respect to this Action and
we will not independently provide our shareholders with any such
right if the Reverse Split is implemented.
Material Federal U.S. Income Tax Consequences of the Reverse Stock
Split
The following is a summary of the material U.S.
federal income tax consequences of a Reverse Split to our
shareholders. The summary is based on the Internal Revenue Code of
1986, as amended (the “Code”), applicable Treasury Regulations
promulgated thereunder, judicial authority and current
administrative rulings and practices as in effect on the date of
this Information Statement. Changes to the laws could alter the tax
consequences described below, possibly with retroactive effect. We
have not sought and will not seek an opinion of counsel or a ruling
from the Internal Revenue Service regarding the federal income tax
consequences of a Reverse Split. This discussion is for general
information only and does not discuss the tax consequences which
may apply to special classes of taxpayers
(e.g., non-resident aliens, broker/dealers or insurance
companies). The state and local tax consequences of a Reverse Split
may vary significantly as to each stockholder, depending upon the
jurisdiction in which such stockholder resides. Shareholders are
urged to consult their own tax advisors to determine the particular
consequences to them.
In
general, the federal income tax consequences of a Reverse Split
will vary among shareholders. We believe that because the Reverse
Split is not part of a plan to increase periodically a
stockholder’s proportionate interest in our assets or
earnings and profits, the Reverse Split should have the following
federal income tax effects. A stockholder who receives solely a
reduced number of shares of Common Stock will not recognize gain or
loss. In the aggregate, such a stockholder’s basis in the
reduced number of shares of Common Stock will equal the
stockholder’s basis in its old shares of Common Stock and
such stockholder’s holding period in the reduced number of
shares will include the holding period in its old shares
exchanged.
We
will not recognize any gain or loss as a result of the proposed
Reverse Split.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN
FEDERAL U.S. INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT AND DOES
NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL
POTENTIAL TAX EFFECTS RELEVANT THERETO. YOU SHOULD CONSULT YOUR OWN
TAX ADVISORS AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF THE REVERSE SPLIT IN LIGHT OF YOUR
SPECIFIC CIRCUMSTANCES.
DESCRIPTION OF OUR SECURITIES
General
Our
Certificate of Incorporation authorizes the issuance of up to
345,000,000 shares of our Common Stock, and 5,000,000 shares of
Preferred Stock.
Common Stock
This section describes the general terms of our Common Stock that
we may offer from time to time. For more detailed information, a
holder of our Common Stock should refer to our Amended and Restated
Certificate, set forth as Appendix E to this Information Statement,
and to our Bylaws, a copy of which is filed with the SEC as an
exhibit to the Company’s Annual Report on Form
10-K.
As of September 4, 2020, we had 137,162,877 shares of Common Stock issued and outstanding. Our
authorized but unissued shares of Common Stock are available for
issuance without action by our shareholders. All shares of Common
Stock now outstanding are fully paid and
non-assessable.
Except
as otherwise expressly provided in our Certificate of
Incorporation, or as required by applicable law, all shares of our
Common Stock have the same rights and privileges and rank equally,
share ratably and are identical in all respects as to all matters,
including, without limitation, those described below. All
outstanding shares of Common Stock are fully paid and
nonassessable.
The
holders of our Common Stock have equal ratable rights to dividends
from funds legally available, when, as and if declared by our Board
of Directors. To date, we have not paid any dividends on our
Common Stock. Holders of Common Stock are also entitled to share
ratably in all of our assets available for distribution to holders
of Common Stock upon liquidation, dissolution or winding up of the
affairs. The holders of our Common Stock have no preemptive or
conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to our Common
Stock.
Each holder of Common Stock is entitled to one
vote for each share of Common Stock held on all matters submitted
to a vote of the shareholders, including the election of
directors. The holders of
shares of Common Stock do not have cumulative voting rights, which
means that the holders of more than 50% of such outstanding shares,
voting for the election of directors, can elect all of the
directors to be elected, if they so choose and in such event, the
holders of the remaining shares will not be able to elect any of
our directors. The holders of 50% percent of the outstanding
Common Stock constitute a quorum at any meeting of shareholders,
and the vote by the holders of a majority of the outstanding shares
are required to effect certain fundamental corporate changes, such
as liquidation, merger or amendment of our Certificate of
Incorporation.
Preferred Stock
This section describes the general terms and provisions of our
outstanding shares of Preferred Stock, as well as Preferred Stock
that we may offer from time to time. We will file a copy of
the certificate of designation that contains the terms of each new
series of Preferred Stock with the SEC each time we issue a new
series of Preferred Stock. Each certificate of designation will
establish the number of shares included in a designated series and
fix the designation, powers, privileges, preferences and rights of
the shares of each series as well as any applicable qualifications,
limitations or restrictions. A holder of our Preferred Stock should
refer to the applicable certificate of designations, filed with the
SEC as exhibits to the Company’s Annual Report on Form
10-K.
Our Board of Directors has designated four series
of Preferred Stock; (i) Series A Preferred, (ii) Series A-1
Preferred, (iii) Series B Preferred, and (iv) Series C Preferred.
As of September 4, 2020, there
were 19,320 shares of Series A Preferred issued and
outstanding, 18,148 shares of Series A-1 Preferred issued and
outstanding, 239,400 shares of series B Preferred issued and
outstanding and 1,000 shares of Series C Preferred issued and
outstanding.
Our
Board of Directors has the authority, without action by our
shareholders to designate and issue Preferred Stock in one or more
series and to designate the rights, preferences and privileges of
each series, which may be greater than the rights of our Common
Stock. It is not possible to state the actual effect of the
issuance of any shares of our Preferred Stock upon the rights of
holders of our Common Stock until our Board of Directors determines
the specific rights of the holders of our Preferred Stock. However,
the effects might include, among other things:
●
restricting
dividends on our Common Stock;
●
diluting
the voting power of our Common Stock;
●
impairing
the liquidation rights of our Common Stock; or
●
delaying
or preventing a change in control of our Company without further
action by our shareholders.
Transfer
Agent
The transfer agent and
registrar for our Common Stock is Computershare Trust Company, N.A.
The transfer agent and registrar’s address is 250 Royall
Street, Canton, Massachusetts 02021. The transfer agent for our
Series A Preferred and Series A-1 Preferred is EQ U.S. The
transfer agent’s address is 3200 Cherry Creek Dr. South,
Suite 430, Denver, Colorado 80209. The transfer agent for our
Series B Preferred and Series C Preferred is the
Company.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of September 4, 2020, we had five classes of voting stock
outstanding: (i) Common Stock; (ii) our Series A Preferred; (iii)
our Series A-1 Preferred; (iv) our Series B Preferred; and (v) our
Series C Preferred. The following tables sets forth information
regarding shares of Series A Preferred, Series A-1 Preferred,
Series B Preferred, Series C Preferred, and Common Stock
beneficially owned as of September 4, 2020 by:
(i)
Each of our
officers and directors (the “Named Executive
Officers”);
(ii)
All officer and
directors as a group; and
(iii)
Each person known
by us to beneficially own five percent or more of the outstanding
shares of our Common Stock, Series A Preferred, Series A-1
Preferred, Series B Preferred, and Series C Preferred. Percent
ownership is calculated based on 19,320 shares of Series A
Preferred, 18,148 shares of Series A-1 Preferred, 239,400 shares of
Series B Preferred, 1,000 shares of Series C Preferred and
137,192,877 shares Common Stock outstanding as of September 4,
2020.
Beneficial Ownership of Series A Preferred
Name, Address and Title (if applicable) (1)
|
Series A Preferred
Stock (2)
|
|
|
|
|
|
|
Directors and Named Executive
Officers:
|
|
|
|
S.
James Miller, Jr., Chair of the Board
|
50
|
*
|
|
|
|
|
|
Neal
Goldman, Director
|
4,717
|
24.94%
|
|
Total beneficial ownership of directors and officers as a group (9
persons):
|
4,767
|
24.7%
|
|
|
|
|
|
5%
Shareholders:
|
|
|
|
Charles
Frischer
4404 52nd Avenue NE
Seattle,
WA 98105
|
1,552
|
8.0%
|
|
Robert
T. Clutterbuck
1360 East 9th
Street, Suite 1250
Cleveland, OH
44114
|
1,073
|
5.6%
|
|
CF Special Situation Fund I, LP
(3)
1360 East 9th
Street, Suite 1250
Cleveland, OH
44114
|
2,802
|
14.5%
|
|
CAP 1 LLC (4)
14000
Quail Spring Parkway, Suite 2200
Oklahoma
City, OK 73134
|
1,500
|
7.8%
|
|
Richard
Leahy
322
Pilots Point
Mt.
Pleasant, SC 29464
|
1,000
|
5.2%
|
* less than 1%
(1)
Each of the Company’s Named Executive
Officers and directors who do not hold shares of Series A Preferred
are excluded from this table. The business address of each of the
executive officers and directors is 13500 Evening Creek Drive N.,
Suite 550, San Diego, CA 92128.
(2)
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities.
(3)
Robert
T. Clutterbuck is President of CF Special Situation Fund I,
LP.
(4)
Mr.
David Sackler, President of CAP I LLC, may be deemed to have voting
and investment discretion over the securities identified
herein.
Beneficial Ownership of Series A-1 Preferred
Name, Address and Title (if applicable) (1)
|
Series A Preferred
Stock (2)
|
|
|
|
|
|
|
Directors and Named Executive
Officers:
|
|
|
|
S.
James Miller, Jr., Chair of the Board
|
50
|
*
|
|
|
|
|
|
Neal
Goldman, Director
|
4,717
|
26.0%
|
|
Total beneficial ownership of directors and officers as a group (9
persons):
|
4,767
|
26.3%
|
|
|
|
|
|
5%
Shareholders:
|
|
|
|
Charles
Frischer
4404 52nd Avenue NE
Seattle,
WA 98105
|
1,553
|
8.6%
|
|
Robert
T. Clutterbuck
1360 East 9th
Street, Suite 1250
Cleveland, OH
44114
|
1,045
|
5.8%
|
|
CF Special Situation Fund I, LP
(3)
1360 East 9th
Street, Suite 1250
Cleveland, OH
44114
|
2,803
|
15.4%
|
|
CAP 1 LLC (4)
14000
Quail Spring Parkway, Suite 2200
Oklahoma
City, OK 73134
|
1,500
|
8.3%
|
|
Richard
Leahy
322
Pilots Point
Mt.
Pleasant, SC 29464
|
1,000
|
5.5%
|
* less than 1%
(1)
Each of the Company’s Named Executive
Officers and directors who do not hold shares of Series A-1
Preferred are excluded from this table. The business address of
each of the executive officers and directors is 13500 Evening Creek
Drive N., Suite 550, San Diego, CA 92128.
(2)
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities.
(3)
Robert
T. Clutterbuck is President of CF Special Situation Fund I,
LP.
(4)
Mr.
David Sackler, President of CAP I LLC, may be deemed to have voting
and investment discretion over the securities identified
herein.
Beneficial Ownership of Series B Preferred
Name, Address and Title (if applicable) (1)
|
Series B
Preferred
Stock (2)
|
|
|
Darrelyn
Carpenter
|
28,000
|
12%
|
|
Frederick
C. Orton
|
20,000
|
8%
|
|
Howard
Harrison
|
20,000
|
8%
|
|
Wesley
Hampton
|
16,000
|
7%
|
(1)
Each of the Company’s Named Executive
Officers and directors who do not hold shares of Series B Preferred
are excluded from this table. The business address of each of the
executive officers and directors is 13500 Evening Creek Drive N.,
Suite 550, San Diego, CA 92128.
(2)
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities.
Beneficial Ownership of Series C Preferred
Name, Address and Title (if applicable) (1)
|
Series C
Preferred
Stock (2)
|
|
|
Blackwell Partners
LLC – Series A (3)
c/o Nantahala
Capital Management, LLC
19 Old Kings
Highway South, Suite 200
Darien, CT
06820
|
128
|
12.8%
|
|
Geode Capital
Management LP
1 Post Office
Square, 20th Floor
Boston, MA
02109
|
100
|
10.0%
|
|
Nantahala Capital
Partners Limited Partnership (3)
c/o Nantahala
Capital Management, LLC
19 Old Kings
Highway South, Suite 200
Darien, CT
06820
|
54
|
5.4%
|
|
Nantahala Capital
Partners II Limited Partnership (3)
c/o Nantahala
Capital Management, LLC
19 Old Kings
Highway South, Suite 200
Darien, CT
06820
|
112
|
11.2%
|
|
Nantahala Capital
Partners SI LP (3)
c/o Nantahala
Capital Management, LLC
19 Old Kings
Highway South, Suite 200
Darien, CT
06820
|
397
|
39.7%
|
|
Shellback
Financial, LLC
16405 45th Avenue
North
Minneapolis, MN
55446
|
100
|
10.0%
|
|
Silver Creek CS
SAV, L.L.C. (3)
c/o Nantahala
Capital Management, LLC
19 Old Kings
Highway South, Suite 200
Darien, CT
06820
|
59
|
5.9%
|
(1)
Each
of the Company’s Named Executive Officers and directors who
do not hold shares of Series C Preferred are excluded from this
table.
(2)
Beneficial
ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to
securities.
(3)
Nantahala Capital
Management, LLC is a Registered Investment Adviser and has been
delegated the legal power to vote and/or direct the disposition of
securities on behalf of these entities as a General Partner or
Investment Manager and would be considered the beneficial owner of
such securities. The above shall not be deemed to be an admission
by the record owners that they are themselves beneficial owners of
these shares of Series C Preferred for purposes of Section 13(d) of
the Exchange Act or any other purpose.
Beneficial Ownership of Common Stock
Name and Address
|
|
|
|
|
|
|
|
Directors and Named Executive
Officers:
|
|
|
|
S. James Miller, Jr., Chair of the
Board (3)
|
1,984,162
|
1.4%
|
|
David Carey, Director (4)
|
127,814
|
*
|
|
Neal Goldman, Director (5)
|
49,295,378
|
32.6%
|
|
G. Steve Hamm, Director (6)
|
125,400
|
*
|
|
Dana W. Kammersgard, Director (7)
|
105,000
|
*
|
|
David Loesch, Director (8)
|
156,022
|
*
|
|
Kristin
Taylor, Chief Executive Officer
|
0
|
*
|
|
Jonathan
D. Morris, Chief Financial Officer
|
0
|
*
|
|
|
|
|
|
Total beneficial ownership of directors and Named Executive
Officers as a group (8 persons):
|
51,793,776
|
37.7%
|
* less than 1%
(1)
All entries exclude beneficial ownership of shares
issuable pursuant to options that have not vested or that are not
otherwise exercisable as of the date hereof, or which will not
become vested or exercisable within 60 days of September
4, 2020.
(2)
Percentages are rounded to nearest one-tenth of
one percent. Percentages are based on 137,162,877
shares of Common Stock outstanding as
of September 4, 2020. Options
that are presently exercisable or exercisable within 60 days
of September 4, 2020 are deemed
to be beneficially owned by the stockholder holding the options for
the purpose of computing the percentage ownership of that
stockholder, but are not treated as outstanding for the purpose of
computing the percentage of any other
stockholder.
(3)
Includes 75,201 shares held jointly with spouse,
196,878 shares issuable for vested restricted stock units, each
vested within 60 days of September 4, 2020, 43,479 shares issuable upon the conversion
of Series A Preferred, 76,925 shares issuable upon the conversion
of Series A-1 Preferred, 630,578 shares issuable upon conversion of
certain convertible promissory notes and 3,987 shares issuable upon
the exercise of warrants.
(4)
Includes 21,128 shares issuable for vested
restricted stock units, each vested within 60 days of
September 4, 2020.
(5)
Includes
19,250 shares issuable for vested restricted stock units, each
vested within 60 days of September 4, 2020, 4,101,740 shares
issuable upon the conversion of Series A Preferred, and 7,256,924
shares issuable upon the conversion of Series A-1 Preferred. Mr.
Goldman exercises sole voting and dispositive power over 33,298,556
shares, and shared voting and dispositive power over 3,147,700
reported shares, of which 3,000,000 shares are owned by the Goldman
Family 2012 GST Trust and 147,700 shares are owed by The Neal and
Marlene Goldman Foundation, 3,359,337 shares issuable upon the
conversion of Convertible Notes and 376,128 shares issuable upon
the exercise of warrants.
(6)
Includes 21,128 shares issuable for vested
restricted stock units, each vested within 60 days of
September 4, 2020.
(7)
Includes 19,500 shares issuable for vested
restricted stock units, each vested within 60 days of
September 4, 2020.
(8)
Includes 21,128 shares issuable for vested
restricted stock units, each vested within 60 days of
September 4, 2020.
DISTRIBUTION AND COSTS
We will
pay the cost of preparing, printing and distributing this
Information Statement. Only one Information Statement will be
delivered to multiple shareholders sharing an address, unless
contrary instructions are received from one or more of such
shareholders. Upon receipt of a written request at the address
first noted in this Information Statements, we will deliver a
single copy of this Information Statement and future shareholder
communication documents to any shareholders sharing an address to
which multiple copies are now delivered.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN
ADDRESS
We will
only deliver one Information Statement to multiple shareholders
sharing an address, unless we have received contrary instructions
from one or more of the shareholders. Also, we will promptly
deliver a separate copy of this Information Statement and future
shareholder communication documents to any shareholder at a shared
address to which a single copy of this Information Statement was
delivered, or deliver a single copy of this Information Statement
and future shareholder communication documents to any shareholder
or shareholders sharing an address to which multiple copies are now
delivered, upon written request to us at our address noted above.
Shareholders may also address future requests regarding delivery of
information statements and/or annual reports by contacting us at
the address noted above.
WHERE YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and special reports, proxy statements and other
information with the SEC. The periodic reports and other
information we have filed with the SEC, may be inspected and copied
at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington DC 20549. You may obtain information as to the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a Web site that contains reports, proxy
statements and other information about issuers, like the Company,
who file electronically with the SEC. The address of that site is
www.sec.gov. Copies of these documents may also be obtained by
writing our secretary at the address specified above.
ANNEX
A
IMAGEWARE SYSTEMS, INC.
SECURITIES PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (this “Agreement”),
dated as of September 28, 2020 (the “Effective
Date”), is made by and among ImageWare Systems, Inc.,
a corporation organized under the laws of the State of Delaware
(the “Company”), and
each of the purchasers (individually, a “Purchaser” and
collectively the “Purchasers”)
set forth on the signature pages hereto (each, a
“Signature
Page” and collectively the “Signature
Pages”).
RECITALS
WHEREAS, the Company and the Purchasers
are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by the provisions
of Regulation D (“Regulation
D”), as promulgated by the United States Securities
and Exchange Commission (the “SEC”) under
the Securities Act of 1933, as amended (including the rules and
regulations promulgated thereunder, the “Securities
Act”);
WHEREAS, upon satisfaction of certain
conditions, the Purchasers, severally and not jointly, desire to
purchase, and the Company desires to issue and sell to the
Purchasers, upon the terms and subject to the conditions set forth
in this Agreement, an aggregate of Fifteen Thousand (15,000) shares
of the Company’s Series D Convertible Preferred Stock, par
value $0.01 per share (the “Preferred
Stock”), for $1,000 per share, which Preferred Stock
shall have the rights, preferences and privileges set forth in the
Company’s Certificate of Designations, Preferences and Rights
of Series D Convertible Preferred Stock (the “Series D Certificate of
Designation”) filed with the Secretary of State for
the State of Delaware on or prior to the Closing Date, and
substantially in the form of Exhibit A attached
hereto;
WHEREAS, the shares of common stock of
the Company, par value $0.01 per share (the “Common
Stock”), issuable upon conversion of the Preferred
Stock are referred to herein as the “Conversion
Shares.” The
Preferred Stock and the Conversion Shares are collectively referred
to herein as the “Securities”
and each of them may individually be referred to herein as a
“Security”, and
the shares of Common Stock issued or issuable to the holders of
Preferred Stock as dividends in accordance with the terms and
conditions set forth in the Certificate of Designation are referred
to herein as “Dividend
Shares”; and
WHEREAS, in connection with the
execution of this Agreement, the Company has entered into an Escrow
Agreement, dated as of the Effective Date, an executed copy of
which is attached hereto as Exhibit B (the
“Escrow
Agreement”), with Citibank, N.A. (the
“Escrow
Agent”), pursuant to which the Escrow Agent will act
as Escrow Agent with respect to the transactions contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the
premises and mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Purchasers hereby agree as
follows:
1. PURCHASE AND SALE OF
SECURITIES.
(a) Purchase and Sale of
Securities. Subject to the terms and conditions hereof, at
the Closing (as defined in Section 1(d) below), the
Company shall issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, shall purchase from the Company, such
number of shares of Preferred Stock as is set forth on such
Purchaser’s Signature Page, for a purchase price (as to each
Purchaser, the “Purchase
Price”) equal to $1,000 per share of Preferred
Stock.
(b) Deliverables as of the Effective
Date. As of the Effective Date, the parties hereto
acknowledge and agree that the following has occurred:
(i) Escrow Agreement. (A) The
Company and the Escrow Agent have executed such party’s
Signature Page to the Escrow Agreement and delivered the same to
the other parties hereto, (B) each Purchaser has delivered to the
Escrow Agent the full amount of such Purchaser’s applicable
Initial Purchase Price (defined below) and (C) the Company has
delivered to the Escrow Agent the wire transfer instructions set
forth on Exhibit
C.
(ii) Registration
Rights Agreement. The Company and each Purchaser have
executed such party’s Signature Page to the Registration
Rights Agreement in the form attached hereto as Exhibit D (the
“Registration Rights
Agreement”), and delivered executed copies of the same
to the other parties hereto. The Registration Rights Agreement
shall be effective upon Closing.
(iii) Series
C Exchange Agreement. The Company and the applicable holders
of the Company’s Series C Convertible Preferred Stock (the
“Series C
Holders”) have executed the Series C Exchange
Agreement, an executed copy of which is attached hereto as
Exhibit E (the
“Exchange
Agreement”), and the Purchasers shall have received an
executed copy thereof. The transactions contemplated by the
Exchange Agreement shall have occurred, or concurrently with the
Closing, will occur.
(iv) Term
Loan and Security Agreement. The Company and each Purchaser
have entered into that certain Term Loan Security Agreement, an
executed copy of which is attached hereto and which is attached
hereto as Exhibit F
(the “Term Loan and Security
Agreement”), which provides for the bridge loan to the
Company (the “Bridge Loan”).
The amount of the Bridge Loan shall be referred to as the
“Bridge
Loan Amount.”
(v) Written Consent. The Requisite
Shareholders have executed a written consent
approving and adopting the applicable New Organizational Documents
(defined below) which require shareholder approval, an
executed copy of which is attached hereto as Exhibit G (including the
documents and transactions authorized therein, the
“Written
Consent”). For
the purposes of this Agreement, “Written Consent” shall
refer to, individual and collectively, the Written Consent of each
Stockholder Group (defined below) included as part of Exhibit G.
(c) Additional Purchasers. At any
time after the Effective Date, one or more additional Purchasers
(“Additional
Purchasers”) may become a party hereto by (i)
executing and delivering to the Company and each other Purchaser
(A) a Joinder Agreement in substantially the form attached hereto
as Exhibit K, and
(B) a signature page to the Registration Rights Agreement and Term
Loan Agreement, and (ii) delivering such Additional
Purchaser’s Initial Purchase Price to the Escrow Agent.
Immediately upon (i) execution and delivery of such Joinder
Agreement and (ii) payment of such Additional Purchaser’s
Initial Purchase Price (and without any further action), each such
Additional Purchaser will become a party to this Agreement and have
all of the rights and obligations of a Purchaser hereunder, and
this Agreement and the schedules hereto shall be deemed amended by
such Joinder Agreement. Notwithstanding the foregoing, no
Additional Purchasers will be permitted to be a party to this
Agreement to the extent such Additional Purchaser’s proposed
Purchase Price would cause Total Purchase Price (including the
Purchase Price of all Additional Purchasers) to exceed $15,000,000
without the express written consent of the Company.
(d)
(e) The Closing. Closing of the
Transactions (the “Closing”)
shall occur on the date on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto
in connection with the Closing, and all conditions precedent to (i)
the Purchasers’ obligation to deliver the Closing Purchase
Price (defined below) of the Preferred Stock to the Company, as set
forth in Section
7, and
(ii) the Company’s obligations to deliver the Preferred Stock
set forth in Section
6, in each case, have been satisfied or waived. The day on
which the Closing occurs shall be the “Closing
Date.”
(f) Definitions. Unless the context
otherwise requires, the terms defined in this Section 1(e) shall, for the
purposes of this Agreement, have the meanings herein
specified.
(i) “Accrued
Interest Deduction”
means, as to each Purchaser, an amount equal to the product of (A)
the total amount of interest which has accrued on the Bridge Loan
Amount pursuant to the terms of the Term Loan and Security
Agreement as of the Closing Date, and (B) a fraction, the numerator
of which is such Purchaser’s Initial Purchaser Price and the
denominator of which is the Bridge Loan Amount.
(ii) “Closing
Purchase Price” means, as to each
Purchaser, an amount equal to (A) such
Purchaser’s Purchase Price, less (B) the sum of (1) such
Purchaser’s Initial Purchase Price and (2) such
Purchaser’s Accrued Interest Deduction.
(iii) “Initial
Purchase Price”
means, as to each Purchaser, an amount equal to the product of
(A) such Purchaser’s Purchase Price, and (B)
0.20.
(iv) “New
Organizational Documents” includes each of the
following amended and restated Organizational Documents (defined
below): (A) the amended and restated Certificate of Incorporation
of the Company, in substantially the form attached as Exhibit E to the Written
Consent (the “Amended & Restated
Certificate of Incorporation”); (B) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock of the Company, in substantially the form attached as
Exhibit B to the
Written Consent (the “Amended and Restated Series
A Certificate of Designation”); (C) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series A-1 Convertible
Preferred Stock of the Company, in substantially the form attached
Exhibit C to the
Written Consent (the “Amended and Restated Series
A-1 Certificate of Designation”); (D) the amended and
restated Certificates of Designations,
Preferences and Rights of the Series C Convertible Preferred
Stock of the Company, in substantially the form attached as
Exhibit D to the
Written Consent] (the “Amended and Restated Series
C Certificate of Designation”); and (E) the Series D
Certificate of Designation.
(v) “Organizational
Documents” means (i) with respect to any corporation,
its certificate or articles of incorporation or organization, as
amended, and its by-laws, as amended, (ii) with respect to any
limited partnership, its certificate of limited partnership, as
amended, and its partnership agreement, as amended, (iii) with
respect to any general partnership, its partnership agreement, as
amended, and (iv) with respect to any limited liability company,
its articles of organization, as amended, and its operating
agreement, as amended.
(vi) “Requisite
Shareholders” means the minimum number of shareholders
of the Company required to approve the New Organizational Documents
as required by the Company’s current Organizational Documents
and applicable law (as determined by the Holder Representative in
its sole discretion). The term “Requisite Shareholders”
means, individually and collectively, each of the following groups
of stockholders (each, a “Stockholder
Group”), each voting as a separate class: (a)
stockholders owning at least fifty percent (50%) of the
Company’s outstanding capital stock on an as-converted basis;
(b) holders owning not less than two-thirds (2/3rd) of the
Series A Convertible Preferred
Stock; (c) holders owning at least fifty percent (50%) of
the Company’s Series A-1
Convertible Preferred Stock; and (d) fifty percent (50%) of
the Series C Holders.
(vii) “Total
Purchase Price” means the aggregate Purchase Price of
all Purchasers.
(viii) “Transaction
Documents” mean this Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Term Loan and Security
Agreement, the Exchange Agreement and the New Organizational
Documents.
(ix) “Transactions”
means the transaction contemplated by this Agreement and each of
the Transaction Documents.
2. PURCHASER’S REPRESENTATIONS AND
WARRANTIES.
Each
Purchaser, severally, but not jointly, represents and warrants to
the Company as follows:
(a) Purchase for Own Account, Etc.
Such Purchaser is purchasing the Securities for such
Purchaser’s own account for investment purposes only and not
with a view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under
the Securities Act. Such Purchaser has substantial experience in
evaluating and investing in private placement transactions of
securities in companies similar to the Company, and is capable of
evaluating the merits and risks of its investment in the Company.
Such Purchaser understands that it must bear the economic risk of
this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities
or blue sky laws or an exemption from such registration is
available, and that the Company has no present intention of
registering the resale of any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section
2(a) to the contrary, by making the representations herein,
such Purchaser does not agree to hold the Securities for any
minimum or other specific term and reserves the right to dispose of
the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from the registration
requirements under the Securities Act.
(b) Accredited Investor Status.
Such Purchaser is an “Accredited Investor”, as that
term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such
Purchaser understands that the Securities are being offered and
sold to such Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state
securities laws, and that the Company is relying upon the truth and
accuracy of, and such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of such Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility
of such Purchaser to acquire the Securities.
(d) Information. All materials
relating to the business, finances and operations of the Company
(including the Company’s most recent Annual Report on Form
10-K and most recent Quarterly Report on Form 10-Q) and materials
relating to the offer and sale of the Securities which have been
specifically requested by such Purchaser or its counsel have been
made available to such Purchaser and its counsel, if any. Neither
such inquiries nor any other investigation conducted by such
Purchaser or its counsel or any of such Purchaser’s
representatives shall modify, amend or affect such
Purchaser’s right to rely on the Company’s
representations and warranties contained in Section 3 below. Such Purchaser
understands that its investment in the Securities involves a high
degree of risk, including the risk of loss of its entire investment
in the Securities.
(e) Governmental Review. Such
Purchaser understands that no United States federal or state agency
or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the
Securities.
(f) Transfer or Resale. Such
Purchaser understands that (i) except as provided in the
Registration Rights Agreement, the sale or resale of the Securities
have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be
transferred unless (A) the transfer is made pursuant to and as set
forth in an effective registration statement under the Securities
Act covering the Securities; or (B) such Purchaser shall have
delivered to the Company an opinion of counsel (which opinion shall
be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (C) sold under and in
compliance with Rule 144 promulgated under the Securities Act
(including any successor rule, “Rule 144”); or
(D) sold or transferred to an affiliate of such Purchaser that
agrees to sell or otherwise transfer the Securities only in
accordance with the provisions of this Section 2(f) and that is an
Accredited Investor; and (ii) neither the Company nor any other
person is under any obligation to register the Securities under the
Securities Act or any state securities laws (other than pursuant to
the terms of the Registration Rights Agreement). Notwithstanding
the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement, provided
such pledge is consistent with applicable laws, rules and
regulations.
(g) Authorization; Enforcement.
This Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Exchange Agreement have been duly and validly
authorized, executed and delivered on behalf of such Purchaser and
are valid and binding agreements of such Purchaser enforceable
against such Purchaser in accordance with their terms, except as
such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors’ rights and
remedies.
(h) Residency. Such Purchaser is a
resident of the jurisdiction set forth under such Purchaser’s
name on the Signature Page hereto executed by such
Purchaser.
3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
Except
as set forth on the Disclosure Schedule attached to this Agreement
(the “Disclosure
Schedule”), the Company represents and warrants to
each Purchaser as follows:
(a) Organization and Qualification;
Subsidiaries. The Company and each of its subsidiaries
listed on Section 3(a) of the Disclosure Schedules ]collectively,
the “Subsidiaries”)
is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction in which it is
incorporated or organized and has the requisite corporate power to
own its properties and to carry on its business as now being
conducted. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the
failure so to qualify would have, or would reasonably be expected
to result in, a Material Adverse Effect. For purposes of this
Agreement, “Material Adverse
Effect” means any event, occurrence, fact, condition
or change that, individually or in the aggregate, results, or would
reasonably be likely to result, in a material adverse effect on (i)
the Securities or the Dividend Shares, (ii) the ability of the
Company to perform its obligations under this Agreement or the
other Transaction Documents or (iii) the condition (financial or
otherwise) or the earnings, prospects, business, properties,
surplus or results of operations of the Company and its
Subsidiaries.
(b) Authorization; Enforcement.
Other than the Written Consent, (i) the Company has the requisite
corporate power and authority to enter into and perform its
obligations under this Agreement and the other Transaction
Documents, to issue and sell the Preferred Stock in accordance with
the terms hereof, to issue the Conversion Shares upon conversion of
the Preferred Stock in accordance with the terms thereof and to
issue the Dividend Shares in accordance with the Series D
Certificate of Designation and the Company’s Certificate of
Incorporation as in effect on the date hereof (“Certificate of
Incorporation”); (ii) the execution, delivery and
performance of this Agreement and the other Transaction Documents
by the Company and the consummation by it of the Transactions
(including, without limitation, the issuance of the Preferred Stock
and the issuance and reservation for issuance of the Conversion
Shares and the Dividend Shares) have been duly authorized by the
Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, any committee
of the Board of Directors or any of the stockholders of the Company
is required, and (iii) this Agreement constitutes, and, upon
execution and delivery by the Company of the other Transaction
Documents, such Transaction Documents will constitute, valid and
binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may
be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement
of creditors’ rights and remedies. Other than the Written
Consent, neither the execution, delivery or performance by the
Company of its obligations under this Agreement or the other
Transaction Documents, nor the consummation by it of the
Transactions (including, without limitation, the issuance of the
Preferred Stock, or the issuance or reservation for issuance of the
Conversion Shares and the Dividend Shares) requires any consent or
authorization of the Company’s stockholders.
(c) Capitalization. The
capitalization of the Company as of the date hereof, including the
authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company’s stock option plans, all
securities exercisable or exchangeable for, or convertible into,
any shares of capital stock of the Company (“Convertible
Securities”), the number of shares issuable and
reserved for issuance pursuant to Convertible Securities, any
shares of capital stock and the number of shares reserved for
issuance upon conversion of the Preferred Stock, is set forth in
Section
3(c) of
the Disclosure Schedule. All such outstanding shares of capital
stock have been, or upon issuance in accordance with the terms of
any such Convertible Securities will be, validly issued, fully paid
and non-assessable. No shares of capital stock of the Company
(including the Conversion Shares and the Dividend Shares) are
subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances. Except as
set forth on Section
3(c) of
the Disclosure Schedule, (i) there are no outstanding options,
warrants, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or
may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, nor are any such issuances or
arrangements contemplated, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities
under the Securities Act (except the Registration Rights
Agreement); (iii) there are no outstanding securities or
instruments of the Company which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company is or may become bound to
redeem any security of the Company; and (iv) the Company does not
have any shareholder rights plan, “poison pill” or
other anti-takeover plans or similar arrangements. Section 3(c) of
the Disclosure Schedule sets forth all of the securities or
instruments issued by the Company or any of its Subsidiaries that
contain anti-dilution or similar provisions that will be triggered
by, and all of the resulting adjustments that will be made to such
securities and instruments as a result of, the issuance of the
Securities and the Dividend Shares in accordance with the terms of
this Agreement or the Series D Certificate of Designation. Other
than the Written Consent, the Company has no knowledge of any
voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of
the security holders of the Company relating to the securities of
the Company held by them. The Company can furnish, upon request,
true and correct copies of the Company’s Certificate of
Incorporation, the Company’s Bylaws as in effect on the date
hereof (the “Bylaws”), and
all other instruments and agreements governing any Convertible
Securities. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or
any such Subsidiary.
(d) Issuance of Securities. Subject
to the Written Consent, the Preferred Stock is duly authorized and,
upon issuance in accordance with the terms of this Agreement and
the Series D Certificate of Designation, (i) will be validly issued
and free from all taxes, liens, claims, transfer restrictions, and
encumbrances (other than restrictions on transfer contained in this
Agreement or the Series D Certificate of Designation), (ii) will
not be subject to preemptive rights, rights of first refusal or
other similar rights of stockholders of the Company or any other
Person (as defined below) and (iii) will not impose personal
liability on any holder thereof. The Conversion Shares and the
Dividend Shares are duly authorized and reserved for issuance, and,
upon issuance of the Dividend Shares or conversion of the Preferred
Stock, in each case in accordance with the terms of the Series D
Certificate of Designation, (x) will be validly issued, fully paid
and non-assessable, and free from all taxes, liens, claims,
transfer restrictions, and encumbrances (other than restrictions on
transfer contained in this Agreement), (y) will not be subject to
preemptive rights, rights of first refusal or other similar rights
of stockholders of the Company or any other Person and (z) will not
impose personal liability upon any holder thereof. Except for the
filing of any notice prior or subsequent to the Closing Date that
may be required under applicable state and/or federal securities
laws (or comparable laws of any other jurisdiction), and subject to
Section
4(k),
no authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department,
commission, board, bureau, agency, instrumentality or other third
party, is or will be necessary for, or in connection with, the
execution and delivery by the Company of this Agreement, the offer,
issue, sale, execution or delivery of the Securities and the
Dividend Shares, or the performance by the Company of its
obligations under this Agreement. No “bad actor”
disqualifying event described in Rule 506(d)(1)(i)-(viii) of the
Securities Act (a “Disqualification
Event”) is applicable to the Company or, to the
Company’s knowledge, any Person listed in the first paragraph
of Rule 506(d)(1), except for a Disqualification Event as to which
Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.
“Person” means
an individual, partnership, corporation, unincorporated
organization, joint stock company, limited liability company,
association, trust, joint venture or any other entity, or a
governmental agency or political subdivision thereof.
(e) No Conflicts. Except as set
forth on Section
3(e) of the Disclosure Schedule, and subject to the Written
Consent, the execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the
consummation by the Company of the Transactions (including, without
limitation, the issuance of the Preferred Stock, and the issuance
and reservation for issuance of the Conversion Shares and the
Dividend Shares) will not (i) result in a violation of the
Certificate of Incorporation or Bylaws, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party, (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including United
States federal and state securities laws, rules and regulations and
rules and regulations of any self-regulatory organizations to which
either the Company or its securities are subject) applicable to the
Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or
affected, or (iv) result in the imposition of a mortgage, pledge,
security interest, encumbrance, charge or other lien on any asset
of the Company or any Subsidiary.
(f) Compliance. Neither the Company
nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, Bylaws or other organizational documents, and
neither the Company nor any of its Subsidiaries is in default (and
no event has occurred that with notice or lapse of time or both
would put the Company or any of its Subsidiaries in default) under,
nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a
party. The businesses of the Company and its Subsidiaries are not
being conducted, and shall not be conducted so long as any
Purchaser (or any of its respective affiliates) owns any of the
Securities or Dividend Shares, in violation of any law, ordinance
or regulation of any governmental entity, except for possible
violations the sanctions for which either singly or in the
aggregate have not had and would not materially affect the Company
or any of its Subsidiaries. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any Subsidiary has, in
the course of his actions for, or on behalf of, the Company, used
any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political
activity, made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds, violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee. The
Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state, provincial or foreign governmental or regulatory authorities
that are material to the conduct to their business, and neither the
Company nor any of its Subsidiaries has received any notice of
proceeding relating to the revocation or modification of any such
certificate, authorization or permit. The Company has complied in
all material respects with and is not in default or violation in
any material respect of, and is not, to the Company’s
knowledge, under investigation with respect to or has not been, to
the knowledge of the Company, threatened to be charged with or
given notice of any violation of, any applicable federal, state,
local or foreign law, statute, ordinance, license, rule,
regulation, policy or guideline, order, demand, writ, injunction,
decree or judgment of any federal, state, local or foreign
governmental or regulatory authority. Except for statutory or
regulatory restrictions of general application, no federal, state,
local or foreign governmental or regulatory authority has placed
any material restriction on the business or properties of the
Company or any of its Subsidiaries.
(g) SEC Documents, Financial
Statements. Except as set forth on Section 3(g) of the Disclosure
Schedules, the Company has timely filed (within applicable
extension periods) all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to
the Securities Act and/or the Securities Exchange Act of 1934, as
amended (including the rules and regulations promulgated
thereunder, the “Exchange Act”)
(all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, the
“SEC
Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated there in or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. None of the statements made in any such
SEC Documents is, or has been, required to be amended or updated
under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date
hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published
rules and regulations of the SEC applicable with respect thereto.
Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”),
consistently applied, during the periods involved (except as may be
otherwise indicated in such financial statements or the notes
thereto or, in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or
summary statements)and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to immaterial
year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the Select SEC Documents (as
defined below), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial
statements and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
GAAP to be reflected in such financial statements, which
liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial
condition or operating results of the Company. For purposes of this
Agreement, “Select SEC
Documents” means the Company’s (A) Annual Report
on Form 10-K for the fiscal year ended December 31, 2019, (B)
Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2020, (C) Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2020, and (D) all Current Reports on Form 8-K filed
since August 19, 2020.
(h) No Material Adverse Effect in
Business. Except as set forth on Section 3(h) of
the Disclosure Schedule, and other than effects on the business
related primarily to COVID-19, since March 31, 2020 through the
date hereof, (i) there has been no Material Adverse Effect, nor any
development or event which would result, or be reasonably likely to
result, in a Material Adverse Effect, (ii) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock, and (iii) there has been
no material adverse change in the capital stock, short-term
indebtedness, long-term indebtedness, net current assets, net
current liabilities or net assets of the Company and its
Subsidiaries.
(i) Absence of Certain Changes.
Except as set forth on Section 3(i) of
the Disclosure Schedule, since March 31, 2020, (i) there has not
been any change in the capital stock (other than pursuant to the
Company’s stock plans pursuant to the Company’s
Approved Share Plan (as defined below), pursuant to the conversion
or exercise of outstanding securities that are convertible into or
exercisable for Common Stock, or pursuant to publicly disclosed
equity or debt financings) or long-term debt of the Company, or any
dividend or distribution of any kind declared, set aside for
payment, paid or made by the Company on any class of capital stock;
(ii) neither the Company nor any of its Subsidiaries has entered
into any transaction or agreement that is material to the Company
or any of its Subsidiaries taken as a whole or incurred any
liability or obligation, direct or contingent, that is material to
the Company or any of its Subsidiaries and, except as contemplated
by this Agreement, has made any material change or amendment to a
material contract or arrangement by which the Company or any of its
Subsidiaries or any of their respective assets or properties is
bound or subject; (iii) neither the Company nor any of its
Subsidiaries has sustained any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor disturbance or
dispute or any action, order or decree of any court or arbitrator
or governmental or regulatory authority; and (iv) there has been no
material adverse change and no material adverse development in the
business, properties, operations, prospects, condition (financial
or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole. Neither the Company nor any of its
Subsidiaries has taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy or
receivership law, nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings with respect to the
Company or any of its Subsidiaries. For purposes of this
Section
3(i),
“Approved
Share Plan” shall mean the Company’s Amended and
Restated 1999 Stock Award Plan and 2020 Omnibus Stock Incentive
Plan.
(j) Transactions with Affiliates.
Except as disclosed on the Select SEC Documents, none of the
officers, directors, or employees of the Company or any of its
Subsidiaries, or any of their family members, is presently a party
to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services solely in their capacity
as officers, directors, employees or consultants), including,
without limitation, any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director, employee
or family member or any corporation, partnership, trust or other
entity in which any such officer, director, employee or family
member has an ownership interest of five percent or more or is an
officer, director, trustee or partner.
(k) Absence of Litigation. Except
as disclosed on Section
3(k) of
the Disclosure Schedules, there is no action, suit, proceeding,
inquiry or, to the best of the Company’s knowledge,
investigation before or by any court, public board, government
agency, self-regulatory organization or body (including, without
limitation, the SEC) pending or affecting the Company, any of its
Subsidiaries, or any of their respective directors or officers in
their capacities as such. To the knowledge of the Company or any of
its Subsidiaries, there are no actions, suits, proceedings,
inquiries or investigations before or by any court, public board,
government agency, self-regulatory organization or body (including,
without limitation, the SEC) threatened against the Company, any of
its Subsidiaries, or any of their respective directors or officers
in their capacities as such, which, if determined adversely, could,
either individually or in the aggregate, be material to the Company
or any of its Subsidiaries. There are no facts which, if known by a
potential claimant or governmental authority, could give rise to a
claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its Subsidiaries, could
reasonably be expected to be material to the Company or any of its
Subsidiaries.
(l) Intellectual Property.
Each of the Company
and its Subsidiaries owns or is duly licensed (and, in such event,
has the unfettered right to grant sublicenses) to use all patents,
patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses,
permits, inventions, discoveries, processes, scientific, technical,
engineering and marketing data, object and source codes, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively,
“Intellectual
Property”) used in or necessary for the conduct of its
business as now being conducted and as presently contemplated to be
conducted in the future (collectively, the “Company Intellectual
Property”). Section 3(l) of the
Disclosure Schedule sets forth a list of all material Company
Intellectual Property owned and/or used by the Company or any of
its Subsidiaries in its business. Except as set forth on the
Disclosure Schedule, there are no rights of third parties to any of
the Company Intellectual Property except through licensing
agreements. Except as set forth on the Disclosure Schedule, there
are no outstanding options, licenses or agreements of any kind
relating to the Company Intellectual Property, nor is the Company
or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual
Property of any other Person (collectively, the “Third
Party License
Agreements”) other than such licenses or agreements
arising from the purchase of generally available products, as to
which the aggregate consideration paid by or due from the Company
or any of its Subsidiaries does not exceed $25,000 in value, or
“off the shelf” products. All of the Third Party
License Agreements are valid, binding and in full force and effect
in all material respects and to the Company’s knowledge
enforceable by the Company or its applicable Subsidiary in
accordance with their respective terms in all material respects,
subject to general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of
creditors’ rights and remedies. Neither the Company nor any
of its Subsidiaries is in material breach of any such Third Party
License Agreements. To the Company’s knowledge, no other
party to any of the Third Party License Agreements is in material
default thereunder. Neither the Company nor any Subsidiary of the
Company infringes or is in conflict with any right of any other
Person with respect to any Third Party Intellectual Property.
Neither the Company nor any of its Subsidiaries has received
written notice of any pending conflict with or infringement upon
any Third Party Intellectual Property. There is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding
or claim by others challenging the Company’s or any of its
Subsidiaries’ ownership of or licensing rights in or to any
Company Intellectual Property. Neither the Company nor any of its
Subsidiaries has entered into any consent agreement,
indemnification agreement, forbearance to sue or settlement
agreement with respect to the validity of the Company’s or
its Subsidiaries’ ownership of or right to use its Company
Intellectual Property and there is no reasonable basis for any such
claim to be successful. The rights of the Company and its
Subsidiaries in the Company Intellectual Property are valid and
enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of
cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its
Subsidiaries have taken all reasonable steps required to perfect
their ownership of and interest in the Company Intellectual
Property and has taken reasonable security measures to protect the
secrecy, confidentiality and value of all of the Company
Intellectual Property. The Company and its Subsidiaries have
complied, in all material respects, with their respective
contractual obligations relating to the protection of the Company
Intellectual Property used pursuant to licenses. No Person is
infringing on or violating the Company Intellectual Property owned
or used by the Company or its Subsidiaries. The Company and its
Subsidiaries have used Company IP Counsel (as defined below) for
all Intellectual Property matters since December 31, 2011 and,
since such date, neither the Company nor any of its Subsidiaries
has consulted any other counsel with respect to any Intellectual
Property matters.
(m) Title. The Company and its
Subsidiaries have good and marketable title in fee simple to all
real property and good and merchantable title to all personal
property owned by them that is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions
as are not material and do not materially interfere with the use
made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(n) Tax Status. Except as set forth
in Section
3(n) of
the Disclosure Schedule, the Company and each of its Subsidiaries
has made or filed all foreign, U.S. federal, state, provincial and
local income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries
has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes
and other governmental assessments and charges due and owing,
except those being contested in good faith and has set aside on its
books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for
any such claim. The Company has not executed a waiver with respect
to any statute of limitations relating to the assessment or
collection of any foreign, federal, state, provincial or local tax.
None of the Company’s tax returns is presently being audited
by any taxing authority.
(o) Key Employees. Except as set
forth on Section
3(o) of
the Disclosure Schedules, each of the Company’s and its
Subsidiaries’ directors and officers and any Key Employee (as
defined below) is currently serving the Company or its Subsidiaries
in the capacity disclosed in the Select SEC Documents. No Key
Employee is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and
the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any material liability with
respect to any of the foregoing matters. Except as set forth on
Section
3(o) of
the Disclosure Schedules, no Key Employee has, to the knowledge of
the Company and its Subsidiaries, any intention to terminate or
limit his employment with, or services to, the Company or any of
its Subsidiaries, nor is any such Key Employee subject to any
constraints which would cause such employee to be unable to devote
his full time and attention to such employment or services. For
purposes of this Agreement, “Key Employee”
means the persons listed in Section 3(o) of
the Disclosure Schedule and any individual who assumes or performs
any of the duties of a Key Employee.
(p) Employee Relations. No
application or petition for certification of a collective
bargaining agent is pending and none of the employees of Company or
any of its Subsidiaries are or have been represented by any union
or other bargaining representative and no union has attempted to
organize any group of the Company's or any of its
Subsidiaries’ employees, and no group of the Company's or any
of its Subsidiaries’ employees has sought to organize
themselves into a union or similar organization for the purpose of
collective bargaining. The Company and its Subsidiaries believe
that their relations with their employees are good. No executive
officer (as defined in Rule 501(f) of the Securities Act) has
notified the Company or any of its Subsidiaries that such officer
intends to leave the Company or any of its Subsidiaries or
otherwise terminate such officer’s employment with the
Company or any of its Subsidiaries. The Company and its
Subsidiaries are in compliance with all federal, state and local
laws and regulations and, to the Company’s knowledge, all
foreign laws and regulations, in each case respecting employment
and employment practices, terms and conditions of employment and
wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, be material to the
Company or any of its Subsidiaries.
(q) Insurance. The Company and each
of its Subsidiaries has in force fire, casualty, product liability
and other insurance policies, with extended coverage, sufficient in
amount to allow it to replace any of its material properties or
assets which might be damaged or destroyed or sufficient to cover
liabilities to which the Company or any of its Subsidiaries may
reasonably become subject, and such types and amounts of other
insurance with respect to its business and properties, on both a
per occurrence and an aggregate basis, as are customarily carried
by Persons engaged in the same or similar business as the Company
and its Subsidiaries. No default or event has occurred that could
give rise to a default under any such policy.
(r) Environmental Matters. The
Company and each of its Subsidiaries is in compliance with all
foreign, federal, state and local rules, laws and regulations
relating to the use, treatment, storage and disposal of Hazardous
Substances (as defined below) and protection of health and safety
or the environment which are applicable to its business. There is
no environmental litigation or other environmental proceeding
pending or threatened by any governmental or regulatory authority
or others with respect to the current or any former business of the
Company or any of its Subsidiaries or any partnership or joint
venture currently or at any time affiliated with the Company or any
of its Subsidiaries. No state of facts exists as to environmental
matters or Hazardous Substances that involves the reasonable
likelihood of a material capital expenditure by the Company or any
of its Subsidiaries. No Hazardous Substances have been treated,
stored or disposed of, or otherwise deposited, in or on the
properties owned or leased by the Company or any of its
Subsidiaries or by any partnership or joint venture currently or at
any time affiliated with the Company or any of its Subsidiaries in
violation of any applicable environmental laws. The environmental
compliance programs of the Company and each of its Subsidiaries
comply in all respects with all environmental laws, whether
foreign, federal, state, provincial or local, currently in effect.
For purposes of this Agreement, “Hazardous
Substances” means any substance, waste, contaminant,
pollutant or material that has been determined by any governmental
authority to be capable of posing a risk of injury to health,
safety, property or the environment.
(s) Listing. The Company is not in
violation of the listing requirements of the OTCQB Marketplace
(the “OTCQB”)
on which it trades, does not reasonably anticipate that the Common
Stock will be delisted by the OTCQB for the foreseeable future, and
has not received any notice regarding the possible delisting of the
Common Stock from the OTCQB. The issuance and sale of the Preferred
Stock and the Transactions do not contravene the rules and
regulations of the OTCQB.
(t) No General Solicitation or Integrated
Offering. Neither the Company nor any Person acting for the
Company has conducted any “general solicitation” (as
such term is defined in Regulation D) with respect to any of the
Securities and/or Dividend Shares being offered hereby. Neither the
Company nor any of its affiliates, nor any Person acting on its or
their behalf, has directly or indirectly made any offers or sales
of any security or solicited any offers to buy any security under
circumstances that would require registration of the Securities
and/or Dividend Shares being offered hereby under the Securities
Act or cause this offering of Securities and/or Dividend Shares to
be integrated with any prior offering of securities of the Company
for purposes of the Securities Act, which result of such
integration would require registration under the Securities Act, or
any applicable stockholder approval provisions.
(u) No Brokers. No brokerage or
finder’s fees or commissions are or will be payable by the
Company or any Subsidiary to any broker, financial advisor or
consultant, finder, placement agent, investment banker, bank or
other third party with respect to the Transactions. The Purchasers
shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other third parties for fees
of a type contemplated in this Section 3(u)
that may be due in connection with the Transactions.
(v) Acknowledgment Regarding
Securities. The number of Conversion Shares issuable upon
conversion of the Preferred Stock may increase in certain
circumstances. The Company’s directors and executive officers
have studied and fully understand the nature of the Securities
being sold hereunder. The Company acknowledges that its obligation
to issue (i) Conversion Shares upon conversion of the Preferred
Stock and (ii) the Dividend Shares, in each case, in accordance
with the Series D Certificate of Designation, is absolute and
unconditional, regardless of the dilution that such issuance may
have on the ownership interests of other stockholders and the
availability of remedies provided for in this Agreement relating to
a failure or refusal to issue Conversion Shares and Dividend Shares
to the extent required by the Series D Certificate of Designation.
Taking the foregoing into account, the Company’s Board of
Directors has determined in its good faith business judgment that
the issuance of the Preferred Stock hereunder and the consummation
of the Transactions are in the best interests of the Company and
its stockholders.
(w) Internal Control over Financial
Reporting. The Company maintains a system of internal
control over financial reporting (as such term is defined in Rule
13a-15(f) of the Exchange Act) that complies with the requirements
of the Exchange Act and has been designed by the Company’s
principal executive officer and principal financial officer, or
under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
The Company does not have any material weaknesses in its internal
control over financial reporting. Since the date of the latest
audited financial statements included in the Select SEC Documents,
there has been no change in the Company’s internal control
over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(x) Disclosure Controls and
Procedures. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) of the
Exchange Act) that comply with the requirements of the Exchange
Act. Such disclosure controls and procedures have been designed to
ensure that material information relating to the Company is
accumulated and communicated to the Company’s management,
including the Company’s principal executive officer and
principal financial officer, by others within those
entities.
(y) Sarbanes-Oxley Compliance. The
Company and the Company’s directors and officers, in their
capacities as such, are in compliance with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith (“SOX”),
including Section 402 related to loans and Sections 302 and 906
related to certifications, and neither the Company nor any of its
officers has received notice from any governmental entity
questioning or challenging the accuracy, completeness, content,
form or manner of filing or submission of such certifications. The
Company has no reasonable basis to believe that it will not
continue to be in compliance with SOX as in effect on the Closing
Date (including, without limitation, the requirements of Section
404 thereof).
(z) Disclosure. All information
relating to or concerning the Company and/or any of its
Subsidiaries set forth in this Agreement or provided to the
Purchasers pursuant to Section 2(d) hereof or
otherwise by the Company in connection with the Transactions is
true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances
under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or
its Subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation,
would be required to be disclosed by the Company in a registration
statement filed on the date hereof by the Company under the
Securities Act with respect to a primary issuance of the
Company’s securities.
(aa) Absence of Indebtedness. On the
Closing Date, as a result of the Transactions, neither the Company
nor any Subsidiary shall have any indebtedness for borrowed money
that would be required to be disclosed by the Company on a balance
sheet prepared in accordance with GAAP. Section 3(aa) of
the Disclosure Schedule sets for the indebtedness for borrowed
money of the Company and its Subsidiaries as of immediately prior
to the Closing Date.
(bb) No
Registration. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 2 hereof, it is not
necessary, in connection with the issuance and sale of the
Preferred Stock to the Purchasers, the issuance of the Conversion
Shares upon conversion of the Preferred Stock or the issuance of
the Dividend Shares pursuant to the terms of the Series D
Certificate of Designation and the Certificate of Incorporation, in
each case in the manner contemplated by this Agreement and the
other Transaction Documents, to register the Preferred Stock, the
Conversion Shares or the Dividend Shares under the Securities Act,
except for any registration that is required under the terms of the
Registration Rights Agreement.
(cc) Acknowledgment
Regarding Purchasers’ Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the Transactions. The
Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to the Transaction Documents and the
Transactions and any advice given by any Purchaser or any of its
representatives or agents in connection with the Transaction
Documents and the Transactions is merely incidental to the
Purchasers’ purchase of the Securities. The Company further
represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has
been based solely on the independent evaluation of the Transactions
by the Company and its representatives.
(dd) Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in
this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and acknowledged by the Company that: (i) none of
the Purchasers has been asked by the Company to agree, nor has any
Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the
Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including,
without limitation, short sales or “derivative”
transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of
the Company’s publicly-traded securities, and (iii) each
Purchaser shall not be deemed to have any affiliation with or
control over any arm’s length counter-party in any
“derivative” transaction. The Company further
understands and acknowledges that (y) one or more Purchasers may
engage in hedging activities at various times during the period
that the Securities are outstanding, and (z) such hedging
activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company
acknowledges that such aforementioned hedging activities do not
constitute a breach of any of the Transaction
Documents.
(ee) Information
Statement. Neither the information supplied, or to be
supplied, by or on behalf of the Company, for inclusion or
incorporation by reference into the Information Statement or any
other documents to be filed by the Company with the SEC in
connection with the Transactions, contains or will, on the date of
its filing or at the date it is mailed to the stockholders, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
4. COVENANTS.
(a) Form D: Blue Sky Laws. The
Company shall timely file with the SEC a Form D with respect to the
Securities as required under Regulation D and provide a copy
thereof to any Purchaser promptly upon request of such Purchaser.
The Company shall, on or before the Closing Date, take such action
as the Company shall reasonably determine is necessary to qualify
the Securities for sale to each Purchaser pursuant to this
Agreement under applicable securities or “blue sky”
laws of the states of the United States or obtain exemption
therefrom, and shall provide evidence of any such action so taken
to Holder Representative (as defined below) on or prior to the
Closing Date. Within four business days after the Closing Date, the
Company shall file a Form 8-K with the SEC concerning this
Agreement and the Transactions, which Form 8-K shall attach this
Agreement and its Exhibits as exhibits to such Form 8-K (the
“8-K
Filing”). The Company shall provide Holder
Representative with a copy of the 8-K Filing at least two (2)
business days prior to the filing of the 8-K Filing for Holder
Representative’s review and comment, it being understood that
nothing contained herein shall prevent the Company from filing such
8-K Filing within four (4) business days after the Closing Date.
The Company shall consider in good faith the comments received by
Holder Representative or its counsel to the 8-K Filing and shall
incorporate the same into the 8-K Filing unless the Company, acting
in good faith, has a reasonable basis for not incorporating any
such comments, in which case the Company shall consult with Holder
Representative or its counsel with respect to such comments. For
purposes of this Agreement, “Holder
Representative” means any Purchaser beneficially
owning in excess of fifty percent (50%) of the Preferred Stock
immediately following Closing. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the SEC or any
regulatory agency or trading market (including, without limitation,
on any signature page to any Transaction Document), without the
prior written consent of such Purchaser, except (i) as required by
federal securities law in connection with any registration
statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law, in which
case the Company shall provide the applicable Purchaser(s) with
prior notice of such disclosure permitted under this clause (ii).
From and after the 8-K Filing, the Company hereby represents and
acknowledges to the Purchasers that no Purchaser shall be in
possession of any material nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers,
directors, employees or agents, that is not disclosed in the 8-K
Filing. In addition, effective upon the 8-K Filing, the Company
acknowledges and agrees that any and all confidentiality or similar
obligations under any agreement, whether written or oral, between
the Company, any of its Subsidiaries or any of their respective
officers, directors, agents, employees or affiliates on the one
hand, and any of the Purchasers or any of their affiliates on the
other hand, shall terminate. The Company shall not, and shall cause
each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any
Purchaser with any material nonpublic information regarding the
Company or any of its Subsidiaries from and after the 8-K Filing
without the express written consent of such Purchaser. The Company
understands and confirms that each Purchaser shall be relying on
the foregoing covenant in effecting transactions in securities of
the Company. To the extent that the Company delivers any material
non-public information to a Purchaser without such
Purchaser’s express written consent, the Company hereby
covenants and agrees that such Purchaser shall not have any duty of
confidentiality to the Company, any of its Subsidiaries or
affiliates, or any of their respective officers, directors, agents
or employees or affiliates, or a duty to the Company, any of its
Subsidiaries or affiliates or any of their respective officers,
directors, agents or employees not to trade on the basis of, such
material non-public information, provided that the Purchaser shall
remain subject to applicable law. To the extent that any notice
provided pursuant to any Transaction Document constitutes, or
contains, material non-public information regarding the Company or
any of its Subsidiaries or affiliates, the Company shall
simultaneously file such notice with the SEC pursuant to a Current
Report on Form 8-K. The Company understands and confirms that each
Purchaser shall be relying on the foregoing covenant in effecting
transactions in securities of the Company or its
affiliates.
(b) Reporting Status. So long as
any Purchaser (or any of its affiliates) beneficially owns any of
the Securities or Dividend Shares, the Company covenants to
maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act even
if the Company is not then subject to the reporting requirements of
the Exchange Act, and the Company shall not terminate its status as
an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all
actions necessary to meet the “registrant eligibility”
requirements set forth in the general instructions to Form S-1 or
any successor form thereto, to continue to be eligible to register
the resale of its Common Stock on a registration statement on Form
S-1 under the Securities Act.
(c) Use of Proceeds. Except as set
forth on Section 3(aa) of the Disclosure Schedules, the Company
shall use the proceeds from the sale and issuance of the Preferred
Stock for general corporate purposes and working capital (including
payment of legal fees and expenses pursuant to Section 4(l)
herein);provided that such
proceeds shall not be used to (i) pay dividends, except for
dividends paid or payable to holders of the Company’s Series
B Convertible Redeemable Preferred Stock; (ii) purchase debt or
equity securities of any entity (including redeeming the
Company’s own securities), except for (A) evidences of
indebtedness issued or fully guaranteed by the United States of
America and having a maturity of not more than one year from the
date of acquisition, (B) certificates of deposit, notes,
acceptances and repurchase agreements having a maturity of not more
than one year from the date of acquisition issued by a bank
organized in the United States, (C) the highest-rated commercial
paper having a maturity of not more than one year from the date of
acquisition, and (D) “Money Market” fund shares, or
money market accounts fully insured by the Federal Deposit
Insurance Corporation and sponsored by banks and other financial
institutions, provided that the investments consist principally of
the types of investments described in clauses (A), (B), or (C)
above; or (iii) make any investment not directly related to the
current business of the Company.
(d) Uplisting. The Company shall
maintain, so long as any Purchaser (or any of its affiliates)
beneficially owns any Securities or Dividend Shares, the listing of
all Dividend Shares, if any, and Conversion Shares from time to
time issuable upon conversion of the Preferred Stock on each
national securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are
currently listed. The
Company shall file an application to be listed on any of the NASDAQ
Global Select Market, the NASDAQ Global Market, the NASDAQ Capital
Market or any successor market thereto (collectively,
“NASDAQ”),
or such other national
securities exchange as is reasonably acceptable to Holder
Representative (the “Uplisting”),
and will use its commercially reasonable efforts to effect the
Uplisting (including by effectuating a reverse stock split on or
prior to December 31, 2020 at the request of Holder
Representative). The Company shall bear all costs associated with
the Uplisting. Unless and until such Uplisting is
effectuated, the Company will use its best efforts to continue the
listing and trading of its Common Stock on the OTCQB.
(e) Corporate Existence. So long as
any Purchaser (or any of its affiliates) beneficially owns any
Securities or Dividend Shares, the Company shall maintain its
corporate existence, and in the event of a merger, consolidation or
sale of all or substantially all of the Company’s assets, the
Company shall ensure that the surviving or successor entity in such
transaction and, if an entity different from the successor or
acquiring entity, the entity whose securities into which the Common
Stock shall become convertible or exchangeable in such transaction
(i) expressly assumes in writing, for the benefit of the
Purchasers, the Company’s obligations under this Agreement
and the other Transaction Documents and the agreements and
instruments entered into in connection herewith and therewith
regardless of whether or not the Company would have had a
sufficient number of shares of Common Stock authorized and
available for issuance in order to effect the conversion of all the
Preferred Stock outstanding as of the date of such transaction and
(ii) except in the event of a merger, consolidation of the Company
into any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company where the
consideration consists solely of cash, the surviving or successor
entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Common Stock
shall become convertible or exchangeable in such transaction, is a
publicly traded corporation whose common stock is listed for
quotation or trading on the OTCQB, NASDAQ or NYSE MKT
Exchange.
(f) No Integrated Offerings. The
Company shall not make any offers or sales of any security (other
than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder
under the Securities Act or cause this offering of the Securities
to be integrated with any other offering of securities by the
Company for purposes of any stockholder approval provision
applicable to the Company or its securities.
(g) Legal Compliance. The Company
shall conduct its business and the business of its Subsidiaries in
compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to
do so would not be material to the Securities, the Dividend Shares
or the business, operations, properties, prospects, condition
(financial or otherwise) or results of operations of the Company
and its Subsidiaries.
(h) Press Release. Neither the
Purchasers nor the Company may issue any press release (whether or
not included in the 8-K Filing) relating to the Transactions or any
other Transaction Document without the prior written approval of
Holder Representative, in the case of a press release issued by the
Company, or the Company, in the case of a press release issued by
any Purchaser, in each case, such approval not to be withheld,
conditioned or delayed by any such Person.
(i) Legends. Each Purchaser agrees
to the imprinting, so long as is required by this Section 4(i), of
a legend on any of the Securities or Dividend Shares in the
following form:
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THIS
SECURITIES REPRESENTED HEREBY MAY BE PLEDGED IN ACCORDANCE WITH THE
TERMS OF THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER
28, 2020, IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
REGISTERED BROKER-DEALER OR OTHER LENDING ARRANGEMENT WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
The
Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or
all of the Securities and/or Dividend Shares to a financial
institution that is an “accredited investor” as defined
in Rule 501(a) under the Securities Act and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or
secured Securities and/or Dividend Shares to the pledgees or
secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of
the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such
pledge. The Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities and/or
Dividend Shares may reasonably request in connection with a pledge
or transfer of the Securities and/or Dividend Shares, including, if
the Securities and/or Dividend Shares are subject to registration
pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3)
under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling
stockholders thereunder.
Instruments
(including
statements related to book-entry accounts), whether certificated or
uncertificated, evidencing the Securities and/or Dividend Shares
shall not contain any legend (including the legend set forth above
in this Section
4(i)), and the Company shall take all actions that
are necessary to remove any such legend, (i) while a registration
statement (including, without limitation, the registration
statement contemplated by the Registration Rights Agreement)
covering the resale of such Securities and/or Dividend Shares is
effective under the Securities Act, (ii) following any sale of such
Securities and/or Dividend Shares pursuant to Rule 144, (iii) if
such Securities and/or Dividend Shares are eligible for sale under
Rule 144 (whether or not such Securities and/or Dividend Shares are
being sold under Rule 144 at the applicable time), without the
requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such Securities
and/or Dividend Shares and without volume or manner-of-sale
restrictions, (iv) the holder of any such Securities and/or
Dividend Shares provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or
transfer of such Security and/or Dividend Share may be made without
registration under the Securities Act; or (v) if such legend is not
required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by
the staff of the SEC). Promptly after such time as such legend is
no longer required, the Company shall cause its counsel to issue a
legal opinion to its transfer agent if required by the transfer
agent to effect the removal of the legend hereunder, or to a
Purchaser upon request. The Company agrees that following such time
as such legend is no longer required, it will, no later two (2)
business days following the delivery by a Purchaser to the Company
or its transfer agent of an instrument (including statements
related to book-entry accounts), whether certificated or
uncertificated, representing Securities and/or Dividend Shares, as
the case may be, issued with (or subject to) a restrictive legend,
deliver or cause to be delivered to such Purchaser an instrument
(including statements related to book-entry accounts), whether
certificated or uncertificated, representing such Securities and/or
Dividend Shares that is free from all restrictive and other
legends.
(j) Shareholder Rights Plan. No
claim will be made or enforced by the Company or, with the consent
of the Company, any other Person, that any Purchaser is an
“acquiring person” under any control share acquisition,
business combination, poison pill (including any distribution under
a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities and/or Dividend
Shares under the Transaction Documents or under any other agreement
between the Company and the Purchasers.
(k) Information Statement. As
promptly as practicable after the date hereof, the Company, acting
through its Board of Directors, shall, in accordance with
applicable law and the Organizational Documents, in consultation
with Holder Representative, prepare and file with the SEC a
preliminary information statement relating to the Transactions and
obtain and furnish the information required by the SEC to be
included therein and, after consultation with Holder
Representative, respond promptly to any comments made by the SEC
with respect to the preliminary information statement and cause a
definitive information statement (together with all amendments,
supplements and exhibits thereto, the "Information
Statement") to be mailed to the Company's shareholders at
the earliest practicable date; provided that no amendments or
supplements to the Information Statement shall be made by the
Company without consultation with Holder Representative. Each
Purchaser shall promptly provide the Company with such information
with respect to such Purchasers and its affiliates as shall be
required to be included in the Information Statement.
(l) Legal Fees and Expenses.
Whether or not the Transactions are consummated, each of the
Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in
connection with the Transactions, including, without limitation,
(i) all expenses incident to the issuance and delivery of the
Securities (including all printing and engraving costs), (ii) all
necessary issue, transfer and other stamp taxes in connection with
the issuance and sale of the Preferred Stock to the Purchasers,
(iii) the reasonable fees and expenses of the Escrow Agent, and
(iv) all reasonable and documented out-of-pocket fees and expenses
-- including, without limitation, the fees and expenses of Stroock
& Stroock & Lavan LLP (“Stroock”) as
counsel to certain Purchasers (“Stroock Legal
Fees”) incurred in connection with the Transactions
and any related documentation therewith; provided, however that aggregate
Stroock Legal Fees shall not exceed $350,000 (the
“Stroock
Legal Fee Cap”) except as otherwise set forth herein.
Notwithstanding the foregoing, aggregate Stroock Legal Fees may
exceed the Stroock Legal Fee Cap to account for fees and expenses
incurred in connection with the preparation, negotiation and
execution of the Term Loan and Security Agreement, Escrow Agreement
and other documents related to the Bridge Loan (ii) if and to the
extent Stroock and its client make a good faith determination that
the incurrence of such additional fees is consistent with the legal
requirements of Stroock’s clients, either in its capacity as
Purchaser or as Holder Representative.
5. TRANSFER AGENT
INSTRUCTIONS.
(a) Upon conversion of
the Preferred Stock by any Person or the issuance of any Dividend
Shares, (i) if the DTC Transfer Conditions (as defined below) are
satisfied, the Company shall cause its transfer agent to
electronically transmit all Conversion Shares and/or Dividend
Shares, as applicable, by crediting the account of such Person or
its nominee with the Depository Trust Company (“DTC”) through
its Deposit Withdrawal Agent Commission system; or (ii) if the DTC
Transfer Conditions are not satisfied, the Company shall issue and
deliver, or instruct its transfer agent to issue and deliver,
certificates or statements related to book-entry accounts (subject
to the legend and other applicable provisions hereof and the Series
D Certificate of Designation), registered in the name of such
Person or its nominee, representing the Conversion Shares and/or
the Dividend Shares, as applicable. Even if the DTC Transfer
Conditions are satisfied, any Person effecting a conversion of
Preferred Stock or receiving Dividend Shares may instruct the
Company to deliver to such Person or its nominee physical
certificates representing the Conversion Shares and/or Dividend
Shares, as applicable, in lieu of delivering such shares by way of
DTC transfer. For purposes of this Agreement, “DTC Transfer
Conditions” means that (A) the Company’s
transfer agent is participating in the DTC Fast Automated
Securities Transfer program and (B) the certificates for the
Conversion Shares and/or Dividend Shares, as applicable, required
to be delivered are not required to bear a legend pursuant to
Section
4(i) and
the Person effecting such conversion or exercise is not then
required to return such certificate for the placement of a legend
thereon.
(b) The Company
warrants that no instruction other than such instructions referred
to in this Section
5, and
stop transfer instructions to give effect to Section 2(f)
hereof in the case of the transfer of the Conversion Shares and/or
Dividend Shares prior to registration of the Conversion Shares
and/or Dividend Shares under the Securities Act or without an
exemption therefrom, shall be given by the Company to its transfer
agent and that the Conversion Shares and/or Dividend Shares shall
otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement. Nothing in
this Section shall affect in any way the Purchasers’
obligations and agreement set forth in Section 4(i)
hereof to resell the Securities and/or Dividend Shares pursuant to
an effective registration statement or under an exemption from the
registration requirements of applicable securities
law.
(c) If any Purchaser
provides the Company and the transfer agent with an opinion of
counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions,
to the effect that the Securities and/or Dividend Shares to be sold
or transferred may be sold or transferred pursuant to an exemption
from registration, or any Purchaser provides the Company with
reasonable assurances that such Securities and/or Dividend Shares
may be sold under Rule 144 (whether or not such Securities and/or
Dividend Shares are actually being sold at the applicable time),
the Company shall permit the transfer and, in the case of the
Conversion Shares and/or Dividend Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Purchasers. Nothing in
this Section
5(c)
shall alter, modify, reduce, supersede or otherwise change the
obligations of the Company under Section 4(i).
6. CONDITIONS TO THE COMPANY’S
OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Preferred
Stock to each Purchaser is subject to the satisfaction, on or
before the Closing Date, of each of the following conditions,
provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole
discretion:
(a) Representation and Warranties.
The representations and warranties of each Purchaser shall be true
and correct as of the date when made and on the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and such
Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by such Purchaser on or prior to the Closing
Date.
(b) Closing Purchase Price. Each
Purchaser shall have delivered such Purchaser’s Closing
Purchase Price to the Company by wire transfer of immediately
available funds in accordance with the wire transfer instructions
set forth in Exhibit
C.
(c) No Proceedings. No statute,
rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the Transactions.
7. CONDITIONS TO THE PURCHASER’S
OBLIGATION TO PURCHASE.
The
obligation of each Purchaser hereunder to deliver the Closing
Purchase Price in connection with the purchase of the Preferred
Stock on the Closing Date is subject to the satisfaction of each of
the following conditions, provided that such conditions are for
each Purchaser’s individual and sole benefit and may be
waived by such Purchaser at any time in such Purchaser’s sole
discretion:
(a) Representation and Warranties.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the
Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by the Company on or prior to the Closing Date. In connection
with the issuance of the Preferred Stock on the Closing Date, such
Purchaser shall have received a certificate, executed by the Chief
Executive Officer of the Company after reasonable investigation,
dated as of the Closing Date to the foregoing effect.
(b) Amended and Restated Certificate of
Incorporation. The Amended and Restated Certificate of
Incorporation of the Company shall have been duly executed by the
Company and duly filed with the Secretary of State of Delaware, and
the Purchasers shall have received evidence of such execution and
filing.
(c) Amended and Restated Series C
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series C Convertible Preferred
Stock, shall have been duly executed by the Company and duly
filed with the Secretary of State of Delaware, and the Purchasers
shall have received evidence of such execution and
filing.
(d) Amended and Restated Series A
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series A Convertible Preferred
Stock, shall have been duly executed by the Company and duly
filed with the Secretary of State of Delaware, and the Purchasers
shall have received evidence of such execution and
filing.
(e) Amended and Restated Series A-1
Certificate of Designation. The Amended and Restated
the Certificate of Designations,
Preferences and Rights of the Series A-1 Convertible Preferred
Stock, shall have been duly executed by the Company and duly
filed with the Secretary of State of Delaware, and the Purchasers
shall have received evidence of such execution and
filing.
(f) Series D Certificate
of Designation. The Series
D Certificate of Designations shall have been duly executed
by the Company and duly filed with the Secretary of State of
Delaware, and the Purchasers shall have received evidence of such
execution and filing.
(g) Information Statement. (i) The
Company shall have mailed to its shareholders the Information
Statement conforming to the requirements of the Exchange Act
relating to the Written Consent; (ii) twenty (20) days shall have
passed since the mailing date of the Information Statement; and
(iii) and the Company shall have otherwise satisfied its
obligations under Section
4(k).
(h) Board Resignations. The Company
shall have received a letter of resignation addressed to the
Company, effective as of a date no later than the Closing Date and
in substantially the form attached hereto as Exhibit H (the
“Board
Resignation”), from each of the resigning directors
set forth on Section
3(o)(ii)
of the Disclosure Schedules, and provided Holder Representative
satisfactory evidence thereof (in the sole discretion of Holder
Representative).
(i) Board/Management Release
Agreements. The Company shall have received a
Board/Management Release Agreement, effective as of a date no later
than the Closing Date and in substantially the form attached hereto
as Exhibit I (the
“Board/Management Release
Agreement”), from each of the Persons set forth on
Section
3(o)(iv)
of the Disclosure Schedules, and provided Holder Representative
satisfactory evidence thereof (in the sole discretion of Holder
Representative).
(j) Change-in-Control Waivers. The
Company shall have received a Change-in-Control Waiver, effective
as of a date no later than the Closing Date and in substantially
the form attached hereto as Exhibit J (the
“Change-in-Control
Waiver”), from each holder of a restricted stock unit
(i) issued pursuant to an Approved Share Plan, and (ii) not
otherwise executing a Board/Management Release Agreement (such
holders, the “Continuing RSU
Holders”), and provided Holder Representative
satisfactory evidence thereof (in the sole discretion of Holder
Representative). Each Continuing RSU Holder is listed on
Section
3(e)(ii)
of the Disclosure Schedules.
(k) Satisfaction and Release of
Related-Party Loans. The Company shall have satisfied the
loans and other indebtedness listed on Sections 3(aa)(i) and 3(aa)(ii) of the Disclosure
Schedules, and provided Holder Representative satisfactory evidence
thereof (in the sole discretion of Holder
Representative).
(l) Delivery of Preferred Stock
Certificates. The Company shall have delivered to such
Purchaser duly executed certificates (or, if the shares of
Preferred Stock are not represented by certificates, duly executed
statements related to book-entry accounts) representing the
Preferred Stock for the number of shares of Preferred Stock being
purchased by such Purchaser on the Closing Date, registered in such
Purchaser’s name.
(m) OTCQB. The Common Stock shall
be authorized for quotation and listed on the OTCQB and trading in
the Common Stock (or on the OTCQB generally) shall not have been
suspended by the SEC or the OTCQB.
(n) Legal Opinion. Such Purchaser
shall have received an opinion of the Company’s counsel,
Disclosure Law Group, a professional corporation, dated as of the
Closing Date, addressed to such Purchaser in form and substance
reasonably satisfactory to Stroock, as counsel to certain
Purchasers.
(o) IP Opinion. Such Purchaser
shall have received an opinion of the Company’s intellectual
property counsel, Sheppard, Mullin, Richter & Hampton LLP
(“Company
IP Counsel”), dated as of the Closing Date, addressed
to such Purchaser in form and substance reasonably satisfactory to
Stroock, as counsel to certain Purchasers.
(p) Board Resolutions. Each
Purchaser shall have received a copy of resolutions, duly adopted
by the Board of Directors of the Company, which shall be in full
force and effect at the time of the Closing, authorizing the
execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents and the consummation
by the Company of the Transactions, certified as such by the
Secretary or Assistant Secretary of the Company on or before the
Closing Date, and such other documents they reasonably request in
connection with the issuance of the Preferred Stock on the Closing
Date.
(q) Closing Purchase Price. The
Closing Purchase Price for all the Preferred Stock purchased by
other Purchasers who are not affiliates of such Purchaser shall
have been, or concurrently with the Closing will be, delivered to
the Company by wire transfer of immediately available funds in
accordance with the wire transfer instructions set forth in
Exhibit
C.
(r) Legal Fees. The Company shall
have paid (or shall pay concurrently with the Closing) the legal
fees and disbursements of Stroock, as provided for in Section 4(l).
(s) No Proceeding. No statute,
rule, regulation, executive order, decree, ruling, injunction,
action or proceeding shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which questions the validity
of, challenges or prohibits the consummation of, any of the
Transactions.
(t) No Material Adverse Change.
There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations,
prospects, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole,
since the date hereof, and no information that is materially
adverse to the Company and of which such Purchaser is not currently
aware shall come to the attention of such Purchaser.
(u) Other Consents, Approvals and
Waivers. All other consents, approvals and waivers
reasonably required for the consummation of the Transactions (in
the sole discretion of Holder Representative) shall have been
obtained.
8. GOVERNING LAW;
MISCELLANEOUS.
(a) Governing Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York. The Company and each
Purchaser irrevocably consent to the exclusive jurisdiction of the
United States federal courts and the state courts located in the
County of New York, State of New York, in any suit or proceeding
based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company
mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Purchaser
to serve process in any other manner permitted by law. The Company
agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful
manner.
(b) Counterparts. This Agreement
may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission or
electronic mail of a copy of this Agreement bearing the signature
of the party so delivering this Agreement.
(c) Construction. Whenever the
context requires, the gender of any word used in this Agreement
includes the masculine, feminine or neuter, and the number of any
word includes the singular or plural. Unless the context otherwise
requires, all references to articles and sections refer to articles
and sections of this Agreement, and all references to schedules are
to schedules attached hereto, each of which is made a part hereof
for all purposes. The descriptive headings of the several articles
and sections of this Agreement are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
(d) Severability. If any provision
of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect
the validity or enforceability of the remainder of this Agreement
or the validity or enforceability of this Agreement in any other
jurisdiction.
(e) Entire Agreement; Amendments.
This Agreement and the other Transaction Documents (including any
schedules and exhibits hereto and thereto) contain the entire
understanding of the Purchasers, the Company, their affiliates and
persons acting on their behalf with respect to the matters covered
herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived other
than by an instrument in writing signed by the party to be charged
with enforcement, and no provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and
each Purchaser.
(f) Notices. Any notices required
or permitted to be given under the terms of this Agreement shall be
sent by certified or registered mail (return receipt requested) or
delivered personally, by responsible overnight carrier or by
confirmed facsimile or by electronic mail (“e-mail”), and shall be
effective five days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by
responsible overnight carrier or confirmed facsimile, or when sent
if sent by e-mail, in each case addressed to a party. The initial
addresses for such communications shall be as follows, and each
party shall provide notice to the other parties of any change in
such party’s address:
(i) If to the
Company:
ImageWare Systems,
Inc.
13500
Evening Creek Drive N.
Suite
550
San
Diego, California 92127
E-mail:
jmorris@iwsinc.com
Attention: Chief
Financial Officer
with a
copy simultaneously transmitted by like means (which transmittal
shall not constitute notice hereunder) to:
Disclosure Law
Group, a Professional Corporation
655
West Broadway, Suite 870
San
Diego, CA 92101
Telephone: (619)
272-7062
Facsimile: (619)
330-2101
E-Mail:
drumsey@disclosurelawgroup.com
Attention: Daniel
W. Rumsey, Managing Director
(ii) If
to any Purchasers, to the address set forth under such
Purchaser’s name on the Signature Page hereto executed by
such Purchaser.
(g) Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. Except as
provided herein, the Company shall not assign this Agreement or any
rights or obligations hereunder. Any Purchaser may assign or
transfer the Securities pursuant to the terms of this Agreement and
of such Securities. Any Purchaser may assign such Purchaser’s
rights and obligations hereunder or thereunder to any Person to
whom such Purchaser assigns or transfers any Securities and/or
Dividend Shares (any such assignee thereafter becoming a
“Purchaser” hereunder). In addition, and
notwithstanding anything to the contrary contained in this
Agreement or the other Transaction Documents, the Securities may be
pledged and all rights of any Purchaser under this Agreement or any
other Transaction Document may be assigned, without further consent
of the Company, to a bona fide pledgee in connection with such
Purchaser’s margin or brokerage account or any other lending
arrangement with a financial institution that is an
“accredited investor” as defined in Rule 501(a) under
the Securities Act.
(h) Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any
other Person, except that each Indemnitee that is not a party to
this Agreement shall be a third party beneficiary of Section 8(k).
(i) Survival. The representations
and warranties of the Company and the agreements and covenants set
forth in Sections
2, 3,
4, 5 and 8 hereof shall survive the
Closing Date notwithstanding any due diligence investigation
conducted by or on behalf of, or any knowledge of, any Purchaser,
and such representations, warranties, agreements and covenants are
part of the basis of the bargain contemplated by this Agreement.
Moreover, none of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies any
Purchaser may have under applicable U.S. federal or state
securities laws.
(j) Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
(k) Indemnification. In
consideration of each Purchaser’s execution and delivery of
this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the
Company’s other obligations under this Agreement and the
other Transaction Documents, from and after the Closing Date, the
Company shall defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and/or Dividend
Shares and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of
the foregoing Persons’ agents or other representatives,
including, without limitation, those retained in connection with
the Transactions (collectively, the “Indemnitees”),
from and against any and all actions, causes of action, suits,
judgments, claims, losses, costs, penalties, fees, liabilities,
amounts paid in settlements, and damages (including diminution in
value of the Securities and Dividend Shares), and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to any action for which indemnification hereunder is
sought), whether or not involving a third party claim, and
including reasonable attorneys’ fees and disbursements (the
“Indemnified
Liabilities”), incurred by any Indemnitee as a result
of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in
this Agreement, any other Transaction Document or any other
certificate, instrument or document contemplated hereby or thereby,
(ii) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, any other Transaction Document
or any other certificate, instrument or document contemplated
hereby or thereby or (iii) any cause of action, suit or claim
brought or made against such Indemnitee by any Person (including
for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (A) the execution,
delivery, performance or enforcement of this Agreement, any other
Transaction Document or any other certificate, instrument or
document contemplated hereby or thereby, (B) any transaction
financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance and sale of the
Securities, or (C) the status of such Purchaser or holder of the
Securities and/or Dividend Shares as an investor in the Company,
and shall reimburse each such Indemnitee for the reasonable costs
and expenses as they are incurred in connection with investigating,
monitoring, responding to or defending any of the foregoing. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable
law.
(l) Joint Participation in
Drafting. Each party to this Agreement has participated in
the negotiation and drafting of this Agreement and the other
Transaction Documents. As such, the language used herein and
therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this
Agreement.
(m) Knowledge. As used in this
Agreement, the term “knowledge” of any Person shall
mean and include (i) with respect to the Company, the actual
knowledge of any of the Company’s officers or directors and
(ii) that knowledge which a reasonably prudent business person
could have obtained in the management of his or her business
affairs after making due inquiry and exercising due diligence which
a prudent business person should have made or exercised, as
applicable, with respect thereto.
(n) Exculpation Among Purchasers.
The Company acknowledges that the obligations of each Purchaser
under this Agreement and each of the other Transaction Documents
are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under the
Transaction Documents. Each Purchaser acknowledges that it has
independently evaluated the merits of the Transactions and the
other Transaction Documents, that it has independently determined
to enter into the Transactions, that it is not relying on any
advice from or evaluation by any other Purchaser, and that it is
not acting in concert with any other Purchaser in making its
purchase of securities hereunder or in monitoring its investment in
the Company. The Purchasers and the Company agree that no action
taken by any Purchaser pursuant hereto or the other Transaction
Documents shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Purchasers are in any way
acting in concert or would deem such Purchasers to be members of a
“group” for purposes of Section 13(d) of the Exchange
Act, and the Purchasers have not agreed to act together for the
purpose of acquiring, holding, voting or disposing of equity
securities of the Company. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the
convenience of the Company and not because it was required or
requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way
creates a presumption that the Purchasers are in any way acting in
concert or as a “group” for purposes of Section 13(d)
of the Exchange Act with respect to the Transaction Documents or
the Transactions. Each Purchaser acknowledges that it has been
represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. It is expressly
understood and agreed that each provision contained in this
Agreement is between the Company and a Purchaser, solely, and not
between the Company and the Purchasers collectively and not between
and among the Purchasers, and no Purchaser
shall make any claim against any other Purchaser under this
Agreement, whether on the basis of breach, non-performance, or
otherwise.
(o) Business Days and
Trading Days. For purposes of this Agreement, the term
“business day” means any day other than a Saturday or
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law, regulation or executive
order to close, and the term “trading day” means any
day on which the OTCQB or, if the Common Stock is not then traded
on the OTCQB, the principal national securities exchange, automated
quotation system or other trading market where the Common Stock is
then listed, quoted or traded, is open for trading.
(p) Termination. This Agreement may
be terminated at any time prior to the Closing by the written
notice of the Required Purchasers to the Company if the Closing
shall not have occurred on or before October 31, 2020. Any such
termination shall be effective immediately upon delivery of such
notice to the Company, unless such notice provides for a different
time for termination. If this Agreement is terminated prior to (i)
the Closing and (ii) termination of the Escrow Agreement pursuant
to Section 12 therein, then the Company shall promptly (but in no
event later than one (1) business day after the date of such
termination) deliver written notice to the Escrow Agent (pursuant
to Section 4 of the Escrow Agreement) instructing the Escrow Agent
to, and otherwise cause the Escrow Agent to, refund to the
applicable Purchasers all unreleased amounts deposited into the
Escrow Account (as defined in the Escrow Agreement) by the
Purchasers. The Company shall not amend or permit any other Person
to amend the Escrow Agreement without the prior written consent of
the Required Purchasers. “Required
Purchasers” shall mean the Purchasers who have agreed
to purchase at least a majority of the Securities to be sold
hereunder.
(q) Specific Performance. The
Company and each of the Purchasers acknowledge and agree that (a)
irreparable damage would occur in the event that any of the
provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, and (b) remedies at
law would not be adequate to compensate the non-breaching party.
Accordingly, the Company and each of the Purchasers agree that each
of them shall have the right, in addition to any other rights and
remedies existing in its favor, to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
its rights and obligations hereunder not only by an action or
actions for damages but also by an action or actions for specific
performance, injunctive and/or other equitable relief. The right to
equitable relief, including specific performance or injunctive
relief, shall exist notwithstanding, and shall not be limited by,
any other provision of this Agreement. The Company and each of the
Purchasers hereby waives any defense that a remedy at law is
adequate and any requirement to post bond or other security in
connection with actions instituted for injunctive relief, specific
performance or other equitable remedies.
(r) Tax Treatment. The Company and
the Purchasers agree to treat the Series D Preferred Shares as
common stock solely for U.S. income tax purposes.
(s) Holder
Representative.
(i) By virtue of
executing and delivering their respective Signature Page to this
Agreement, each Purchaser shall have irrevocably authorized and
appointed Holder Representative as such Purchaser’s
representative and attorney-in-fact to act on behalf of such Person
with respect the Holder Representative Matters (defined below) as
expressly set forth in, which shall survive the Closing Date to the
extent applicable. “Holder Representative
Matters” include approvals by Holder Representative
expressly set forth in: Section 1(b),
Section
4(a),
Section
4(d),
Section
4(h),
Section
4(k)
and Section
7(v).
(ii) Holder
Representative shall have no duties or obligations to the
Purchasers hereunder, including any fiduciary duties, except those
Holder Representative Matters set forth herein, and such duties and
obligations shall be determined solely by the express provisions of
this Agreement.
(iii) Each
of the Purchasers disclaims any beneficial ownership or
participation in any group (as such term is defined in Sections
13(d) or 13(g) of the Securities Act) as a result of such party
communicating with other parties in connection with this Agreement
(or the Transactions Documents), including without limitation
Holder Representative acting in such capacity. Any such
communications that the parties hereto may engage in with other
Purchasers, to the extent such communications occur after the
consummation of the Transactions and in connection with this
Agreement (or the Transaction Documents), are solely for the
purpose of protecting such party’s rights or fulfilling such
party’s obligations under this Agreement (or the Transaction
Documents) and are not intended to, and do not, constitute any
agreement, arrangement or understanding among one or more such
parties for the purpose of, directly or indirectly, buying,
selling, voting or holding securities of the Company.
(iv) The
Holder Representative shall not be liable to the Purchasers (or any
other Persons) for actions taken pursuant to this Agreement, except
to the extent such actions shall have been determined by a court of
competent jurisdiction to have constituted gross negligence or
involved fraud, intentional misconduct or bad faith (it being
understood that any act done or omitted pursuant to the advice of
counsel, accountants and other professionals and experts retained
by Holder Representative shall be conclusive evidence of good
faith). The Purchasers shall severally and not jointly (pro rata in
accordance with the Purchase Price of each Purchaser), indemnify
and hold harmless Holder Representative from and against,
compensate it for, reimburse it for and pay any and all losses,
liabilities, claims, actions, damages and expenses, including
reasonable attorneys’ fees and disbursements, arising out of
and in connection with its activities as Holder Representative
under this Agreement (the “Representative
Losses”), in each case as such Representative Loss is
suffered or incurred; provided, that in the event it is
finally adjudicated that a Representative Loss or any portion
thereof was primarily caused by the gross negligence, fraud,
intentional misconduct or bad faith of Holder Representative,
Holder Representative shall reimburse the Stockholders the amount
of such indemnified Representative Loss attributable to such gross
negligence, fraud, intentional misconduct or bad
faith.
[REMAINDER
OF PAGE LEFT BLANK INTENTIONALLY]
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
A-30
IN
WITNESS WHEREOF, the Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above
written.
IMAGEWARE SYSTEMS, INC.
By:
Name:
Kristin Taylor
Title:
Chief Executive Officer
PURCHASER:
(Print
or Type Name of Purchaser)
By:
Name:
Title:
ADDRESS:
Telephone:
Facsimile:
E-Mail:
Attention:
AGGREGATE
SUBSCRIPTION AMOUNT:
Number
of shares of Preferred Stock:
Purchase
Price ($1,000 per share of Preferred Stock):
Exhibit List
Exhibit
A – Form of Series D Certificate of Designation
Exhibit
B – Escrow Agreement
Exhibit
C – Wire Transfer Instructions
Exhibit
D – Form of Registration Rights Agreement
Exhibit
E – Exchange Agreement
Exhibit
F – Term Loan and Security Agreement
Exhibit
G – Written Consent
●
Amended and
Restated Certificate of Incorporation
●
Amended and
Restated Series A Certificate of Designation
●
Amended and
Restated Series A-1 Certificate of Designation
●
Amended and
Restated Series C Certificate of Designation
Exhibit
H – Form Board Resignation
Exhibit
I – Form of Board/Management Release Agreement
Exhibit
J – Form of Change-in-Control Waiver
Exhibit
K – Joinder Agreement
[EXHIBITS
INTENTIONALLY OMITTED]
ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.
The
undersigned, the Chief Executive Officer of ImageWare Systems,
Inc., a Delaware corporation (the “Company”), does hereby certify as
follows:
WHEREAS, on September 15, 2017, the Board of Directors
of the Company (the “Board
of Directors”) duly adopted a resolution (the
“Original Certificate of
Designations of Series A Convertible Preferred Stock”)
creating a series of Preferred Stock designated as the Series A
Convertible Preferred Stock; and
WHEREAS, the Board of Directors desires
to amend and restate the Original Certificate of Designations of
Series A Convertible Preferred Stock.
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of
Directors by provisions of the Certificate of Incorporation of the
Company (the “Certificate of
Incorporation”), the Original Certificate of
Designations of Series A Convertible Preferred Stock is hereby
amended and restated in its entirety to read as
follows:
1. Designation and
Rank.
(a) The designation of such series of the
Preferred Stock shall be the Series A Convertible Preferred Stock,
par value $0.01 per share (the “(a) The designation of such series of the
Preferred Stock shall be the Series A Convertible Preferred Stock,
par value $0.01 per share (the “Series A
Preferred”). The maximum
number of shares of Series A Preferred shall be Thirty-Eight
Thousand (38,000) shares. The Series A Preferred shall rank senior
to the Company’s common stock, par value $0.01 per share (the
“Common
Stock”), and except as
provided in Section 1(b)
below, to all other classes and series
of equity securities of the Company which by their terms rank
junior to the Series A Preferred (“Junior
Stock”).
(b) The Series A Preferred shall be
subordinate to and rank junior to the Company’s Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock, and all indebtedness of the
Company now or hereafter outstanding. The date of original issuance
of the Series A Preferred is referred to herein as the
“Issuance
Date”.
2. Dividends.
(a) Payment of
Dividends.
(i) The holders of record of shares of
Series A Preferred shall be entitled to receive, out of any assets
at the time legally available therefor, cumulative dividends at the
Specified Rate per share per annum on a daily basis, commencing on
the date hereof and payable quarterly in arrears on each of March
31, June 30, September 30 and December 31 (each, a
“Dividend Payment
Date”), through the issuance of shares of Common
Stock. The
number of shares of Common Stock to be issued to each applicable
holder shall be determined by dividing the total dividend then
being paid to such holder in shares of Common Stock by the Price
Per Share (as defined below) as of the applicable Dividend Payment
Date, and rounding up to the nearest whole share (the
“Dividend
Shares”). As
used herein, “Price
Per Share” means, with
respect to a share of Common Stock, the VWAP (as defined below) for
the five (5) trading days immediately preceding the applicable
Dividend Payment Date.
“Specified Rate” means the
cumulative dividend rate of four percent (4%) of the stated
Liquidation Preference Amount per share per annum.
“VWAP” means, for any date, the
price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a
Trading Market (defined below), the daily volume weighted average
price of the Common Stock for such date on the Trading Market on
which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if the
Common Stock is not then listed or quoted for trading on OTCQB or
OTCQX and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets Group, Inc. (or
a similar organization or agency succeeding to its functions of
reporting prices), the daily mean between the closing bid and asked
quotations per share of the Common Stock so reported, or
(c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the holders of Purchasers of a majority in interest
of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
“Trading Market” means any of the
following markets or exchanges on which the Common Stock is listed
or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, the OTCQX or OTCQB (or
any successors to any of the foregoing).
(ii) The Company will: (a) prepare and
file with the Securities and Exchange Commission (the
“SEC”), within
thirty (30) days after the date hereof, a Form S-3 (or, if such
form is not available to the Company, a Form S-1) to register under
the Securities Act of 1933, as amended (the “Securities Act”), the resale, by
the holders of shares of Series A Preferred, of any Conversion
Shares (as defined below) and Dividend Shares issuable hereunder
and not otherwise eligible for resale under Rule 144 promulgated
under the Securities Act (“Rule 144”), without volume or
manner-of-sale restrictions or current public information
requirements (the “Registration Statement”); (b) use
its best efforts to cause the Registration Statement to become
effective as soon as reasonably practicable after such filing; (c)
use its best efforts to cause the Registration Statement to remain
effective at all times thereafter until the earlier of (i) the date
as of which such holders of Series A Preferred may sell all of such
Conversion Shares and/or Dividend Shares without restriction
pursuant to Rule 144, without volume or manner-of-sale restrictions
or current public information requirements, as determined by
counsel to the Company as set forth in a written opinion letter to
such effect, addressed and acceptable to the Company’s
transfer agent and the holders of Series A Preferred, or (ii) the
date when all of the Conversion Shares and Dividend Shares
registered thereunder have been disposed of by such holders of
Series A Preferred; and (d) prepare and file with the SEC such
amendments and supplements to the Registration Statement (including
documents filed pursuant to the Securities Exchange Act of 1934, as
amended, and incorporated by reference into the Registration
Statement) and the prospectus used in connection therewith as may
be necessary to keep such Registration Statement effective for the
period specified in this sentence above.
(b) In the event of a Voluntary
Conversion (as defined in Section 5(a) below), all
accrued but unpaid dividends on the Series A Preferred being
converted shall be payable in cash or shares of Common Stock within
five (5) business days of such Voluntary Conversion Date (as
defined in Section
5(b)(i) below). Dividends on the Series A Preferred are
prior and in preference to any declaration or payment of any
distribution on any outstanding shares of Junior Stock. Such
dividends shall accrue on each share of Series A Preferred from day
to day, whether or not earned or declared, so that if such
dividends with respect to any previous dividend period have not
been paid on, or declared and set apart for, all shares of Series A
Preferred at the time outstanding, the deficiency shall be fully
paid on, or declared and set apart for, such shares on a pro rata
basis with all other equity securities of the Company ranking on a
parity with the Series A Preferred as to the payment of dividends
before any distribution shall be paid on, or declared and set apart
for Junior Stock.
(c)
So long as any shares of Series A Preferred are outstanding, the
Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than
dividends or distributions payable in additional shares of Junior
Stock), unless at the time of such dividend or distribution the
Company shall have paid all accrued and unpaid dividends on the
outstanding shares of Series A Preferred.
(d) In
the event of a dissolution, liquidation or winding up of the
Company, all accrued and unpaid dividends on the Series A Preferred
shall be payable on the day immediately preceding the date of
payment of the Liquidation Preference Amount payable to the holders
of Series A Preferred, in accordance with Section 4 below. In the event
of the Company’s exercise of its optional redemption right
set forth in Section
7 below or conversion of Series A Preferred in accordance
with Section 5
below, all accrued and unpaid dividends on the Series A Preferred
shall be payable on the day immediately preceding the date of such
redemption or conversion, as the case may be.
(e)
For purposes hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash or
property without consideration, whether by way of dividend or
otherwise, payable other than in shares of Common Stock or other
Junior securities, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Section 7 below or repurchases
of Common Stock held by employees or consultants of the Company
upon termination of their employment or services pursuant to
agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or
property.
3. Voting Rights.
(a) On
any matter presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the
Company (or by written consent of stockholders in lieu of meeting),
each holder of outstanding shares of Series A Preferred shall be
entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred
held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter. Except as
provided by law or by Section 3(b) below, holders of
Series A Preferred shall vote together with the holders of Common
Stock, and with the holders of any other series of Preferred Stock
the terms of which so provide, as a single class.
(b) So
long as
shares of the Series A Preferred representing at least fifty
percent (50%) of the total number of shares of Series A Preferred
issued on the Issuance Date remain issued and outstanding, the
holders of record of the shares of Series A Preferred, exclusively
and as a separate class, shall be entitled to elect two directors
of the Company (the “Series
A Directors”), who shall initially be Robert T.
Clutterbuck and Charles Frischer, both of whom shall be elected as
directors of the Company effective as of the Issuance Date. Any
director elected as provided in the preceding sentence may be
removed without cause by, and only by, the affirmative vote of the
holders of the shares of Series A Preferred, given either at a
special meeting of such stockholders duly called for that purpose
or pursuant to a written consent of stockholders. The holders of
record of the shares of Common Stock and of any other class or
series of voting stock (including the Series A Preferred),
exclusively and voting together as a single class, shall be
entitled to elect the balance of the total number of directors of
the Company. At any meeting held for the purpose of electing a
Series A Director, the presence in person or by proxy of the
holders of a majority of the outstanding shares of Series A
Preferred shall constitute a quorum for the purpose of electing
such director. A vacancy in any directorship filled by the holders
of Series A Preferred shall be filled only by vote or written
consent in lieu of a meeting of the holders of Series A Preferred
or by any remaining director or directors elected by the holders of
such class or series pursuant to this Section
3(b).
4. Liquidation, Dissolution, Winding-Up
or Distribution.
(a) In the event of the liquidation,
dissolution, winding up of the affairs of the Company or any other
event that causes the Company to make a distribution (as such term
is used in Section
2(e) above), whether voluntary or involuntary, the holders
of shares of the Series A Preferred then outstanding shall be
entitled to receive, out of the assets of the Company available for
distribution to its stockholders, an amount equal to the greater of
(i) $1,000 per share plus all accrued and unpaid dividends, or (ii)
such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 5 immediately prior to
such liquidation, dissolution or winding up (the amount payable
pursuant to the foregoing is referred to herein as the
“Liquidation Preference
Amount”) before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other
Junior Stock. If the assets of the Company are not sufficient to
pay in full the Liquidation Preference Amount payable to the
holders of outstanding shares of Series A Preferred and any other
series of Preferred Stock ranking on a parity, as to rights on
liquidation, dissolution or winding up, with the Series A
Preferred, then all of said assets will be distributed among the
holders of the Series A Preferred and the holders of the other
Preferred Stock on a parity with the Series A Preferred, if any,
ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. The liquidation payment with respect to each outstanding
fractional share of Series A Preferred shall be equal to a ratably
proportionate amount of the liquidation payment with respect to
each whole outstanding share of Series A Preferred. All payments
for which this Section
4(a) provides shall be in cash, property (valued at its fair
market value as determined reasonably and in good faith by the
Board of Directors of the Company) or a combination thereof;
provided, however, that no cash shall be paid to
holders of Junior Stock unless each holder of the outstanding
shares of Series A Preferred has been paid in cash the full
Liquidation Preference Amount to which such holder is entitled, as
provided herein. After payment of the full Liquidation Preference
Amount to which each holder is entitled, such holders of shares of
Series A Preferred will not be entitled to any further
participation as such in any distribution of the assets of the
Company.
(b) Written notice of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall, to the extent
possible, be given by mail, postage prepaid, no less than twenty
(20) days prior to the payment date stated therein, to the holders
of record of the Series A Preferred at their respective addresses
as recorded on the books of the Company.
5. Conversion. The holders of
Series A Preferred shall have the following conversion rights (the
“Conversion
Rights”):
(a) Voluntary
Conversion.
(i)
Following October [●], 2020 (the “Closing Date”), for a period
extending until August 1, 2021 (the “Series A Holder Optional Conversion
Period”), the holder of any shares of Series A
Preferred may, at such holder's option (subject to Section 5(a)(ii) below), elect
to convert (a “Voluntary
Conversion”) all or any portion of the shares of
Series A Preferred (together with any Dividend Shares accrued in
connection therewith during the Series A Holder Optional Conversion
Period) held into a number of fully paid and nonassessable shares
of Common Stock equal to the quotient of (i) the Liquidation
Preference Amount of the shares of Series A Preferred being
converted, divided by (ii) the Conversion Price (as defined in
Section 5(c) below)
in effect as of the date the holder delivers to the Company their
notice of election to convert (the “Conversion Shares”); provided, that holders of Series A
Preferred shall waive any rights granted by Section 9 hereof during the
Series A Holder Optional Conversion Period. In the event the
Company issues a notice of redemption pursuant to Section 7 hereof, the
Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not
paid on such redemption date, in which case the Conversion Rights
for such shares shall continue until the redemption price is paid
in full. In the event of such a redemption, the Company shall
provide to each holder of shares of Series A Preferred notice of
such redemption or liquidation, dissolution or winding up, which
notice shall (i) be given at least fifteen (15) days prior to the
termination of the Conversion Rights and (ii) state the amount per
share of Series A Preferred that will be paid or distributed on
such redemption or liquidation, dissolution or winding up, as the
case may be.
(ii)
During the Series A Holder Optional Conversion Period, each holder
of Series A Preferred shall convert any remaining issued and
outstanding shares of Series A Preferred, in accordance with the
Series A Conversion Schedule attached hereto as Exhibit I (the
“Series A Conversion
Schedule”), on or prior to each Conversion Milestone
Date (as defined below). Each holder shall convert a percentage of
the total issued and outstanding shares of Series A Preferred (as
of the Closing Date) held by such holder that is equal to or
greater than such holder’s respective Minimum Conversion
Milestone (as defined below) as of such Conversion Milestone Date;
provided, however, that each holder of Series A
Preferred may convert more than the Minimum Conversion Milestone at
any time until all of the shares of Series A Preferred Shares have
been converted.
“Conversion Milestone Date” means
each of the respective dates listed in the column titled
“Conversion Milestone Date” on the Series A Conversion
Schedule attached hereto as Exhibit I.
“Minimum Conversion Milestone”
means each of the respective percentages listed in the column
titled “Minimum Conversion Milestone” on the Series A
Conversion Schedule attached hereto as Exhibit I.
(b) Mandatory Conversion. If, at
any time, (i) the Common Stock is registered pursuant to Section
12(b) or (g) under the Exchange Act; (ii) there are sufficient
authorized but unissued shares (which have not otherwise been
reserved or committed for issuance) to permit the issuance of
Conversion Shares; (iii) upon issuance, the Conversion Shares will
be either (A) covered by an effective registration statement under
the Securities Act, which is then available for the immediate
resale of such Conversion Shares by the recipients thereof, and the
Board of Directors reasonably believes that such effectiveness will
continue uninterrupted for the foreseeable future, or (B) freely
tradable without restriction pursuant to Rule 144 promulgated under
the Securities Act without volume or manner-of-sale restrictions or
current public information requirements, as determined by the
counsel to the Company as set forth in a written opinion letter to
such effect, addressed and acceptable to the Transfer Agent and the
affected holders; and (iv) the VWAP of the Common Stock is at least
$2.15 per share (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) for twenty (20) consecutive
trading days, then the Company shall have the right, subject to the
terms and conditions of this Section 5, to convert one-half
of the issued and outstanding shares of Series A Preferred into
Conversion Shares, on a pro-rata basis among all holders of Series
A Preferred at such time. Provided that the requirements of
subsections (i), (ii), (iii) and (iv) of the preceding sentence are
satisfied, and the VWAP of the Common Stock is at least $2.15 per
share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar
recapitalization affecting such shares) for at least eighty (80)
consecutive trading days, then the Company shall have the right,
subject to the terms and conditions of this Section 5, to convert all
issued and outstanding shares of Series A Preferred into Conversion
Shares.
(c) Mechanics of Conversion.
Conversions of Series A Preferred shall be conducted in the
following manner:
(i) Voluntary Conversion. To
convert Series A Preferred into Conversion Shares on any date (the
“Voluntary Conversion
Date”), the holder thereof shall transmit by facsimile
(or otherwise deliver), for receipt on or prior to 5:00 p.m., New
York time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit II (the
“Conversion
Notice”), to the Company. As soon as practicable
following such Voluntary Conversion Date, the holder shall
surrender to a common carrier for delivery to the Company the
original certificates representing the shares of Series A Preferred
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
“Preferred Stock
Certificates”) and the originally executed Conversion
Notice.
(ii) Mandatory Conversion.
In the event the Company elects to
convert outstanding shares of Series A Preferred into Conversion
Shares in pursuant to Section 5(b)
above, the Company shall give written
notice (the “Mandatory Conversion
Notice”) to all holders
of the Series A Preferred of its intention to require the
conversion of the shares of Series A Preferred identified therein.
The Mandatory Conversion Notice shall set forth the number of
Series A Preferred being converted, the date on which such
conversion shall be effective (the “Mandatory Conversion
Date”), and shall be
given to the holders of the Series A Preferred not less than
fifteen (15) days prior to the Mandatory Conversion Date. The
Mandatory Conversion Notice shall be delivered to each holder at
the address as it appears on the stock transfer books of the
Company. In order to receive the Conversion Shares into which the
Series A Preferred is convertible pursuant to Section
5(b), each holder of the Series
A Preferred shall surrender to the Company at the place designated
in the Mandatory Conversion Notice the certificates(s) representing
the number of shares of Series A Preferred specified in the
Mandatory Conversion Notice. Upon the Mandatory Conversion Date,
such converted Series A Preferred shall no longer be deemed to be
outstanding, and all rights of the holder with respect to such
shares shall immediately terminate, except the right to receive the
shares of Common Stock into which the Series A Preferred is
convertible pursuant to Section
5(b).
(iii) Company's Response. Upon
receipt by the Company of a copy of the fully executed Conversion
Notice or upon giving a Mandatory Conversion Notice, the Company or
its designated transfer agent (the “Transfer Agent”), as applicable,
shall within five (5) business days following the date of receipt
by the Company of a copy of the fully executed Conversion Notice or the Mandatory
Conversion Date, as the case may be, issue and deliver to the
Depository Trust Company (“DTC”) account on each applicable
holder's behalf via the Deposit Withdrawal Agent Commission System
(“DWAC”) as
specified in the Conversion Notice, registered in the name of each
such holder or its designee, for the number of Conversion Shares to
which such holder shall be entitled. Notwithstanding the foregoing
to the contrary, the Company or its Transfer Agent shall only be
required to issue and deliver the Conversion Shares to DTC on a
holder's behalf via DWAC if (i) the Conversion Shares may be issued
without restrictive legends and (ii) the Company and the Transfer Agent are
participating in DTC through the DWAC system. If all of the
conditions set forth in clauses (i) and (ii) above are not
satisfied, the Company shall deliver physical certificates to each
such holder or its designee. If the number of shares of Series A
Preferred represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of shares of
Series A Preferred being converted, then the Company shall, as soon
as practicable and in no event later than five (5) business days
after receipt of the Preferred Stock Certificate(s) and at the
Company's expense, issue and deliver to the applicable holder a new
Preferred Stock Certificate representing the number of shares of
Series A Preferred not converted.
(iv) Dispute Resolution. In the case
of a dispute as to the arithmetic calculation of the number of
Conversion Shares to be issued upon conversion, the Company shall
cause its Transfer Agent to promptly issue to the holder the number
of Conversion Shares that is not disputed and shall submit the
arithmetic calculations to the holder via electronic mail or
facsimile as soon as possible, but in no event later than two (2)
business days after receipt of such holder's Conversion Notice. If
such holder and the Company are unable to agree upon the arithmetic
calculation of the number of Conversion Shares to be issued within
two (2) business days of such disputed arithmetic calculation being submitted to the holder,
then the Company shall, within two (2) business days, submit via
electronic mail or facsimile the disputed arithmetic calculation of
the number of Conversion Shares to be issued to the Company's
independent, outside accountant (the “Accountant”). The Company shall
cause the Accountant to perform the calculations and notify the
Company and the holder of the results no later than five (5)
business days from the time it receives the disputed calculations.
The Accountant's calculation shall be binding upon all parties
absent manifest error. The reasonable expenses of such Accountant
in making such determination shall be paid by the Company, in the
event the holder's calculation was correct, or by the holder, in
the event the Company's calculation was correct, or equally by the
Company and the holder in the event that neither the Company's or
the holder's calculation was correct. The period of time in which
the Company is required to effect conversions or redemptions under
this Certificate of Designations shall be tolled with respect to
the subject conversion or redemption pending resolution of any
dispute by the Company made in good faith and in accordance with
this Section
5(c)(iv).
(v) Record Holder. The person or
persons entitled to receive Conversion Shares shall be treated for
all purposes as the record holder or holders of such shares of
Series A Preferred on the Conversion Date.
(d) Conversion Price.
(i) The term “Conversion
Price” shall mean $0.20 per share of Common Stock, subject to
adjustment under Section
5(e) hereof.
(ii) Notwithstanding the foregoing to the
contrary, if during any period (a “Black-Out Period”), a holder of
Series A Preferred is unable to trade any Conversion Shares
immediately because the Company has informed such holder that an
existing prospectus cannot be used at that time in the sale or
transfer of such Conversion Shares (provided that such
postponement, delay, suspension or fact that the prospectus cannot
be used is not due to factors solely within the control of the
holder of Series A Preferred) such holder of Series A Preferred
shall have the option but not the obligation on any Conversion Date
within ten (10) trading days following the expiration of the
Black-Out Period of using the Conversion Price applicable on such
Conversion Date or any Conversion Price selected by such holder of
Series A Preferred that would have been applicable had such
Conversion Date been at any earlier time during the Black-Out
Period.
(e) Adjustments of Conversion
Price.
(i) Adjustments for Stock Splits and
Combinations. If the Company shall at any time or from time
to time after the date hereof, effect a stock split of its
outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from
time to time after the date hereof, combine its outstanding shares
of Common Stock, the Conversion Price shall be proportionately
increased. Any adjustments under this Section 5(e)(i) shall be
effective at the close of business on the date the stock split or
combination becomes effective.
(ii) Adjustments for Certain Dividends and
Distributions. If the Company shall at any time or from time
to time after the date hereof, make or issue or set a record date
for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the Conversion Price shall
be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in
effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; and
(2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date, plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, that no such adjustment shall
be made if the holders of Series A Preferred simultaneously receive
(i) a dividend or other distribution of shares of Common Stock in a
number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred had
been converted into Conversion Shares on the date of such event or
(ii) a dividend or other distribution of shares of Series A
Preferred which are convertible, as of the date of such event, into
Conversion Shares as is equal to the number of additional shares of
Common Stock being issued with respect to each share of Common
Stock in such dividend or distribution.
(iii) Adjustment for Other Dividends and
Distributions. If the Company shall at any time or from time
to time after the date hereof, make or issue or set a record date
for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Conversion Price
shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holders of Series A
Preferred shall receive upon conversions thereof, in addition to
the Conversion Shares receivable thereon, the number of securities
of the Company which they would have received had their Series A
Preferred been converted into Conversion Shares on the date of such
event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for
during such period under this Section 5(e)(iii) with respect
to the rights of the holders of the Series A Preferred;
provided, however, that if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted pursuant to this paragraph as of
the time of actual payment of such dividends or
distributions.
(iv) Adjustments for Reclassification,
Exchange or Substitution. If the Conversion Shares issuable
upon conversion of the Series A Preferred at any time or from time
to time after the date hereof shall be changed to the same or
different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or otherwise
(other than by way of a stock split or combination of shares or
stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization,
merger, consolidation, or sale of assets provided for in
Section 5(e)(v)),
then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the holder of each share
of Series A Preferred shall have the right thereafter to convert
such share of Series A Preferred into the kind and amount of shares
of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of
Conversion Shares into which such share of Series A Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
(v) Adjustments for Reorganization,
Merger, Consolidation or Sales of Assets. If, at any time or
from time to time after the date hereof there shall be a capital
reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions
provided for in Section
5(e)(i), (ii) and (iii), or a reclassification,
exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger
or consolidation of the Company with or into another corporation
where the holders of outstanding voting securities prior to such
merger or consolidation do not own over fifty percent (50%) of the
outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all
or substantially all of the Company's properties or assets to any
other person (an “Organic
Change”), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made if
necessary and provision shall be made if necessary (by adjustments
of the Conversion Price or otherwise) so that the holder of each
share of Series A Preferred shall have the right thereafter to
convert such share of Series A Preferred into the kind and amount
of shares of stock and other securities or property which such
holder would have had the right to receive had such holder
converted its shares of Series A Preferred immediately prior to the
consummation of such Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of
this Section
5(e)(v) with respect to the rights of the holders of the
Series A Preferred after the Organic Change to the end that the
provisions of this Section
5(e)(v) (including any adjustment in the Conversion Price
then in effect and the number of shares of stock or other
securities deliverable upon conversion of the Series A Preferred)
shall be applied after that event in as nearly an equivalent manner
as may be practicable.
(vi) Consideration for Stock. In
case any shares of Common Stock or Convertible Securities other
than the Series A Preferred, or any rights or warrants or options
to purchase any such Common Stock or Convertible Securities, shall
be issued or sold:
(1) in connection with any merger or
consolidation in which the Company is the surviving corporation
(other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall be changed
to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be deemed
to be the fair value, as determined reasonably and in good faith by
the Board of Directors of the Company, of such portion of the
assets and business of the non surviving corporation as such Board
may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in the event of any consolidation or
merger of the Company in which the Company is not the surviving
corporation or in which the previously outstanding shares of Common
Stock of the Company shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event
of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its
Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on
which the transaction was predicated, and for a consideration equal
to the fair market value on the date of such transaction of all
such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the
applicable Conversion Price, or the number of shares of Conversion
Shares issuable upon conversion of the Series A Preferred, the
determination of the applicable Conversion Price or the number of
Conversion Shares issuable upon conversion of the Series A
Preferred immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number
of Conversion Shares issuable upon conversion of the Series A
Preferred. In the event any consideration received by the Company
for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise
applicable shall be as determined in good faith by the Board of
Directors of the Company. In the event Common Stock is issued with
other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as
provided in this Section
5(e)(vi) shall be allocated among such securities and assets
as determined in good faith by the Board of Directors of the
Company.
(vii) Record Date. In case the
Company shall take record of the holders of its Common Stock or any
other Preferred Stock for the purpose of entitling them to
subscribe for or purchase Common Stock or Convertible Securities,
then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.
(1) No Impairment. The Company
shall not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith,
assist in the carrying out of all the provisions of this
Section 5 and in
the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series
A Preferred against impairment. In the event a holder shall elect
to convert any shares of Series A Preferred as provided herein, the
Company cannot refuse conversion based on any claim that such
holder or any one associated or affiliated with such holder has
been engaged in any violation of law, unless (i) an order from the
Securities and Exchange Commission prohibiting such conversion or
(ii) an injunction from a court, on notice, restraining and/or
adjoining conversion of all or of said shares of Series A Preferred
shall have been issued and the Company posts a surety bond for the
benefit of such holder in an amount equal to one hundred percent
(100%) of the Liquidation Preference Amount of the Series A
Preferred such holder has elected to convert, which bond shall
remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such
holder in the event it obtains judgment. If the Company is the
prevailing party in any legal action or other legal proceeding
relating to the Conversion Rights of the holders of the Series A
Preferred, then the Company shall be entitled to recover from the
holders of Series A Preferred reasonable attorneys’ fees,
costs and disbursements (in addition to any other relief to which
the Company may be entitled).
(b) Certificates as to Adjustments.
Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of Conversion Shares issuable upon
conversion of the Series A Preferred pursuant to this Section 5, the Company at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of such
Series A Preferred a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon
written request of the holder of such affected Series A Preferred,
at any time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the
Conversion Price in effect at the time, and the number of
Conversion Shares and the amount, if any, of other securities or
property which at the time would be received upon the conversion of
a share of such Series A Preferred. Notwithstanding the foregoing,
the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least
one percent of such adjusted amount.
(c) Issue Taxes. The Company shall
pay any and all issue, stock transfer, documentary stamp and other
taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of the Series A
Preferred Stock, Conversion Shares, Dividend Shares or shares of
Common Stock or other securities issued on account of Series A
Preferred Stock pursuant hereto or certificates representing such
shares or securities; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer of
Conversion Shares requested by any holder to a person other than
such holder, but only to the extent such transfer taxes exceed the
transfer taxes that would have been payable had the Conversion
Shares been delivered to such holder.
(d) Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, by electronic mail, by facsimile or
three (3) business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested,
addressed to the holder of record at its address appearing on the
books of the Company. The Company will give written notice to each
holder of Series A Preferred at least thirty (30) days prior to the
date on which the Company closes its books or takes a record (i)
with respect to any dividend or distribution upon the Common Stock,
(ii) with respect to any pro rata subscription offer to holders of
Common Stock or (iii) for determining rights to vote with respect
to any Organic Change, dissolution, liquidation or winding-up and
in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Company will
also give written notice to each holder of Series A Preferred at
least twenty (20) days prior to the date on which any Organic
Change, dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to such holder prior to
such information being made known to the public.
(e) Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion
of the Series A Preferred. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay
cash equal to the product of such fraction multiplied by the
average of the closing sales price of the Common Stock, as reported
on the applicable Trading Market for the five (5) consecutive
trading days immediately preceding the Voluntary Conversion
Date.
(f) Reservation of Common Stock.
The Company shall, so long as any shares of Series A Preferred are
outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred, such number of shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series A Preferred then outstanding;
provided, that the number
of shares of Common Stock so reserved shall at no time be less than
one hundred percent (100%) of the number of shares of Common Stock
for which the shares of Series A Preferred are at any time
convertible. The initial number of shares of Common Stock reserved
as Conversion Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the
Series A Preferred based on the number of shares of Series A
Preferred held by each holder of record at the time of issuance of
the Series A Preferred or increase in the number of reserved
shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series A
Preferred, each transferee shall be allocated a pro rata portion of
the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain
allocated to any person or entity which does not hold any shares of
Series A Preferred shall be allocated to the remaining holders of
Series A Preferred, pro rata based on the number of shares of
Series A Preferred then held by such holder.
(g) Retirement of Series A
Preferred. Conversion of shares of Series A Preferred shall
be deemed to have been effected on the applicable Conversion Date.
Upon conversion of only a portion of the number of shares of Series
A Preferred represented by a certificate surrendered for
conversion, the Company shall issue and deliver to such holder, at
the expense of the Company, a new certificate covering the number
of shares of Series A Preferred representing the unconverted
portion of the certificate so surrendered as required by
Section 5(c)(i) or
Section 5(c)(ii),
as the case may be.
(h) Regulatory Compliance. If any
shares of Common Stock to be reserved as Conversion Shares require
registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise before such shares
may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.
(i) Validity of Shares. All Series
A Preferred Stock, Conversion Shares, Dividend Shares and shares of
Common Stock or other securities issued on account of Series A
Preferred Stock pursuant hereto or certificates representing such
shares or securities will, upon issuance by the Company, be validly
issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
6. No Preemptive Rights. Except as
provided in Section
5 hereof, no holder of the Series A Preferred shall be
entitled to rights to subscribe for, purchase or receive any part
of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other
evidences of indebtedness convertible into or exchangeable for
shares of any class, but all such new or additional shares of any
class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person
or persons as the Board of Directors in their absolute discretion
may deem advisable.
7. Redemption.
(a) Redemption Option Upon Change of
Control. In addition to any other rights of the Company or
the holders of Series A Preferred contained herein, simultaneous
with the occurrence of a Change of Control (as defined below), the
Company, at its option, shall have the right to redeem all or a
portion of the outstanding Series A Preferred in cash at a price
per share of Series A Preferred equal to one hundred and fifteen
percent (115%) of the Liquidation Preference Amount plus all
accrued and unpaid dividends (the “Change of Control Redemption
Price”). Notwithstanding the foregoing to the
contrary, the Company may effect a redemption pursuant to this
Section 7(a) only
if the Company is in material
compliance with the terms and conditions of this Certificate of
Designations.
(b) “Change of
Control”. A “Change of Control” shall be
deemed to have occurred at such time as a third party not
affiliated with the Company on the Issuance Date or any holders of
the Series A Preferred shall have acquired, in one or a series of
related transactions, equity securities of the Company representing
more than fifty percent (50%) of the outstanding voting securities
of the Company.
(c) Mechanics of Redemption at Option of
Company Upon Change of Control. At any time within ten (10)
days prior to the consummation of a Change of Control transaction,
the Company may elect to redeem, effective immediately prior to the
consummation of such Change of Control, all of the Series A
Preferred then outstanding by delivering written notice thereof via
facsimile and overnight courier (“Notice of Redemption at Option of Company Upon
Change of Control”) to each holder of Series A
Preferred, which Notice of Redemption at Option of Company Upon
Change of Control shall indicate (i) the number of shares of Series
A Preferred that the Company is electing to redeem from such holder
and (ii) the Change of Control Redemption Price, as calculated
pursuant to Section
7(a) above. The Change of Control Redemption Price shall be
paid in cash in accordance with Section 7(a) of this
Certificate of Designations. On or prior to the Change of Control,
the holders of Series A Preferred shall surrender to the Company
the certificate or certificates representing such shares, in the
manner and at the place designated in the Notice of Redemption at
Option of Company Upon Change of Control. The Company shall deliver
the Change of Control Redemption Price immediately prior to or
simultaneously with the consummation of the Change of Control;
provided, that a holder's
Preferred Stock Certificates shall have been so delivered to the
Company (or an indemnification undertaking with respect to such
Preferred Stock Certificates in the event of their loss, theft or
destruction). From and after the Change of Control transaction,
unless there shall have been a default in payment of the Change of
Control Redemption Price, all rights of the holders of Series A
Preferred as a holder of such Series A Preferred (except the right
to receive the Change of Control Redemption Price without interest
upon surrender of their certificate or certificates) shall cease
with respect to any redeemed shares of Series A Preferred, and such
shares shall not thereafter be transferred on the books of the
Company or be deemed to be outstanding for any purpose whatsoever.
Notwithstanding the foregoing to the contrary, nothing contained
herein shall limit a holder’s ability to convert its shares
of Series A Preferred following the receipt of the Notice of
Redemption at Option of Company Upon Change of Control and prior to
the consummation of the Change of Control transaction.
8. Inability to Fully
Convert.
(a) Holder's Option if Company Cannot
Fully Convert. In addition to any other right that a holder
of Series A Preferred Stock might have, if, upon the Company's
receipt of a Conversion Notice, the Company cannot issue Conversion
Shares issuable pursuant to such Conversion Notice because the
Company (x) does not have a sufficient number of shares of Common
Stock authorized and available or (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities
from issuing all of the Conversion Shares to be issued to a holder
of Series A Preferred pursuant to a Conversion Notice, then the
Company shall issue as many Conversion Shares as it is able to
issue in accordance with such holder's Conversion Notice and
pursuant to Section
5(c)(iii) above and, with respect to the unconverted Series
A Preferred, the holder, solely at such holder's option, can elect,
within five (5) business days after receipt of notice from the
Company thereof to:
(i) if the Company's inability to fully
convert Series A Preferred is pursuant to Section 8(a)(y) above, require
the Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 5(c)(iii)
above; or
(ii) void its Conversion Notice with
respect to all or a portion of the Conversion Shares covered by
such Conversion Notice and retain or have returned, as the case may
be, the shares of Series A Preferred that were to be converted
pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior
to the date of such notice).
(b) Mechanics of Fulfilling Holder's
Election. The Company shall promptly send via electronic
mail or facsimile to a holder of Series A Preferred, upon receipt
of electronic mail or facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in
Section 8(a) above,
a notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the “Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such holder's Conversion Notice, and (ii) the number of Series A
Preferred which cannot be converted. Such holder shall notify the
Company of its election pursuant to Section 8(a) above by
delivering written notice via facsimile to the Company
(“Notice in Response to
Inability to Convert”).
(c) Pro-Rata Conversion and
Redemption. In the event the Company receives a Conversion
Notice from more than one holder of Series A Preferred on the same
day and the Company can convert and redeem some, but not all, of
the Series A Preferred pursuant to this Section 8, the Company shall
convert and redeem from each holder of Series A Preferred electing
to have Series A Preferred converted and redeemed at such time an
amount equal to such holder's pro-rata amount (based on the number
shares of Series A Preferred held by such holder relative to the
number shares of Series A Preferred outstanding) of all shares of
Series A Preferred being converted and redeemed at such
time.
9. Protective Provisions. So long
as shares of the Series A Preferred representing at least fifty
percent (50%) of the total number of shares of Series A Preferred
issued on the Issuance Date remain issued and outstanding, the
Company shall not, without obtaining the approval (by vote or
written consent) of the holders of more than fifty percent (50%) of
the issued and outstanding shares of Series A
Preferred:
(a) create, or authorize the creation of,
any class or series, or issue, or authorize the issuance of, any
shares of capital stock that ranks senior to the Series A
Preferred, other than Series C Preferred and Series D
Preferred;
(b) sell, lease or otherwise dispose of
intellectual property rights owned by or licensed to the Company or
any subsidiary of the Company; and
(c) create, or authorize the creation of,
or incur, or authorize the incurrence of, any Indebtedness, other
than Permitted Indebtedness, or permit any subsidiary to take any
such action.
“Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of
$500,000 (other than trade accounts payable incurred in the
ordinary course of business) and (y) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the
Company's consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
“Permitted Indebtedness” means (x)
all indebtedness of the Company outstanding on the Issuance Date or
thereafter that does not constitute Indebtedness for purposes of
this Section 9; and
(y) monies borrowed under credit lines of the Company existing on
the Issuance Date in an amount not to exceed $6.0
million.
10. Vote to Change the Terms of or Issue
Preferred Stock. The affirmative vote at a meeting duly
called for such purpose, or the written consent without a meeting,
of the holders of not less than two-thirds (2/3) of the then
outstanding shares of Series A Preferred, shall be required for any
change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or
repeal, or otherwise adversely affect, any of the powers,
designations, preferences and rights of the Series A Preferred;
provided, however, that any changes to (i)
Section 5 hereof,
or (ii) Exhibit I
hereto shall also require the approval of the majority of the Board
of Directors.
11. Lost or Stolen Certificates.
Upon receipt by the Company of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing the shares of Series A Preferred,
and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company (in form
and substance satisfactory to the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date; provided, however, the Company shall not be
obligated to re-issue Preferred Stock Certificates if the holder
contemporaneously requests the Company to convert such shares of
Series A Preferred into Common Stock and complies with its
obligations to issue Conversion Shares set forth
herein.
12. Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies
provided in this Certificate of Designations shall be cumulative
and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a
decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall
limit a holder's right to pursue actual damages for any failure by
the Company to comply with the terms of this Certificate of
Designations. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series A Preferred and
that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach, the
holders of the Series A Preferred shall be entitled, in addition to
all other available remedies, to an injunction restraining any
breach or the Series A Preferred holders' reasonable perception of
a threatened breach by the Company of the provisions of this
Certificate of Designations, without the necessity of showing
economic loss and without any bond or other security being
required.
13. Specific Shall Not Limit General;
Construction. No specific provision contained in this
Certificate of Designations shall limit or modify any more general
provision contained herein. This Certificate of Designation shall
be deemed to be jointly drafted by the Company and all initial
purchasers of the Series A Preferred and shall not be construed
against any person as the drafter hereof.
14.
Failure or Indulgence Not
Waiver. No failure or delay on the part of a holder of
Series A Preferred in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or
privilege.
[Remainder of page intentionally left blank]
IN
WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this __ day of
September, 2020.
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IMAGEWARE
SYSTEMS, INC.
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By:
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Kristin
Taylor
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Chief
Executive Officer
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[EXHIBITS INTENTIONALLY OMITTED]
ANNEX C
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A-1 CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.
The
undersigned, the Chief Executive Officer of ImageWare Systems,
Inc., a Delaware corporation (the “Company”), does hereby certify as
follows:
WHEREAS, on July 1, 2020, the Board of Directors of the
Company (the “Board of
Directors”) duly adopted a resolution (the
“Original Certificate of
Designations of Series A-1 Convertible Preferred
Stock”) creating a series of Preferred Stock
designated as the Series A-1 Convertible Preferred Stock;
and
WHEREAS, the Board of Directors desires
to amend and restate the Original Certificate of Designations of
Series A-1 Convertible Preferred Stock.
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of
Directors by provisions of the Certificate of Incorporation of the
Company (the “Certificate of
Incorporation”), the Original Certificate of
Designations of Series A-1 Convertible Preferred Stock is hereby
amended and restated in its entirety to read as
follows:
1. Designation and
Rank.
(a) The designation of such series
of the Preferred Stock shall be the Series A-1 Convertible
Preferred Stock, par value $0.01 per share (the “Series A-1 Preferred”). The
maximum number of shares of Series A-1 Preferred shall be Thirty
Seven Thousand Four Hundred Sixty-Eight (37,468) shares. The Series
A-1 Preferred shall rank senior to the Company’s common
stock, par value $0.01 per share (the “Common Stock”), and except as
provided in Section 1(b) below, to all other classes and series of
equity securities of the Company which by their terms rank junior
to the Series A-1 Preferred (“Junior Stock”). The Series A-1
Preferred shall rank pari-passu to the Company’s Series A
Convertible Preferred Stock (“Series A Preferred”).
(b) The Series A-1 Preferred shall be
subordinate to and rank junior to (i) the Company’s Series B
Convertible Preferred Stock; (ii) Series C Convertible Preferred
Stock; (iv) Series D Convertible Preferred Stock and (v) all
indebtedness of the Company now or hereafter outstanding. The date
of original issuance of the Series A-1 Preferred is referred to
herein as the “Issuance
Date”.
2. Dividends.
(a) Payment of
Dividends.
(i) The holders of record of shares of
Series A-1 Preferred shall be entitled to receive, out of any
assets at the time legally available therefor, cumulative dividends
at the Specified Rate per share per annum on a daily basis,
commencing on the date hereof and payable quarterly in arrears on
each of March 31, June 30, September 30 and December 31 (each, a
“Dividend Payment
Date”), through the issuance of shares of Common
Stock. The
number of shares of Common Stock to be issued to each applicable
holder shall be determined by dividing the total dividend then
being paid to such holder in shares of Common Stock by the Price
Per Share (as defined below) as of the applicable Dividend Payment
Date, and rounding up to the nearest whole share (the
“Dividend
Shares”). As
used herein, “Price
Per Share” means, with
respect to a share of Common Stock, the VWAP (as defined below) for
the five (5) trading days immediately preceding the applicable
Dividend Payment Date.1
“Specified Rate” means the
cumulative dividend rate of four percent (4%) of the stated
Liquidation Preference Amount per share per annum.
“VWAP” means, for any date, the
price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a
Trading Market (defined below), the daily volume weighted average
price of the Common Stock for such date on the Trading Market on
which the Common Stock is then listed or quoted as reported by
Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York
City time) to 4:02 p.m. (New York City time)), (b) if the
Common Stock is not then listed or quoted for trading on OTCQB or
OTCQX and if prices for the Common Stock are then reported in the
“Pink Sheets” published by OTC Markets Group, Inc. (or
a similar organization or agency succeeding to its functions of
reporting prices), the daily mean between the closing bid and asked
quotations per share of the Common Stock so reported, or
(c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the holders of Purchasers of a majority in interest
of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
“Trading Market” means any of the
following markets or exchanges on which the Common Stock is listed
or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, the OTCQX or OTCQB (or
any successors to any of the foregoing).
(ii) The Company will: (a) prepare and
file with the Securities and Exchange Commission (the
“SEC”), within
thirty (30) days after the date hereof, a Form S-3 (or, if such
form is not available to the Company, a Form S-1) to register under
the Securities Act of 1933, as amended (the “Securities Act”), the resale, by
the holders of shares of Series A-1 Preferred, of any Conversion
Shares (as defined below) and Dividend Shares issuable hereunder
and not otherwise eligible for resale under Rule 144 promulgated
under the Securities Act (“Rule 144”), without volume or
manner-of-sale restrictions or current public information
requirements (the “Registration Statement”); (b) use
its best efforts to cause the Registration Statement to become
effective as soon as reasonably practicable after such filing; (c)
use its best efforts to cause the Registration Statement to remain
effective at all times thereafter until the earlier of (i) the date
as of which such holders of Series A-1 Preferred may sell all of
such Conversion Shares and/or Dividend Shares without restriction
pursuant to Rule 144, without volume or manner-of-sale restrictions
or current public information requirements, as determined by
counsel to the Company as set forth in a written opinion letter to
such effect, addressed and acceptable to the Company’s
transfer agent and the holders of Series A-1 Preferred, or (ii) the
date when all of the Conversion Shares and Dividend Shares
registered thereunder have been disposed of by such holders of
Series A-1 Preferred; and (d) prepare and file with the SEC such
amendments and supplements to the Registration Statement (including
documents filed pursuant to the Securities Exchange Act of 1934, as
amended, and incorporated by reference into the Registration
Statement) and the prospectus used in connection therewith as may
be necessary to keep such Registration Statement effective for the
period specified in this sentence above.
1 Note to
Draft: This reflects the term sheet, which does not
contemplate payment of dividends in cash.
(b) In the event of a Voluntary
Conversion (as defined in Section 5(a) below), all
accrued but unpaid dividends on the Series A-1 Preferred being
converted shall be payable in cash or shares of Common Stock within
five (5) business days of such Voluntary Conversion Date (as
defined in Section
5(b)(i) below). Dividends on the Series A-1 Preferred are
prior and in preference to any declaration or payment of any
distribution on any outstanding shares of Junior Stock. Such
dividends shall accrue on each share of Series A-1 Preferred from
day to day, whether or not earned or declared, so that if such
dividends with respect to any previous dividend period have not
been paid on, or declared and set apart for, all shares of Series
A-1 Preferred at the time outstanding, the deficiency shall be
fully paid on, or declared and set apart for, such shares on a pro
rata basis with all other equity securities of the Company ranking
on a parity with the Series A-1 Preferred as to the payment of
dividends before any distribution shall be paid on, or declared and
set apart for Junior Stock.
(c) So
long as any shares of Series A-1 Preferred are outstanding, the
Company shall not declare, pay or set apart for payment any
dividend or make any distribution on any Junior Stock (other than
dividends or distributions payable in additional shares of Junior
Stock), unless at the time of such dividend or distribution the
Company shall have paid all accrued and unpaid dividends on the
outstanding shares of Series A-1 Preferred.
(d) In
the event of a dissolution, liquidation or winding up of the
Company, all accrued and unpaid dividends on the Series A-1
Preferred shall be payable on the day immediately preceding the
date of payment of the Liquidation Preference Amount payable to the
holders of Series A-1 Preferred, in accordance with Section 4 below. In the event
of the Company’s exercise of its optional redemption right
set forth in Section
7 below or conversion of Series A-1 Preferred in accordance
with Section 5
below, all accrued and unpaid dividends on the Series A-1 Preferred
shall be payable on the day immediately preceding the date of such
redemption or conversion, as the case may be.
(e)
For purposes hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash or
property without consideration, whether by way of dividend or
otherwise, payable other than in shares of Common Stock or other
Junior securities, or the purchase or redemption of shares of the
Company (other than redemptions set forth in Section 7 below or repurchases
of Common Stock held by employees or consultants of the Company
upon termination of their employment or services pursuant to
agreements providing for such repurchase or upon the cashless
exercise of options held by employees or consultants) for cash or
property.
3. Voting Rights.
(a) On
any matter presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the
Company (or by written consent of stockholders in lieu of meeting),
each holder of outstanding shares of Series A-1 Preferred shall be
entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A-1
Preferred held by such holder are convertible as of the record date
for determining stockholders entitled to vote on such matter.
Except as provided by law or by Section 3(b) below, holders of
Series A-1 Preferred shall vote together with the holders of Common
Stock, and with the holders of any other series of Preferred Stock
the terms of which so provide, as a single class.
(b) So
long as shares of the Series A-1 Preferred representing at least
fifty percent (50%) of the total number of shares of Series A-1
Preferred issued on the Issuance Date remain issued and
outstanding, the holders of record of the shares of Series A-1
Preferred, exclusively and as a separate class, shall be entitled
to elect two directors of the Company (the “Series A Directors”). Any
director elected as provided in the preceding sentence may be
removed without cause by, and only by, the affirmative vote of the
holders of the shares of Series A-1 Preferred, give neither at a
special meeting of such stockholders duly called for that purpose
or pursuant to a written consent of stockholders. The holders of
record of the shares of Common Stock and of any other class or
series of voting stock (including the Series A-1 Preferred),
exclusively and voting together as a single class, shall be
entitled to elect the balance of the total number of directors of
the Company. At any meeting held for the purpose of electing a
Series A Director, the presence in person or by proxy of the
holders of a majority of the outstanding shares of Series A-1
Preferred shall constitute a quorum for the purpose of electing
such director. A vacancy in any directorship filled by the holders
of Series A-1 Preferred shall be filled only by vote or written
consent in lieu of a meeting of the holders of Series A-1 Preferred
or by any remaining director or directors elected by the holders of
such class or series pursuant to this Section 3(b).
4. Liquidation, Dissolution, Winding-Up
or Distribution.
(a) In the event of the liquidation,
dissolution, winding up of the affairs of the Company or any other
event that causes the Company to make a distribution (as such term
is used in Section
2(e) above), whether voluntary or involuntary, the holders
of shares of the Series A-1 Preferred then outstanding shall be
entitled to receive, out of the assets of the Company available for
distribution to its stockholders, an amount equal to the greater of
(i) $1,000 per share plus all accrued and unpaid dividends, or (ii)
such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 5 immediately prior to
such liquidation, dissolution or winding up (the amount payable
pursuant to the foregoing is referred to herein as the
“Liquidation Preference
Amount”) before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other
Junior Stock. If the assets of the Company are not sufficient to
pay in full the Liquidation Preference Amount payable to the
holders of outstanding shares of Series A-1 Preferred and any other
series of Preferred Stock ranking on a parity, as to rights on
liquidation, dissolution or winding up, with the Series A-1
Preferred, then all of said assets will be distributed among the
holders of the Series A-1 Preferred and the holders of the other
Preferred Stock on a parity with the Series A-1 Preferred, if any,
ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in
full. The liquidation payment with respect to each outstanding
fractional share of Series A-1 Preferred shall be equal to a
ratably proportionate amount of the liquidation payment with
respect to each whole outstanding share of Series A-1 Preferred.
All payments for which this Section 4(a) provides shall be
in cash, property (valued at its fair market value as determined
reasonably and in good faith by the Board of Directors of the
Company) or a combination thereof; provided, however, that no cash shall be paid to
holders of Junior Stock unless each holder of the outstanding
shares of Series A-1 Preferred has been paid in cash the full
Liquidation Preference Amount to which such holder is entitled, as
provided herein. After payment of the full Liquidation Preference
Amount to which each holder is entitled, such holders of shares of
Series A-1 Preferred will not be entitled to any further
participation as such in any distribution of the assets of the
Company.
(b) Written notice of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs
of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall, to the extent
possible, be given by mail, postage prepaid, no less than twenty
(20) days prior to the payment date stated therein, to the holders
of record of the Series A-1 Preferred at their respective addresses
as recorded on the books of the Company.
5. Conversion. The holders of
Series A-1 Preferred shall have the following conversion rights
(the “Conversion
Rights”):
(a) Voluntary
Conversion.
(i)
Following October [●], 2020 (the “Closing Date”), for a period
extending until August 1, 2021 (the “Series A-1 Holder Optional Conversion
Period”), the holder of any shares of Series A-1
Preferred may, at such holder's option (subject to Section 5(a)(ii) below), elect
to convert (a “Voluntary
Conversion”) all or any portion of the shares of
Series A-1 Preferred held into a number of fully paid and
nonassessable shares of Common Stock equal to the quotient of (i)
the Liquidation Preference Amount of the shares of Series A-1
Preferred being converted, divided by (ii) the Conversion Price (as
defined in Section
5(c) below) in effect as of the date the holder delivers to
the Company their notice of election to convert (the
“Conversion
Shares”); provided, that holders of Series A-1
Preferred shall waive any rights granted by Section 9 hereof for the Series
A-1 Holder Optional Conversion Period. In the event the Company
issues a notice of redemption pursuant to Section 7 hereof, the
Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not
paid on such redemption date, in which case the Conversion Rights
for such shares shall continue until the redemption price is paid
in full. In the event of such a redemption, the Company shall
provide to each holder of shares of Series A-1 Preferred notice of
such redemption or liquidation, dissolution or winding up, which
notice shall (i) be given at least fifteen (15) days prior to the
termination of the Conversion Rights and (ii) state the amount per
share of Series A-1 Preferred that will be paid or distributed on
such redemption or liquidation, dissolution or winding up, as the
case may be.
(ii)
During the Series A-1 Holder Optional Conversion Period, each
holder of Series A-1 Preferred shall convert any remaining issued
and outstanding shares of Series A-1 Preferred (together with any
Dividend Shares accrued by such holder in connection therewith
during the Series A-1 Holder Optional Conversion Period), in
accordance with the Series A-1 Conversion Schedule attached hereto
as Exhibit I (the
“Series A-1 Conversion
Schedule”), on or prior to each Conversion Milestone
Date (as defined below). Each holder shall convert a percentage of
the total issued and outstanding shares of Series A-1 Preferred (as
of the Closing Date) held by such holder that is equal to or
greater than such holder’s respective Minimum Conversion
Milestone (as defined below) as of such Conversion Milestone Date;
provided, however, that each holder of Series A-1
Preferred may convert more than the Minimum Conversion Milestone at
any time until all of the shares of Series A-1 Preferred Shares
have been converted.
“Conversion Milestone Date” means
each of the respective dates listed in the column titled
“Conversion Milestone Date” on the Series A-1
Conversion Schedule attached hereto as Exhibit I.
“Minimum Conversion Milestone”
means each of the respective percentages listed in the column
titled “Minimum Conversion Milestone” on the Series A-1
Conversion Schedule attached hereto as Exhibit I.
(b) Mandatory Conversion. If, at
any time, (i) the Common Stock is registered pursuant to Section
12(b) or (g) under the Exchange Act; (ii) there are sufficient
authorized but unissued shares (which have not otherwise been
reserved or committed for issuance) to permit the issuance of
Conversion Shares; (iii) upon issuance, the Conversion Shares will
be either (A) covered by an effective registration statement under
the Securities Act, which is then available for the immediate
resale of such Conversion Shares by the recipients thereof, and the
Board of Directors reasonably believes that such effectiveness will
continue uninterrupted for the foreseeable future, or (B) freely
tradable without restriction pursuant to Rule 144 promulgated under
the Securities Act without volume or manner-of-sale restrictions or
current public information requirements, as determined by the
counsel to the Company as set forth in a written opinion letter to
such effect, addressed and acceptable to the Transfer Agent and the
affected holders; and (iv) the VWAP of the Common Stock is at least
$1.00 per share (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) for twenty (20) consecutive
trading days, then the Company shall have the right, subject to the
terms and conditions of this Section 5, to convert one-half
of the issued and outstanding shares of Series A-1 Preferred into
Conversion Shares, on a pro-rata basis among all holders of Series
A-1 Preferred at such time. Provided that the requirements of
subsections (i), (ii), (iii) and (iv) of the preceding sentence are
satisfied, and the VWAP of the Common Stock is at least $1.00 per
share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar
recapitalization affecting such shares) for at least eighty (80)
consecutive trading days, then the Company shall have the right,
subject to the terms and conditions of this Section 5, to convert all
issued and outstanding shares of Series A-1 Preferred into
Conversion Shares.
(c) Mechanics of Conversion.
Conversions of Series A-1 Preferred shall be conducted in the
following manner:
(i) Voluntary Conversion. To
convert Series A-1 Preferred into Conversion Shares on any date
(the “Voluntary Conversion
Date”), the holder thereof shall transmit by facsimile
(or otherwise deliver), for receipt on or prior to 5:00 p.m., New
York time on such date, a copy of a fully executed notice of
conversion in the form attached hereto as Exhibit II (the
“Conversion
Notice”), to the Company. As soon as practicable
following such Voluntary Conversion Date, the holder shall
surrender to a common carrier for delivery to the Company the
original certificates representing the shares of Series A-1
Preferred being converted (or an indemnification undertaking with
respect to such shares in the case of their loss, theft or
destruction) (the “Preferred
Stock Certificates”) and the originally executed
Conversion Notice.
(ii) Mandatory Conversion.
In the event the Company elects to
convert outstanding shares of Series A-1 Preferred into Conversion
Shares in pursuant to Section 5(b)
above, the Company shall give written
notice (the “Mandatory Conversion
Notice”) to all holders
of the Series A-1 Preferred of its intention to require the
conversion of the shares of Series A-1 Preferred identified
therein. The Mandatory Conversion Notice shall set forth the number
of Series A-1 Preferred being converted, the date on which such
conversion shall be effective (the “Mandatory Conversion
Date”), and shall be
given to the holders of the Series A-1 Preferred not less than
fifteen (15) days prior to the Mandatory Conversion Date. The
Mandatory Conversion Notice shall be delivered to each holder at
the address as it appears on the stock transfer books of the
Company. In order to receive the Conversion Shares into which the
Series A-1 Preferred is convertible pursuant to Section
5(b), each holder of the Series
A-1 Preferred shall surrender to the Company at the place
designated in the Mandatory Conversion Notice the certificates(s)
representing the number of shares of Series A-1 Preferred specified
in the Mandatory Conversion Notice. Upon the Mandatory Conversion
Date, such converted Series A-1 Preferred shall no longer be deemed
to be outstanding, and all rights of the holder with respect to
such shares shall immediately terminate, except the right to
receive the shares of Common Stock into which the Series A-1
Preferred is convertible pursuant to Section
5(b).
(iii) Company's Response. Upon
receipt by the Company of a copy of the fully executed Conversion
Notice or upon giving a Mandatory Conversion Notice, the Company or
its designated transfer agent (the “Transfer Agent”), as applicable,
shall within five (5) business days following the date of receipt
by the Company of a copy of the fully executed Conversion Notice or the Mandatory
Conversion Date, as the case may be, issue and deliver to the
Depository Trust Company (“DTC”) account on each applicable
holder's behalf via the Deposit Withdrawal Agent Commission System
(“DWAC”) as
specified in the Conversion Notice, registered in the name of each
such holder or its designee, for the number of Conversion Shares to
which such holder shall be entitled. Notwithstanding the foregoing
to the contrary, the Company or its Transfer Agent shall only be
required to issue and deliver the Conversion Shares to DTC on a
holder's behalf via DWAC if (i) the Conversion Shares may be issued
without restrictive legends and (ii) the Company and the Transfer Agent are
participating in DTC through the DWAC system. If all of the
conditions set forth in clauses (i) and (ii) above are not
satisfied, the Company shall deliver physical certificates to each
such holder or its designee. If the number of shares of Series A-1
Preferred represented by the Preferred Stock Certificate(s)
submitted for conversion is greater than the number of shares of
Series A-1 Preferred being converted, then the Company shall, as
soon as practicable and in no event later than five (5) business
days after receipt of the Preferred Stock Certificate(s) and at the
Company's expense, issue and deliver to the applicable holder a new
Preferred Stock Certificate representing the number of shares of
Series A-1 Preferred not converted.
(iv) Dispute Resolution. In the case
of a dispute as to the arithmetic calculation of the number of
Conversion Shares to be issued upon conversion, the Company shall
cause its Transfer Agent to promptly issue to the holder the number
of Conversion Shares that is not disputed and shall submit the
arithmetic calculations to the holder via electronic mail or
facsimile as soon as possible, but in no event later than two (2)
business days after receipt of such holder's Conversion Notice. If
such holder and the Company are unable to agree upon the arithmetic
calculation of the number of Conversion Shares to be issued within
two (2) business days of such disputed arithmetic calculation being submitted to the holder,
then the Company shall, within two (2) business days, submit via
electronic mail or facsimile the disputed arithmetic calculation of
the number of Conversion Shares to be issued to the Company's
independent, outside accountant (the “Accountant”). The Company shall
cause the Accountant to perform the calculations and notify the
Company and the holder of the results no later than five (5)
business days from the time it receives the disputed calculations.
The Accountant's calculation shall be binding upon all parties
absent manifest error. The reasonable expenses of such Accountant
in making such determination shall be paid by the Company, in the
event the holder's calculation was correct, or by the holder, in
the event the Company's calculation was correct, or equally by the
Company and the holder in the event that neither the Company's or
the holder's calculation was correct. The period of time in which
the Company is required to effect conversions or redemptions under
this Certificate of Designations shall be tolled with respect to
the subject conversion or redemption pending resolution of any
dispute by the Company made in good faith and in accordance with
this Section
5(c)(iv).
(v) Record Holder. The person or
persons entitled to receive Conversion Shares shall be treated for
all purposes as the record holder or holders of such shares of
Series A-1 Preferred on the Conversion Date.
(d) Conversion Price.
(i) The term “Conversion
Price” shall mean $0.20 per share of Common Stock, subject to
adjustment under Section
5(e) hereof.
(ii) Notwithstanding the foregoing to the
contrary, if during any period (a “Black-Out Period”), a holder of
Series A-1 Preferred is unable to trade any Conversion Shares
immediately because the Company has informed such holder that an
existing prospectus cannot be used at that time in the sale or
transfer of such Conversion Shares (provided that such
postponement, delay, suspension or fact that the prospectus cannot
be used is not due to factors solely within the control of the
holder of Series A-1 Preferred) such holder of Series A-1 Preferred
shall have the option but not the obligation on any Conversion Date
within ten (10) trading days following the expiration of the
Black-Out Period of using the Conversion Price applicable on such
Conversion Date or any Conversion Price selected by such holder of
Series A-1 Preferred that would have been applicable had such
Conversion Date been at any earlier time during the Black-Out
Period.
(e) Adjustments of Conversion
Price.
(i) Adjustments for Stock Splits and
Combinations. If the Company shall at any time or from time
to time after the date hereof, effect a stock split of its
outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from
time to time after the date hereof, combine its outstanding shares
of Common Stock, the Conversion Price shall be proportionately
increased. Any adjustments under this Section 5(e)(i) shall be
effective at the close of business on the date the stock split or
combination becomes effective.
(ii) Adjustments for Certain Dividends and
Distributions. If the Company shall at any time or from time
to time after the date hereof, make or issue or set a record date
for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the Conversion Price shall
be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in
effect by a fraction:
(1) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date; and
(2) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date, plus the number of shares of Common
Stock issuable in payment of such dividend or distribution;
provided, however, that no such adjustment shall
be made if the holders of Series A-1 Preferred simultaneously
receive (i) a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as
they would have received if all outstanding shares of Series A-1
Preferred had been converted into Conversion Shares on the date of
such event or (ii) a dividend or other distribution of shares of
Series A-1 Preferred which are convertible, as of the date of such
event, into Conversion Shares as is equal to the number of
additional shares of Common Stock being issued with respect to each
share of Common Stock in such dividend or
distribution.
(iii) Adjustment for Other Dividends and
Distributions. If the Company shall at any time or from time
to time after the date hereof, make or issue or set a record date
for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Conversion Price
shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holders of Series A-1
Preferred shall receive upon conversions thereof, in addition to
the Conversion Shares receivable thereon, the number of securities
of the Company which they would have received had their Series A-1
Preferred been converted into Conversion Shares on the date of such
event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for
during such period under this Section 5(e)(iii) with respect
to the rights of the holders of the Series A-1 Preferred;
provided, however, that if such record date shall
have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the
Conversion Price shall be adjusted pursuant to this paragraph as of
the time of actual payment of such dividends or
distributions.
(iv) Adjustments for Reclassification,
Exchange or Substitution. If the Conversion Shares issuable
upon conversion of the Series A-1 Preferred at any time or from
time to time after the date hereof shall be changed to the same or
different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or otherwise
(other than by way of a stock split or combination of shares or
stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization,
merger, consolidation, or sale of assets provided for in
Section 5(e)(v)),
then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the holder of each share
of Series A-1 Preferred shall have the right thereafter to convert
such share of Series A-1 Preferred into the kind and amount of
shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by
holders of the number of Conversion Shares into which such share of
Series A-1 Preferred might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all
subject to further adjustment as provided herein.
(v) Adjustments for Reorganization,
Merger, Consolidation or Sales of Assets. If, at any time or
from time to time after the date hereof there shall be a capital
reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions
provided for in Section
5(e)(i), (ii) and (iii), or a reclassification,
exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger
or consolidation of the Company with or into another corporation
where the holders of outstanding voting securities prior to such
merger or consolidation do not own over fifty percent (50%) of the
outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all
or substantially all of the Company's properties or assets to any
other person (an “Organic
Change”), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made if
necessary and provision shall be made if necessary (by adjustments
of the Conversion Price or otherwise) so that the holder of each
share of Series A-1 Preferred shall have the right thereafter to
convert such share of Series A-1 Preferred into the kind and amount
of shares of stock and other securities or property which such
holder would have had the right to receive had such holder
converted its shares of Series A-1 Preferred immediately prior to
the consummation of such Organic Change. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section
5(e)(v) with respect to the rights of the holders of the
Series A-1 Preferred after the Organic Change to the end that the
provisions of this Section
5(e)(v) (including any adjustment in the Conversion Price
then in effect and the number of shares of stock or other
securities deliverable upon conversion of the Series A-1 Preferred)
shall be applied after that event in as nearly an equivalent manner
as may be practicable.
(vi) Consideration for Stock. In
case any shares of Common Stock or Convertible Securities other
than the Series A-1 Preferred, or any rights or warrants or options
to purchase any such Common Stock or Convertible Securities, shall
be issued or sold:
(1) in connection with any merger or
consolidation in which the Company is the surviving corporation
(other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall be changed
to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be deemed
to be the fair value, as determined reasonably and in good faith by
the Board of Directors of the Company, of such portion of the
assets and business of the non surviving corporation as such Board
may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in the event of any consolidation or
merger of the Company in which the Company is not the surviving
corporation or in which the previously outstanding shares of Common
Stock of the Company shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event
of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its
Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on
which the transaction was predicated, and for a consideration equal
to the fair market value on the date of such transaction of all
such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the
applicable Conversion Price, or the number of shares of Conversion
Shares issuable upon conversion of the Series A-1 Preferred, the
determination of the applicable Conversion Price or the number of
Conversion Shares issuable upon conversion of the Series A-1
Preferred immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number
of Conversion Shares issuable upon conversion of the Series A-1
Preferred. In the event any consideration received by the Company
for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise
applicable shall be as determined in good faith by the Board of
Directors of the Company. In the event Common Stock is issued with
other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as
provided in this Section
5(e)(vi) shall be allocated among such securities and assets
as determined in good faith by the Board of Directors of the
Company.
(vii) Record Date. In case the
Company shall take record of the holders of its Common Stock or any
other Preferred Stock for the purpose of entitling them to
subscribe for or purchase Common Stock or Convertible Securities,
then the date of the issue or sale of the shares of Common Stock
shall be deemed to be such record date.
(1) No Impairment. The Company
shall not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith,
assist in the carrying out of all the provisions of this
Section 5 and in
the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series
A-1 Preferred against impairment. In the event a holder shall elect
to convert any shares of Series A-1 Preferred as provided herein,
the Company cannot refuse conversion based on any claim that such
holder or any one associated or affiliated with such holder has
been engaged in any violation of law, unless (i) an order from the
Securities and Exchange Commission prohibiting such conversion or
(ii) an injunction from a court, on notice, restraining and/or
adjoining conversion of all or of said shares of Series A-1
Preferred shall have been issued and the Company posts a surety
bond for the benefit of such holder in an amount equal to one
hundred percent (100%) of the Liquidation Preference Amount of the
Series A-1 Preferred such holder has elected to convert, which bond
shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which
shall be payable to such holder in the event it obtains judgment.
If the Company is the prevailing party in any legal action or other
legal proceeding relating to the Conversion Rights of the holders
of the Series A-1 Preferred, then the Company shall be entitled to
recover from the holders of Series A-1 Preferred reasonable
attorneys’ fees, costs and disbursements (in addition to any
other relief to which the Company may be entitled).
(b) Certificates as to Adjustments.
Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of Conversion Shares issuable upon
conversion of the Series A-1 Preferred pursuant to this
Section 5, the
Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to
each holder of such Series A-1 Preferred a certificate setting
forth such adjustment and readjustment, showing in detail the facts
upon which such adjustment or readjustment is based. The Company
shall, upon written request of the holder of such affected Series
A-1 Preferred, at any time, furnish or cause to be furnished to
such holder a like certificate setting forth such adjustments and
readjustments, the Conversion Price in effect at the time, and the
number of Conversion Shares and the amount, if any, of other
securities or property which at the time would be received upon the
conversion of a share of such Series A-1 Preferred. Notwithstanding
the foregoing, the Company shall not be obligated to deliver a
certificate unless such certificate would reflect an increase or
decrease of at least one percent of such adjusted
amount.
(c) Issue Taxes. The Company shall
pay any and all issue, stock transfer, documentary stamp and other
taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of the Series A-1
Preferred Stock, Conversion Shares, Dividend Shares or shares of
Common Stock or other securities issued on account of Series A-1
Preferred Stock pursuant hereto or certificates representing such
shares or securities; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer of
Conversion Shares requested by any holder to a person other than
such holder, but only to the extent such transfer taxes exceed the
transfer taxes that would have been payable had the Conversion
Shares been delivered to such holder.
(d) Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, by electronic mail, by facsimile or
three (3) business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested,
addressed to the holder of record at its address appearing on the
books of the Company. The Company will give written notice to each
holder of Series A-1 Preferred at least thirty (30) days prior to
the date on which the Company closes its books or takes a record
(i) with respect to any dividend or distribution upon the Common
Stock, (ii) with respect to any pro rata subscription offer to
holders of Common Stock or (iii) for determining rights to vote
with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such
holder prior to such information being made known to the public.
The Company will also give written notice to each holder of Series
A-1 Preferred at least twenty (20) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to such
holder prior to such information being made known to the
public.
(e) Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion
of the Series A-1 Preferred. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay
cash equal to the product of such fraction multiplied by the
average of the closing sales price of the Common Stock, as reported
on the applicable Trading Market for the five (5) consecutive
trading days immediately preceding the Voluntary Conversion
Date.
(f) Reservation of Common Stock.
The Company shall, so long as any shares of Series A-1 Preferred
are outstanding, reserve and keep available out of its authorized
and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A-1 Preferred, such number of shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series A-1 Preferred then outstanding;
provided, that the number
of shares of Common Stock so reserved shall at no time be less than
one hundred percent (100%) of the number of shares of Common Stock
for which the shares of Series A-1 Preferred are at any time
convertible. The initial number of shares of Common Stock reserved
as Conversion Shares and each increase in the number of shares so
reserved shall be allocated pro rata among the holders of the
Series A-1 Preferred based on the number of shares of Series A-1
Preferred held by each holder of record at the time of issuance of
the Series A-1 Preferred or increase in the number of reserved
shares, as the case may be. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series A-1
Preferred, each transferee shall be allocated a pro rata portion of
the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain
allocated to any person or entity which does not hold any shares of
Series A-1 Preferred shall be allocated to the remaining holders of
Series A-1 Preferred, pro rata based on the number of shares of
Series A-1 Preferred then held by such holder.
(g) Retirement of Series A-1
Preferred. Conversion of shares of Series A-1 Preferred
shall be deemed to have been effected on the applicable Conversion
Date. Upon conversion of only a portion of the number of shares of
Series A-1 Preferred represented by a certificate surrendered for
conversion, the Company shall issue and deliver to such holder, at
the expense of the Company, a new certificate covering the number
of shares of Series A-1 Preferred representing the unconverted
portion of the certificate so surrendered as required by
Section 5(c)(i) or
Section 5(c)(ii),
as the case may be.
(h) Regulatory Compliance. If any
shares of Common Stock to be reserved as Conversion Shares require
registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise before such shares
may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.
(i) Validity of Shares. All Series
A-1 Preferred Stock, Conversion Shares, Dividend Shares and shares
of Common Stock or other securities issued on account of Series A-1
Preferred Stock pursuant hereto or certificates representing such
shares or securities will, upon issuance by the Company, be validly
issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
6. No Preemptive Rights. Except as
provided in Section
5 hereof, no holder of the Series A-1 Preferred shall be
entitled to rights to subscribe for, purchase or receive any part
of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other
evidences of indebtedness convertible into or exchangeable for
shares of any class, but all such new or additional shares of any
class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person
or persons as the Board of Directors in their absolute discretion
may deem advisable.
7. Redemption.
(a) Redemption Option Upon Change of
Control. In addition to any other rights of the Company or
the holders of Series A-1 Preferred contained herein, simultaneous
with the occurrence of a Change of Control (as defined below), the
Company, at its option, shall have the right to redeem all or a
portion of the outstanding Series A-1 Preferred in cash at a price
per share of Series A-1 Preferred equal to one hundred and fifteen
percent (115%) of the Liquidation Preference Amount plus all
accrued and unpaid dividends (the “Change of Control Redemption
Price”). Notwithstanding the foregoing to the
contrary, the Company may effect a redemption pursuant to this
Section 7(a) only
if the Company is in material
compliance with the terms and conditions of this Certificate of
Designations.
(b) “Change of
Control”. A “Change of Control” shall be
deemed to have occurred at such time as a third party not
affiliated with the Company on the Issuance Date or any holders of
the Series A-1 Preferred shall have acquired, in one or a series of
related transactions, equity securities of the Company representing
more than fifty percent (50%) of the outstanding voting securities
of the Company.
(c) Mechanics of Redemption at Option of
Company Upon Change of Control. At any time within ten (10)
days prior to the consummation of a Change of Control transaction,
the Company may elect to redeem, effective immediately prior to the
consummation of such Change of Control, all of the Series A-1
Preferred then outstanding by delivering written notice thereof via
facsimile and overnight courier (“Notice of Redemption at Option of Company Upon
Change of Control”) to each holder of Series A-1
Preferred, which Notice of Redemption at Option of Company Upon
Change of Control shall indicate (i) the number of shares of Series
A-1 Preferred that the Company is electing to redeem from such
holder and (ii) the Change of Control Redemption Price, as
calculated pursuant to Section 7(a) above. The Change
of Control Redemption Price shall be paid in cash in accordance
with Section 7(a)
of this Certificate of Designations. On or prior to the Change of
Control, the holders of Series A-1 Preferred shall surrender to the
Company the certificate or certificates representing such shares,
in the manner and at the place designated in the Notice of
Redemption at Option of Company Upon Change of Control. The Company
shall deliver the Change of Control Redemption Price immediately
prior to or simultaneously with the consummation of the Change of
Control; provided, that a
holder's Preferred Stock Certificates shall have been so delivered
to the Company (or an indemnification undertaking with respect to
such Preferred Stock Certificates in the event of their loss, theft
or destruction). From and after the Change of Control transaction,
unless there shall have been a default in payment of the Change of
Control Redemption Price, all rights of the holders of Series A-1
Preferred as a holder of such Series A-1 Preferred (except the
right to receive the Change of Control Redemption Price without
interest upon surrender of their certificate or certificates) shall
cease with respect to any redeemed shares of Series A-1 Preferred,
and such shares shall not thereafter be transferred on the books of
the Company or be deemed to be outstanding for any purpose
whatsoever. Notwithstanding the foregoing to the contrary, nothing
contained herein shall limit a holder’s ability to convert
its shares of Series A-1 Preferred following the receipt of the
Notice of Redemption at Option of Company Upon Change of Control
and prior to the consummation of the Change of Control
transaction.
8. Inability to Fully
Convert.
(a) Holder's Option if Company Cannot
Fully Convert. In addition to any other right that a holder
of Series A-1 Preferred Stock might have, if, upon the Company's
receipt of a Conversion Notice, the Company cannot issue Conversion
Shares issuable pursuant to such Conversion Notice because the
Company (x) does not have a sufficient number of shares of Common
Stock authorized and available or (y) is otherwise prohibited by
applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities
from issuing all of the Conversion Shares to be issued to a holder
of Series A-1 Preferred pursuant to a Conversion Notice, then the
Company shall issue as many Conversion Shares as it is able to
issue in accordance with such holder's Conversion Notice and
pursuant to Section
5(c)(iii) above and, with respect to the unconverted Series
A-1 Preferred, the holder, solely at such holder's option, can
elect, within five (5) business days after receipt of notice from
the Company thereof to:
(i) if the Company's inability to fully
convert Series A-1 Preferred is pursuant to Section 8(a)(y) above, require
the Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 5(c)(iii)
above; or
(ii) void its Conversion Notice with
respect to all or a portion of the Conversion Shares covered by
such Conversion Notice and retain or have returned, as the case may
be, the shares of Series A-1 Preferred that were to be converted
pursuant to such holder's Conversion Notice (provided that a
holder's voiding its Conversion Notice shall not affect the
Company's obligations to make any payments which have accrued prior
to the date of such notice).
(b) Mechanics of Fulfilling Holder's
Election. The Company shall promptly send via electronic
mail or facsimile to a holder of Series A-1 Preferred, upon receipt
of electronic mail or facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in
Section 8(a) above,
a notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the “Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such holder's Conversion Notice, and (ii) the number of Series A-1
Preferred which cannot be converted. Such holder shall notify the
Company of its election pursuant to Section 8(a) above by
delivering written notice via facsimile to the Company
(“Notice in Response to
Inability to Convert”).
(c) Pro-Rata Conversion and
Redemption. In the event the Company receives a Conversion
Notice from more than one holder of Series A-1 Preferred on the
same day and the Company can convert and redeem some, but not all,
of the Series A-1 Preferred pursuant to this Section 8, the Company shall
convert and redeem from each holder of Series A-1 Preferred
electing to have Series A-1 Preferred converted and redeemed at
such time an amount equal to such holder's pro-rata amount (based
on the number shares of Series A-1 Preferred held by such holder
relative to the number shares of Series A-1 Preferred outstanding)
of all shares of Series A-1 Preferred being converted and redeemed
at such time.
9. Protective Provisions. So long
as shares of the Series A-1 Preferred representing at least fifty
percent (50%) of the total number of shares of Series A-1 Preferred
issued on the Issuance Date remain issued and outstanding, the
Company shall not, without obtaining the approval (by vote or
written consent) of the holders of more than fifty percent (50%) of
the issued and outstanding shares of Series A-1
Preferred:
(a) create, or authorize the creation of,
any class or series, or issue, or authorize the issuance of, any
shares of capital stock that ranks senior to the Series A-1
Preferred, other than Series C Preferred and Series D
Preferred;
(b) sell, lease or otherwise dispose of
intellectual property rights owned by or licensed to the Company or
any subsidiary of the Company; and
(c) create, or authorize the creation of,
or incur, or authorize the incurrence of, any Indebtedness, other
than Permitted Indebtedness, or permit any subsidiary to take any
such action.
“Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of
$500,000 (other than trade accounts payable incurred in the
ordinary course of business) and (y) all guaranties, endorsements
and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the
Company's consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
“Permitted Indebtedness” means (x)
all indebtedness of the Company outstanding on the Issuance Date or
thereafter that does not constitute Indebtedness for purposes of
this Section 9; and
(y) monies borrowed under credit lines of the Company existing on
the Issuance Date in an amount not to exceed $6.0
million.
10. Vote to Change the Terms of or Issue
Preferred Stock. The affirmative vote at a meeting duly
called for such purpose, or the written consent without a meeting,
of the holders of not less than two-thirds (2/3) of the then
outstanding shares of Series A-1 Preferred, shall be required for
any change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or
repeal, or otherwise adversely affect, any of the powers,
designations, preferences and rights of the Series A-1 Preferred;
provided, however, that any changes to (i)
Section 5 hereof,
or (ii) Exhibit I
hereto shall also require the approval of the majority of the Board
of Directors.
11. Lost or Stolen Certificates.
Upon receipt by the Company of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing the shares of Series A-1 Preferred,
and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company (in form
and substance satisfactory to the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date; provided, however, the Company shall not be
obligated to re-issue Preferred Stock Certificates if the holder
contemporaneously requests the Company to convert such shares of
Series A-1 Preferred into Common Stock and complies with its
obligations to issue Conversion Shares set forth
herein.
12. Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies
provided in this Certificate of Designations shall be cumulative
and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a
decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall
limit a holder's right to pursue actual damages for any failure by
the Company to comply with the terms of this Certificate of
Designations. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of the Series A-1 Preferred
and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach,
the holders of the Series A-1 Preferred shall be entitled, in
addition to all other available remedies, to an injunction
restraining any breach or the Series A-1 Preferred holders'
reasonable perception of a threatened breach by the Company of the
provisions of this Certificate of Designations, without the
necessity of showing economic loss and without any bond or other
security being required.
13. Specific Shall Not Limit General;
Construction. No specific provision contained in this
Certificate of Designations shall limit or modify any more general
provision contained herein. This Certificate of Designation shall
be deemed to be jointly drafted by the Company and all initial
purchasers of the Series A-1 Preferred and shall not be construed
against any person as the drafter hereof.
14. Failure
or Indulgence Not Waiver. No failure or delay on the part of
a holder of Series A-1 Preferred in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any
other right, power or privilege.
[Remainder of page intentionally left blank]
IN
WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this __ day of
September, 2020.
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IMAGEWARE
SYSTEMS, INC.
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By:
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Kristin
Taylor
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Chief
Executive Officer
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[EXHIBITS
INTENTIONALLY OMITTED]
ANNEX D
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES C CONVERTIBLE
PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.
The
undersigned, the Chief Executive Officer of ImageWare Systems,
Inc., a Delaware corporation (the “Company”), does hereby certify as
follows:
WHEREAS, on September 9, 2018, the Board of Directors
of the Company (the “Board
of Directors”) duly adopted a resolution (the
“Original Certificate of
Designations of Series C Convertible Preferred Stock”)
creating a series of Preferred Stock designated as the Series C
Convertible Preferred Stock; and
WHEREAS, the Board of Directors desires
to amend and restate the Original Certificate of Designations of
Series C Convertible Preferred Stock.
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of
Directors by provisions of the Certificate of Incorporation of the
Company (as amended, restated or supplemented, the
“Certificate of
Incorporation”), the Original Certificate of
Designations of Series C Convertible Preferred Stock is hereby
amended and restated in its entirety to read as
follows:
1. Designation and
Rank.
(a) The designation of
such series of the Preferred
Stock shall be the Series
C Convertible Preferred Stock,
par value $0.01 per share (the
“Series C Preferred”). The maximum number of shares of Series C Preferred shall be One
Thousand (1,000) shares. The Series C Preferred shall rank senior to the Company’s common stock, par
value $0.01 per share (the
“Common Stock”), Series A Convertible Preferred Stock (the
“Series A Preferred”) and, except as provided in Section l(b) below, to
all other classes and series
of equity securities of the
Company which by their terms do not expressly provide that such equity securities rank senior to or on parity with the Series C Preferred (collectively, “Junior
Stock”).
1. The Series C
Preferred shall rank junior to the Company’s (i) Series D
Convertible Redeemable Preferred Stock (“Series D Preferred”) and (ii)
Series B Convertible Redeemable Preferred Stock
(“Series
B
Preferred”);provided, that, with regards to the
Series B Preferred, the Series C Preferred shall rank junior solely
with respect to (i) dividend rights of the Series B Preferred on
the terms expressly provided in paragraph i of Section 4(d) of the
Certificate of Incorporation as in effect as of the date hereof (as
defined below) and (ii) distribution rights of the Series B
Preferred upon a liquidation, dissolution or winding up provided in
paragraph ii of Section 4(d) of the Certificate of Incorporation as
in effect as of the date hereof; provided, however, that nothing in the
Series B Preferred shall have any effect on the rights of the
Series C Preferred with respect to rights on redemption or
conversion. The date of original issuance of the Series C Preferred
is referred to herein as the “Issuance Date”.
2. Dividends.
(a) Payment
of Dividends.
(i) The holders of record of shares of Series C Preferred shall be entitled to receive, and the Company shall be required to declare
and pay, out of any assets at the time legally available therefor, cumulative dividends at the Specified Rate per share per annum, commencing on the date
hereof and payable quarterly in arrears on each of March 31, June 30, September 30 and December 31
(each, a “Dividend Payment Date”), at the option of
the Company in cash or through the issuance
of shares of Common
Stock. Dividends on each
outstanding share of Series C
Preferred will accrue whether or
not such dividends have
been declared and whether or not there are
profits, surplus or other funds of the Company legally available
for the payment of
dividends. In the
event that the Company elects
(or is deemed to have elected) to pay dividends in shares of Common Stock, the number of shares of Common Stock to be
issued to each applicable holder shall be determined by dividing
the total dividend then being paid to such holder in shares of
Common Stock by the Price Per Share (as defined below) as of the
applicable Dividend Payment Date, and rounding up to the nearest
whole share (the “Dividend
Shares”). With respect to any Dividend Payment Date,
to the extent that dividends on the shares of Series C Preferred
are not declared and paid in cash on any such Dividend Payment
Date, the Company shall be deemed to have elected to declare and
pay dividends with respect to such Dividend Payment Date through
the issuance of Dividend Shares on such Dividend Payment Date. If
the Company shall elect to declare and pay dividends hereunder in a
form that consists of a combination of cash and an issuance of
Dividend Shares, each holder of the Series C Preferred shall
receive the same proportion of cash and Dividend Shares. As used
herein, “Price Per
Share” means, with respect to a share of
Common Stock, the VWAP (as defined below) for the five (5) Trading
Days (as defined below) immediately preceding the applicable
Dividend Payment Date.
“Specified Rate” means (i) in the event the
Company elects to pay a dividend payable on any Dividend Payment
Date in cash, the cumulative dividend rate of eight percent (8%) of
the Stated Value (as defined in Section 4 hereof) per share per
annum, and (ii) in the event the Company elects, or is deemed to
have elected, to pay a dividend payable on any Dividend Payment
Date in Dividend Shares, the cumulative dividend rate of ten
percent (10%) of the Stated Value per share per annum.
“VWAP” means, for any date, the price
determined by the first of the following clauses that applies: (a)
if the Common Stock is then listed or quoted on a Trading Market
(defined below), the daily volume weighted average price of the
Common Stock for such date on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02
p.m. (New York City time)), (b) if the Common Stock is not then
listed or quoted for trading on any Trading Market and if prices
for the Common Stock are then reported on the OTC Bulletin Board or
in the “Pink Sheets” published by OTC Markets Group,
Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the daily mean between the closing
bid and asked quotations per share of the Common Stock so reported,
or (c) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in
good faith by the Majority Holders (as defined below) and
reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.
“Trading Market” means any of the
following markets or exchanges on which the Common Stock is listed
or quoted for trading on the date in question: the NYSE MKT, the
Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange, the OTCQX or OTCQB (or
any successors to any of the foregoing).
“Trading Day” means a day on which the
principal Trading Market is open for trading.
“Majority Holders” means, as of any date of
determination, the holder or holders of more than fifty percent
(50%) of the total number of issued and outstanding shares of
Series C Preferred as of such date.
(ii) The
Company will: (a) prepare and file with the Securities and Exchange
Commission (the “SEC”), within thirty (30) days after the
date hereof, a Form S-3 (or, if such form is not available to the
Company, a Form S-1) to register under the Securities Act of 1933,
as amended (the “Securities
Act”), the resale, by the holders of
shares of Series C Preferred, of any Conversion Shares (as defined
below) and Dividend Shares issuable hereunder and not otherwise
eligible for resale under Rule 144 promulgated under the Securities
Act (“Rule
144”), without volume or manner-of-sale
restrictions or current public information requirements (the
“Registration
Statement”); (b) use its best efforts to cause the
Registration Statement to become effective as soon as practicable
after such filing; (c) use its best efforts to cause the
Registration Statement to remain effective at all times thereafter
until the earlier of (i) the date as of which such holders of
Series C Preferred may sell all of such Conversion Shares and/or
Dividend Shares without restriction pursuant to Rule 144, without
volume or manner-of-sale restrictions or current public information
requirements, and (ii) the date when all of the Conversion Shares
and Dividend Shares registered thereunder have been disposed of by
such holders of Series C Preferred; and (d) prepare and file with
the SEC such amendments and supplements to the Registration
Statement (including documents filed pursuant to the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and incorporated by reference
into the Registration Statement) and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for the period specified in this sentence
above.
(b) In the event of a
Voluntary Conversion (as defined in Section 5(a) below) or
Mandatory Conversion (as defined in Section 5(b) below), all
accrued but unpaid dividends on the Series C Preferred being
converted shall be payable, at the election of the Company, in cash
or shares of Common Stock within five (5) business days after the
Voluntary Conversion Date (as defined in Section 5(c)(i) below) or
Mandatory Conversion Date (as defined in Section 5(c)(ii) below), as
applicable. In the event of an Exchange Transaction (as defined in
Section 9 below)
all accrued but unpaid dividends on the Series C Preferred being
converted shall be payable into shares of Series D Preferred within
five (5) business days after the Exchange Date (as defined in
Section 9(b) below)
in accordance with the terms of the Exchange
Transaction.
(c) So long as any
shares of Series C Preferred are outstanding, the Company shall
not, and shall not permit any subsidiary of the Company or any
other Person (as defined below) directly or indirectly controlled
by the Company to, declare, pay or set apart for payment any
dividend or make any distribution (as defined below) on or with
respect to the Common Stock, the Series A Preferred or any other
Junior Stock, except that (i) the Company may pay dividends on the
Series A Preferred at the “Specified Rate” (as defined
in the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock of ImageWare Systems, Inc.
(the “Series A
Certificate”) as in effect on the date hereof)
on the terms expressly set forth in Section 2 of the Series A
Certificate as in effect on the date hereof, and (ii) the Company
may pay dividends on the Common Stock solely in shares of Common
Stock. “Person” means an individual, partnership,
corporation, unincorporated organization, joint stock company,
limited liability company, association, trust, joint venture or any
other entity, or a governmental agency or political subdivision
thereof.
(d) In the event of a
Liquidation Event (as defined below) or a Deemed Liquidation Event
(as defined below), all accrued and unpaid dividends on the Series
C Preferred shall be payable in cash on the day immediately
preceding the date of payment of the Liquidation Preference Amount
payable to the holders of Series C Preferred, in accordance with
Section 4 below. In
the event of the Company’s exercise of its optional
redemption right set forth in Section 7(b) below, all accrued
and unpaid dividends on the Series C Preferred shall be payable in
cash on the day immediately preceding the date of such
redemption.
(e) For purposes
hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash,
property, securities, indebtedness, obligations or any other thing
of value, whether by way of dividend or otherwise, on or with
respect to, or the purchase, redemption, retirement or other
acquisition of, shares of the Company (other than repurchases of
Common Stock held by employees or consultants of the Company upon
termination of their employment or services pursuant to agreements
providing for such repurchase or upon the cashless exercise of
options held by employees or consultants) for cash, property,
securities, indebtedness, obligations or any other thing of
value.
3. Voting Rights.
On any
matter presented to the stockholders of the Company for their
action or consideration at any meeting of stockholders of the
Company (or by written consent of stockholders in lieu of meeting),
each holder of outstanding shares of Series C Preferred shall be
entitled to cast the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C Preferred
held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter, or if no
record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. Except as provided by
law or by Sections
10 and 11
below, holders of Series C Preferred shall vote together with the
holders of Common Stock, and with the holders of any other series
of Preferred Stock the terms of which so provide, as a single
class.
4. Liquidation, Dissolution, Winding-Up
or Distribution.
2. In the event of the
liquidation, dissolution, winding up of the affairs of the Company
or any other event that causes the Company to make a distribution
(as such term is used in Section 2(e) above), whether
voluntary or involuntary (each, a “Liquidation Event”) or a Deemed Liquidation Event,
the holders of shares of the Series C Preferred then outstanding
shall be entitled to receive, out of the assets of the Company
available for distribution to its stockholders, before any payment
shall be made or any assets distributed to the holders of the
Common Stock or any other Junior Stock, an amount equal to the
greater of (i) $10,000 per share (such amount, subject to
appropriate adjustment in the event of any stock split, combination
or other similar recapitalization affecting the shares of Series C
Preferred, the “Stated
Value”) plus all accrued and unpaid
dividends, and (ii) such amount per share as would have been
payable had each such share been converted into Common Stock
pursuant to Section
5 immediately prior to such Liquidation Event or Deemed
Liquidation Event (the amount payable pursuant to the foregoing is
referred to herein as the “Liquidation Preference
Amount”). If the assets of the Company are
not sufficient to pay in full the Liquidation Preference Amount
payable to the holders of outstanding shares of Series C Preferred
and any other series of Preferred Stock ranking on a parity with
the Series C Preferred as to distribution rights upon a Liquidation
Event or Deemed Liquidation Event (“Parity Stock”), then all of said
assets will be distributed among the holders of the Series C
Preferred and the holders of the Parity Stock, if any, ratably in
accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. The
payment with respect to each outstanding fractional share of Series
C Preferred shall be equal to a ratably proportionate amount of the
payment with respect to each whole outstanding share of Series C
Preferred. All payments for which this Section 4(a) provides shall be
in cash, property (valued at its fair market value as determined
reasonably and in good faith by the Board of Directors) or a
combination thereof; provided, that, in the case of a
payment consisting of a combination of cash and property, the
holders of the Series C Preferred and the holders of any Parity
Stock shall each receive the same proportion of cash and property;
and provided, further, that
no cash shall be paid to holders of Junior Stock unless each holder
of the outstanding shares of Series C Preferred has been paid in
cash the full Liquidation Preference Amount to which such holder is
entitled, as provided herein. After payment of the full Liquidation
Preference Amount to which each holder is entitled, such holders of
shares of Series C Preferred will not be entitled to any further
participation on account of such shares in any distribution of the
assets of the Company.
(a) Written notice of
any Liquidation Event or Deemed Liquidation Event, stating a
payment date and the place where the distributable amounts shall be
payable, shall, to the extent possible, be given by mail, postage
prepaid, no less than twenty (20) days prior to the payment date
stated therein, to the holders of record of the Series C Preferred
at their respective addresses as recorded on the books of the
Company.
(b) Nothing contained
in this Section 4
shall limit the right of the holder of any shares of Series C
Preferred to convert such shares of Series C Preferred pursuant to
and in accordance with Section 5 hereof.
5. Conversion.
(a) Voluntary Conversion. At any
time on or after the date hereof, the holder of any shares of
Series C Preferred may, at such holder’s option, elect to
convert (a “Voluntary
Conversion”) all or any portion of the shares of
Series C Preferred held by such holder into a number of fully paid
and nonassessable shares of Common Stock equal to the quotient of
(i) the Stated Value of the shares of Series C Preferred being
converted, divided by (ii) the Conversion Price (as defined in
Section 5(d) below)
in effect as of the date the holder delivers to the Company its
notice of election to convert (the “Conversion Shares”). In the event the Company issues a
notice of redemption pursuant to Section 7 hereof, the rights of
the holders of Series C Preferred to elect a Voluntary Conversion
pursuant to this Section
5(a) (“Conversion
Rights”) shall terminate at the close of business on
the last full day preceding the date fixed for redemption, unless
the redemption price is not paid on such redemption date, in which
case the Conversion Rights for all shares of Series C Preferred
shall continue until the redemption price is paid in full. In the
event of such a redemption, the Company shall provide to each
holder of shares of Series C Preferred notice of such redemption,
which notice shall (i) be given at least fifteen (15) days prior to
the termination of the Conversion Rights and (ii) state the amount
per share of Series C Preferred that will be paid or distributed on
such redemption.
3. Mandatory Conversion. If (i)
the Common Stock is registered pursuant to Section 12(b) or (g)
under the Exchange Act; (ii) there are sufficient authorized but
unissued shares of Common Stock (which have not otherwise been
reserved or committed for issuance) to permit the issuance of all
Conversion Shares issuable upon conversion of all outstanding
shares of Series C Preferred; (iii) upon issuance, the Conversion
Shares will be either (A) covered by an effective registration
statement under the Securities Act, which is then available for the
immediate resale of
such Conversion Shares by the recipients thereof, and the Board of
Directors reasonably believes that such effectiveness will continue
uninterrupted for the foreseeable future, or (B) freely tradable
without restriction pursuant to Rule l44 promulgated under the
Securities Act without volume or manner-of-sale restrictions or
current public information requirements, as determined by the
counsel to the Company as set forth in a written opinion letter to
such effect, addressed
and acceptable to the Transfer Agent and the affected holders; and
(iv) the VWAP of the Common Stock is at least $3.00 per share
(subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar
recapitalization affecting such shares) for a period of twenty (20)
consecutive Trading Days ending on the Trading Day immediately
preceding the day on which the Company delivers the Mandatory
Conversion Notice (as defined below), then the Company shall have
the right, subject to the terms and conditions of this Section 5, to convert (a
“Mandatory
Conversion”) all, but not less than all, of
the issued and outstanding shares of Series C Preferred into
Conversion Shares.
(b) Mechanics
of Conversion. Conversions of Series C Preferred shall be
conducted in the following manner:
(i) Voluntary Conversion. To
convert Series C Preferred into Conversion Shares on any date (the
“Voluntary Conversion
Date”), the holder thereof shall transmit
by facsimile or electronic mail (or otherwise deliver), for receipt
on or prior to 5:00 p.m., New York time on such date, a copy of a
fully executed notice of conversion in the form attached hereto as
Exhibit I (the
“Conversion
Notice”), to the Company. As soon as
practicable following such Voluntary Conversion Date, the holder
shall surrender to a common carrier for delivery to the Company the
original certificates representing the shares of Series C Preferred
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
“Preferred Stock
Certificates”) and the originally executed
Conversion Notice.
(ii) Mandatory
Conversion. In the event the Company elects to convert
outstanding shares of Series C Preferred into Conversion Shares
pursuant to Section
5(b) above, the Company shall give written notice (the
“Mandatory Conversion
Notice”) to all holders of the Series C
Preferred of its intention to require the conversion of all of the
shares of Series C Preferred. The Mandatory Conversion Notice shall
set forth the number of Series C Preferred being converted (which
shall be all, and not less than all, issued and outstanding shares
of Series C Preferred), the date on which such conversion shall be
effective (the “Mandatory
Conversion Date”), and shall be given to the holders
of the Series C Preferred not less than fifteen (15) days prior to
the Mandatory Conversion Date. The Mandatory Conversion Notice
shall be delivered to each holder at its address as it appears on
the stock transfer books of the Company. In order to receive the
Conversion Shares into which the Series C Preferred is convertible
pursuant to Section
5(b), each holder of the Series C Preferred shall surrender
to the Company at the place designated in the Mandatory Conversion
Notice the Preferred Stock Certificates(s) representing the shares
of Series C Preferred owned by such holder. Upon the Mandatory
Conversion Date, such converted Series C Preferred shall no longer
be deemed to be outstanding, and all rights of the holder with
respect to such shares shall immediately terminate, except the
right to receive (x) the shares of Common Stock into which the
shares of Series C Preferred are convertible pursuant to
Section 5(b), (y)
all accrued and unpaid dividends on such shares of Series C
Preferred pursuant to Section 2(b), and (z) any cash
in lieu of a fractional share of Common Stock pursuant to
Section
2(j).
1. Company’s Response. Upon
receipt by the Company of a copy of the fully executed Conversion
Notice or upon giving a Mandatory Conversion Notice, the Company or
its designated transfer agent (the “Transfer Agent”), as applicable, shall within five
(5) business days following the date of receipt by the Company of a
copy of the fully executed Conversion Notice or the Mandatory
Conversion Date, as the case may be, issue and deliver to the
Depository Trust Company (“DTC”) account on each applicable
holder’s behalf via the Deposit Withdrawal Agent Commission
System (“DWAC”) as specified in the Conversion
Notice or, in the case of a Mandatory Conversion, as otherwise
provided to the Company or the Transfer Agent by (or on behalf of)
a holder, registered in the name of each such holder or its
designee, for the number of Conversion Shares to which such holder
shall be entitled. Notwithstanding the foregoing to the contrary,
the Company or its Transfer Agent shall only be required to issue
and deliver the Conversion Shares to DTC on a holder’s behalf
via DWAC if (i) the Conversion Shares may be issued without
restrictive legends and (ii) the Company and the Transfer Agent are
participating in DTC through the DWAC system. If any of the
conditions set forth in clauses (i) and (ii) above are not
satisfied, the Company shall deliver physical certificates to each
such holder or its designee. In the case of a Voluntary Conversion,
if the number of shares of Series C Preferred represented by the
Preferred Stock Certificate(s) submitted for conversion is greater
than the number of shares of Series C Preferred being converted,
then the Company shall, as soon as practicable and in no event
later than five (5) business days after receipt of the Preferred
Stock Certificate(s) and at the Company’s expense, issue and
deliver to the applicable holder a new Preferred Stock Certificate
representing the number of shares of Series C Preferred not
converted. For purposes of this Section 5(e)(iii), the term
“Conversion Shares” shall include any shares of Common
Stock which the Company elects to issue, pursuant to Section 2(b), as payment of
accrued and unpaid dividends on shares of Series C Preferred being
converted.
(iii) Dispute
Resolution. In the case of a dispute as to the arithmetic
calculation of the number of Conversion Shares to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly
issue to the holder the number of Conversion Shares that is not
disputed and shall submit the arithmetic calculations to the holder
via electronic mail or facsimile as soon as possible, but in no
event later than two (2) business days after receipt of such
holder’s Conversion Notice. If such holder and the Company
are unable to agree upon the arithmetic calculation of the number
of Conversion Shares to be issued within two (2) business days of
such disputed arithmetic calculation being submitted to the holder,
then the Company shall, within two (2) business days, submit via
electronic mail or facsimile the disputed arithmetic calculation of
the number of Conversion Shares to be issued to the Company’s
independent, outside accountant (the “Accountant”). The Company shall
cause the Accountant to perform the calculations and notify the
Company and the holder of the results no later than five (5)
business days from the time it receives the disputed calculations.
The Accountant’s calculation shall be binding upon all
parties absent manifest error. The reasonable expenses of such
Accountant in making such determination shall be paid by the
Company. The period of time in which the Company is required to
effect conversions under this Certificate of Designations shall be
tolled with respect to the subject conversion pending resolution of
any dispute by the Company made in good faith and in accordance
with this Section
5(e)(iv).
(iv) Record
Holder. The person or persons entitled to receive Conversion
Shares shall be treated for all purposes as the record holder or
holders of such Conversion Shares as of the close of business on
the Voluntary Conversion Date or Mandatory Conversion Date, as
applicable.
(c) Conversion Price.
(i) The term
“Conversion
Price” shall mean $1.00 per share,
subject to adjustment under Section 5(e)
hereof.
(ii) Notwithstanding
the foregoing to the contrary, if during any period (a
“Black-Out
Period”), a holder of Series C Preferred is unable to
trade any Conversion Shares immediately because the Company has
informed such holder that an existing prospectus cannot be used at
that time in the sale or transfer of such Conversion Shares
(provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within
the control of the holder of Series C Preferred) such holder of
Series C Preferred shall have the option but not the obligation on
any Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, within ten (10) Trading Days following the expiration
of the Black-Out Period of using the Conversion Price applicable on
such Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, or any Conversion Price selected by such holder of
Series C Preferred that would have been applicable had such
Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, been at any earlier time during the Black-Out
Period.
(d) Adjustments of Conversion
Price.
2. Adjustments for Stock Splits and
Combinations. If the Company shall at any time or from time
to time after the date hereof, effect a stock split of its
outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from
time to time after the date hereof, combine its outstanding shares
of Common Stock, the Conversion Price shall be proportionately
increased. Any adjustments under this Section 5(e)(i) shall be
effective at the close of business on the date the stock split or
combination becomes effective.
(i) Adjustments for Certain Dividends and
Distributions. If the Company shall at any time or from time
to time after the date hereof, make or issue or set a record date
for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of
Common Stock, then, and in each event, the Conversion Price shall
be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in
effect by a fraction:
(1) the numerator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and
(2) the denominator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date, plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution; provided,
however, that no such adjustment shall be made if the
holders of Series C Preferred simultaneously receive a dividend or
other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if
all outstanding shares of Series C Preferred had been converted
into Conversion Shares on the date of such event.
(ii) Adjustment
for Other Dividends and Distributions. If, subject to
Section 2(c), the
Company shall at any time or from time to time after the date
hereof, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in securities, cash, indebtedness, or other
property (other than a dividend or distribution of shares of Common
Stock referred to in Section 5(e)(ii)), then, and in
each event, on the same date on which holders of Common Stock
receive such dividend or other distribution, the holders of
Series C Preferred shall receive the number or amount of
securities, cash, indebtedness, or other property which they would
have received had their Series C Preferred been converted into
Conversion Shares immediately prior to such event.
3. Adjustments for Reclassification,
Exchange or Substitution. If the Conversion Shares issuable
upon conversion of the Series C Preferred at any time or from time
to time after the date hereof shall be changed to the same or
different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or otherwise
(other than by way of a stock split or combination of shares or
stock dividends provided for in Sections 5(e)(i) and
(ii), an Organic
Change (as defined below) provided for in Section 5(e)(v) or a
Liquidation Event or Deemed Liquidation Event), then, and in each
event, an appropriate revision to the Conversion Price shall be
made and provisions shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of each share of Series C
Preferred shall have the right thereafter to convert such share of
Series C Preferred into the kind and amount of shares of stock and
other securities receivable upon such reclassification, exchange,
substitution or other change, by holders of the number of
Conversion Shares into which such share of Series C Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
(iii) Adjustments
for Organic Changes. If at any time or from time to time
after the date hereof there shall be a capital reorganization,
merger or consolidation of the Company (other than by way of a
stock split or combination of shares or stock dividends or
distributions provided for in Sections 5(e)(i) and
(ii), or a
reclassification, exchange, substitution or change of shares
provided for in Section
5(e)(iv), or a Liquidation Event or Deemed Liquidation
Event), and the Company is not the surviving, acquiring or
resulting entity in any such merger, consolidation or other
reorganization (any such merger, consolidation or other
reorganization, a “Organic
Change”), then lawful and adequate provision shall be
made so that each share of Series C Preferred outstanding
immediately prior to the consummation or effectiveness of such
Organic Change shall be converted into, or exchanged for,
a security of the
surviving, acquiring or resulting entity of such Organic Change
having preferences, rights, and privileges that are equivalent to
such share of Series C Preferred (any such security, a
“New
Security”), except that in lieu of being able to
convert into shares of Common Stock or shares of common stock of
the surviving, acquiring or resulting entity of such Organic
Change, the holders of such New Securities shall thereafter be
entitled to receive upon conversion of such New Securities the
shares of capital stock, securities, cash, assets or other property
to which a holder of
the number of shares of Common Stock into which a share of Series C
Preferred would have been convertible immediately prior to such
Organic Change would have been entitled to receive upon the
consummation or effectiveness of such Organic Change. In any such
case, appropriate provisions shall be made with respect to the
rights of the holders of such New Security to the end that the
provisions of this Section
5 (including, without limitation, provisions for adjustment
of the Conversion Price) shall thereafter be applicable, as nearly
as may be, with respect to any shares of capital stock, securities,
cash, assets or other property to be deliverable thereafter upon
the conversion of such New Security.
(e) No Impairment. Subject to
Section 9 hereof,
the Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith,
assist in the carrying out of all the provisions of this
Section 5 and in
the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series
C Preferred against impairment. In the event a holder shall elect
to convert any shares of Series C Preferred as provided herein, the
Company cannot refuse conversion based on any claim that such
holder or any one associated or affiliated with such holder has
been engaged in any violation of law, unless (i) an order from the
Securities and Exchange Commission prohibiting such conversion or
(ii) an injunction from a court, on notice, restraining and/or
enjoining conversion of all or of said shares of Series C Preferred
shall have been issued and the Company posts a surety bond for the
benefit of such holder in an amount equal to one hundred percent
(100%) of the Liquidation Preference Amount of the Series C
Preferred such holder has elected to convert, which bond shall
remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such
holder in the event it obtains judgment.
4. Certificates as to Adjustments.
Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of Conversion Shares issuable upon
conversion of the Series C Preferred pursuant to this Section 5, the Company at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of such
Series C Preferred a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon
written request of any holder of Series C Preferred at any time,
furnish or cause to be furnished to such holder a like certificate
setting forth such adjustments and readjustments, the Conversion
Price in effect at the time, and the number of Conversion Shares
and the amount, if any, of other shares of capital stock,
securities, cash, assets or other property which at the time would
be received upon the conversion of a share of Series C
Preferred.
(f) Issue Taxes. The Company shall
pay any and all issue, stock transfer, documentary stamp and other
taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of the Series C
Preferred, Conversion Shares, Dividend Shares or shares of Common
Stock or other securities issued on account of Series C Preferred
pursuant hereto or certificates representing such shares or
securities; provided,
however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer of Conversion Shares
requested by any holder to a person other than such holder, but
only to the extent such transfer taxes exceed the transfer taxes
that would have been payable had the Conversion Shares been
delivered to such holder.
(g) Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, by electronic mail, by facsimile or
three (3) business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested,
addressed to the holder of record at its address appearing on the
books of the Company. The Company will give written notice to each
holder of Series C Preferred at least thirty (30) days prior to the
date on which the Company closes its books or takes a record (i)
with respect to any dividend or distribution upon the Common Stock,
(ii) with respect to any pro rata subscription offer to holders of
Common Stock or (iii) for determining rights to vote with respect
to any Organic Change, Liquidation Event or Change of Control and
in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Company will
also give written notice to each holder of Series C Preferred at
least twenty (20) days prior to the date on which any Organic
Change, Liquidation Event or Change of Control will take place and
in no event shall such notice be provided to such holder prior to
such information being made known to the public.
(h) Fractional Shares. No
fractional shares of Common Stock shall be issued upon conversion
of the Series C Preferred. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay
cash equal to the product of such fraction multiplied by the
average of the closing sales price of the Common Stock, as reported
on the applicable Trading Market for the five (5) consecutive
Trading Days immediately preceding the Voluntary Conversion Date or
Mandatory Conversion Date, as applicable.
5. Reservation of Common Stock.
The Company shall, so long as any shares of Series C Preferred are
outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the
conversion of the Series C Preferred and paying dividends on the
Series C Preferred (assuming the Company elects to pay all
dividends in shares of Common Stock), such number of shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Series C Preferred then outstanding and
payment of dividends hereunder (assuming the Company elects to pay
all dividends in shares of Common Stock); provided, that the number of shares of
Common Stock so reserved shall at no time be less than one hundred
percent (100%) of the number of shares of Common Stock for which
the shares of Series C Preferred are at any time convertible. The
initial number of shares of Common Stock reserved as Conversion
Shares and each increase in the number of shares so reserved shall
be allocated pro rata among the holders of the Series C Preferred
based on the number of shares of Series C Preferred held by each
holder of record at the time of issuance of the Series C Preferred
or increase in the number of reserved shares, as the case may be.
In the event a holder shall sell or otherwise transfer any of such
holder’s shares of Series C Preferred, each transferee shall
be allocated a pro rata portion of the number of reserved shares of
Common Stock reserved for such transferor. Any shares of Common
Stock reserved and which remain allocated to any Person which does
not hold any shares of Series C Preferred shall be allocated to the
remaining holders of Series C Preferred, pro rata based on the
number of shares of Series C Preferred then held by such holder. If
at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of Series C Preferred and payment of
dividends on the Series C Preferred (assuming the Company elects to
pay all dividends in shares of Common Stock), the Company shall
take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(i) Retirement of Series C
Preferred. Conversion of shares of Series C Preferred shall
be deemed to have been effected on the Voluntary Conversion Date or
Mandatory Conversion Date, as applicable. In the case of a
Voluntary Conversion, upon conversion of only a portion of the
number of shares of Series C Preferred represented by a certificate
surrendered for conversion, the Company shall issue and deliver to
such holder, at the expense of the Company, a new certificate
covering the number of shares of Series C Preferred representing
the unconverted portion of the certificate so surrendered as
required by Section
5(c)(i).
(j) Regulatory Compliance. If any
shares of Common Stock to be reserved as Conversion Shares or
Dividend Shares require registration or listing with or approval of
any governmental authority, stock exchange or other regulatory body
under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the
Company shall, at its sole cost and expense, in good faith and as
expeditiously as possible, endeavor to secure such registration,
listing or approval, as the case may be.
(k) Validity of Shares. All Series
C Preferred, Conversion Shares, Dividend Shares and shares of
Common Stock or other securities issued on account of Series C
Preferred pursuant hereto or certificates representing such shares
or securities will, upon issuance by the Company, be validly
issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
6. No Preemptive Rights. Except as
provided in Section
5 hereof, no holder of the Series C Preferred shall be
entitled to rights to subscribe for, purchase or receive any part
of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other
evidences of indebtedness convertible into or exchangeable for
shares of any class, but all such new or additional shares of any
class, or any bond, debentures or other evidences of indebtedness
convertible into or exchangeable for shares, may be issued and
disposed of by the Board of Directors on such terms (subject to
Section 10 hereof)
and for such consideration (to the extent permitted by law), and to
such person or persons as the Board of Directors in their absolute
discretion may deem advisable.
7. Redemption.
(a) Redemption at Option of
Holders. At any time and from time to time from and after
the third (3rd) anniversary of the Issuance Date, or in the event
of the consummation of a Change of Control (as defined in
Section 7(c)
below), if any shares of Series C Preferred are outstanding, then
each holder of Series C Preferred shall have the right (the
“Holder Redemption
Right”), at such holder’s option, to
require the Company to redeem all or any portion of such
holder’s shares of Series C Preferred at the Liquidation
Preference Amount per share of Series C Preferred, plus an amount
equal to all accrued but unpaid dividends, if any, on the Holder
Redemption Date (as defined below) (such price, the
“Holder Redemption
Price”), which Holder Redemption Price
shall be paid in cash.
6. Redemption Option Upon Change of
Control. In addition to any other rights of the Company or
the holders of Series C Preferred contained herein, simultaneous
with the occurrence of a Change of Control, the Company, at its
option, shall have the right to redeem all, but not less than all,
of the outstanding Series C Preferred in cash at a price per share
of Series C Preferred equal to one hundred fifteen percent (115%)
of the Liquidation Preference Amount plus all accrued and unpaid
dividends, if any, as of the date of delivery of the Notice of
Redemption at Option of Company Upon Change of Control (as defined
below) (the “Change of Control Redemption
Price”). Notwithstanding the foregoing to
the contrary, the Company may effect a redemption pursuant to this
Section 7(b) only
if the Company is in material compliance with the terms and
conditions of this Certificate of Designations.
(b) Change of Control.
“Change of
Control” shall mean any of the following
occurring after the date hereof:
(i) a sale, conveyance
or disposition of all or substantially all of the assets of the
Company and any direct and/or indirect subsidiaries of the Company,
taken as a whole (including by or through the sale, conveyance or
other disposition of the capital stock of, or reorganization,
merger, share exchange, consolidation or other business combination
involving, any direct and/or indirect subsidiary or subsidiaries of
the Company, if substantially all of the assets of the Company and
any direct and/or indirect subsidiaries of the Company, taken as a
whole, are held by such subsidiary or subsidiaries);
(ii) a
reorganization, merger, share exchange, consolidation or other
business combination of the Company with or into any other entity
in which transaction the Persons who hold more than fifty percent
(50%) of the total voting power of the voting securities of the
Company (or, if the Company is not the acquiring, resulting or
surviving entity in such transaction, such acquiring, resulting or
surviving entity) immediately after such transaction are not
Persons who, immediately prior to such transaction, held more than
fifty percent (50%) of the total voting power of the voting
securities of the Company; or
(iii) an
acquisition (in one transaction or a series of related
transactions) of voting securities of the Company representing in
the aggregate more than fifty percent (50%) of the total voting
power of the voting securities of the Company (after giving effect
to such acquisition) by any Person or “group” (as such
term is used in Section 13(d)(3) of the Exchange Act) of Persons;
provided, however, that any transaction pursuant to
which Neal Goldman, on his own and not part of a group, acquires
more than fifty percent (50%) of the total voting power of the
voting securities of the Company (after giving effect to such
acquisition) shall not constitute a “Change of Control”
hereunder. Any Change of Control shall be deemed a Liquidation
Event hereunder (a “Deemed
Liquidation Event”), unless such treatment is waived
in writing by the Majority Holders, and in the event of any such
Deemed Liquidation Event, each holder of Series C Preferred shall
receive payment of the Liquidation Preference Amount in accordance
with Section
4.
7. Mechanics of Redemption at Option of
Company Upon Change of Control. At any time within ten (10)
days prior to the consummation of a Change of Control, the Company
may elect to redeem, effective immediately prior to the
consummation of such Change of Control, all (but not less than all)
of the Series C Preferred then outstanding by delivering written
notice thereof via facsimile and overnight courier
(“Notice of Redemption at
Option of Company Upon Change of Control”) to each holder of Series C
Preferred, which Notice of Redemption at Option of Company Upon
Change of Control shall indicate (i) the number of shares of Series
C Preferred that the Company is electing to redeem from such holder
(which shall not be less than all of the shares of Series C
Preferred owned by such holder) and (ii) the Change of Control
Redemption Price, as calculated pursuant to Section 7(b) above. The Change
of Control Redemption Price shall be paid in cash in accordance
with Section 7(b)
of this Certificate of Designations. On or prior to the Change of
Control, the holders of Series C Preferred shall surrender to the
Company the certificate or certificates representing such shares,
in the manner and at the place designated in the Notice of
Redemption at Option of Company Upon Change of Control. The Company
shall deliver the Change of Control Redemption Price immediately
prior to or simultaneously with the consummation of the Change of
Control; provided, that a holder’s Preferred
Stock Certificates shall have been so delivered to the Company (or
an indemnification undertaking with respect to such Preferred Stock
Certificates in the event of their loss, theft or destruction).
From and after the Change of Control transaction, unless there
shall have been a default in payment of the Change of Control
Redemption Price, all rights of the holders of Series C Preferred
as a holder of such Series C Preferred (except the right to receive
the Change of Control Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with
respect to shares of Series C Preferred, and such shares shall not
thereafter be transferred on the books of the Company or be deemed
to be outstanding for any purpose whatsoever. Notwithstanding the
foregoing to the contrary, nothing contained herein shall limit a
holder’s ability to convert its shares of Series C Preferred
following the receipt of the Notice of Redemption at Option of
Company Upon Change of Control and prior to the consummation of the
Change of Control transaction.
(c) Mechanics of Redemption at Option of
Holders Upon Change of Control. From and after the third
(3rd) anniversary of the Issuance Date or at any time within ten
(10) days prior to, or at any time after, the consummation of a
Change of Control, any holder of Series C Preferred may elect to
exercise its Holder Redemption Right by delivering a written notice
(a “Holder Redemption
Notice”) to the Company of such election.
The date upon which such Holder Redemption Notice is delivered to
the Company is the “Holder
Redemption Notice Date”. The Company shall, on the date
proposed in the Holder Redemption Notice for the redemption of the
Series C Preferred (which date shall not be less than ten (10) days
after the Holder Redemption Notice Date, except that if a Holder
Redemption Notice is delivered in connection with and prior to the
consummation of a Change of Control, then such date shall be the
date on which such Change of Control is consummated) (the
“Holder Redemption
Date”), redeem each outstanding share of
Series C Preferred set forth in the Holder Redemption Notice at the
Holder Redemption Price. The Holder Redemption Price for each share
of Series C Preferred owned by a holder who has exercised its
Holder Redemption Right shall be paid to such holder by delivering
a check or by wire transfer of immediately available funds to such
holder at the address or in accordance with the wire transfer
instructions (as applicable) of such holder as set forth in the
Holder Redemption Notice.
8. Inability to Fully
Convert.
(a) Holder’s Option if Company
Cannot Fully Convert. In addition to any other right that a
holder of Series C Preferred might have, if, upon the
Company’s receipt of a Conversion Notice, the Company cannot
issue Conversion Shares issuable pursuant to such Conversion Notice
because the Company (x) notwithstanding Section 5(k), does not have a
sufficient number of shares of Common Stock authorized and
available or (y) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Company or its securities from issuing all of
the Conversion Shares
to be issued to a holder of Series C Preferred pursuant to a
Conversion Notice, then the Company shall issue as many Conversion
Shares as it is able to issue in accordance with such
holder’s Conversion Notice and pursuant to Section 5(c)(iii) above and,
with respect to the unconverted Series C Preferred, the holder,
solely at such holder’s option, can elect, within five (5)
business days after receipt of an Inability to Fully Convert Notice
(as defined below) from the Company thereof to:
(i) if the
Company’s inability to fully convert Series C Preferred is
pursuant to Section
8(a)(y) above, require the Company to issue restricted
shares of Common Stock in accordance with such holder’s
Conversion Notice and pursuant to Section 5(c)(iii) above;
or
(ii) void
its Conversion Notice with respect to all or a portion of the
Conversion Shares covered by such Conversion Notice and retain or
have returned, as the case may be, the shares of Series C Preferred
that were to be converted pursuant to such holder’s
Conversion Notice (provided that a holder’s voiding its
Conversion Notice shall not affect the Company’s obligations
to make any payments which have accrued prior to the date of such
notice).
8. Mechanics of Fulfilling Holder’s
Election. The Company shall promptly send via electronic
mail or facsimile to a holder of Series C Preferred, upon receipt
of electronic mail or facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in
Section 8(a) above,
a notice of the Company’s inability to fully satisfy such
holder’s Conversion Notice (the “Inability to Fully Convert
Notice”). Such Inability to Fully Convert
Notice shall indicate (i) the reason why the Company is unable to
fully satisfy such holder’s Conversion Notice, and (ii) the
number of shares of Series C Preferred which cannot be converted.
Such holder shall notify the Company of its election pursuant to
Section 8(a) above
by delivering written notice via electronic mail or facsimile to
the Company (“Notice in
Response to Inability to Convert”).
(b) Pro-Rata Conversion. In the
event the Company receives a Conversion Notice from more than one
holder of Series C Preferred on the same day and the Company can
convert some, but not all, of the Series C Preferred pursuant to
this Section 8, the
Company shall convert from each holder of Series C Preferred
electing to have Series C Preferred converted at such time an
amount equal to such holder’s pro-rata amount (based on the
number of shares of Series C Preferred held each such holder who
desires to convert such shares on such date relative to the total
number of shares of Series C Preferred held by all such holders who
desire to convert such shares on such date) of all shares of Series
C Preferred being converted at such time.
9. Mandatory
Exchange.
(a) If at any time one
or more holders of Series C Preferred then holding, in the
aggregate, more than fifty percent (50%) of the outstanding shares
of Series C Preferred (the “Initiating Stockholders”) desire
to effectuate an exchange of all (and not less than all) of each
such Initiating Stockholder’s shares of Series C Preferred
for shares of Series D Preferred (an “Exchange Transaction”), then such
Initiating Stockholders, in their sole discretion, shall have the
right to require that all holders of Series C Preferred shall
participate in such Exchange Transaction, on substantially
identical terms and conditions to the Initiating Stockholders, as
set forth in the definitive documentation with respect to such
Exchange Transaction (the “Exchange Agreement”), by
delivering to the Company, for delivery by the Company to all the
other holders of Series C Preferred (collectively, the
“Dragged
Holders”), written notice of such election. Any such
notice (a “Drag-Along
Notice”) shall contain a description of the material
terms and conditions of the Exchange Transaction, including the
exchange rate for shares of Series C Preferred with respect to
shares of Series D Preferred. The Drag-Along Notice shall be
delivered promptly (but in no event later than five (5) business
days prior to the Exchange Date) by the Company to each Dragged
Holder at its address as it appears on the stock transfer books of
the Company, in accordance with the Exchange Agreement. In order to
receive the Series D Preferred for which the Series C Preferred is
being exchanged pursuant to this Section 9, each holder of the
Series C Preferred shall surrender to the Company at the place
designated in the Drag-Along Notice the Preferred Stock
Certificates(s) representing the shares of Series C Preferred owned
by such holder. Upon the Exchange Date (defined below), such
exchanged Series C Preferred shall no longer be deemed to be
outstanding, and all rights of the holder with respect to such
shares shall immediately terminate.
9. In the event a
Drag-Along Notice is delivered with respect to an Exchange
Transaction, each of the Dragged Holders shall be obligated to do
the following with respect to such Exchange Transaction, in each
case to the extent applicable: (i) at the closing of such Exchange
Transaction (such date, the “Exchange Date”), transfer to the
Company, on the same terms as the Initiating Stockholders, all of
such Dragged Holder’s shares of Series C Preferred free and
clear of any liens and duly endorsed for transfer, or accompanied
by duly endorsed stock powers; (ii) vote all such Dragged
Holder’s shares of Series C Preferred, whether by proxy,
voting agreement or otherwise, in favor of the Exchange
Transaction; (iii) enter into reasonable and customary agreements
with the Company on terms substantially identical to those
applicable to the Initiating Stockholders (including with respect
to representations, warranties, indemnities, covenants, conditions,
escrow agreements and other provisions and agreements relating to
such Exchange Transaction as requested by the Company), so long as
the terms of any such agreements are not more onerous (on a per
share basis) with respect to the Dragged Holders than with respect
to the Initiating Stockholders; (iv) use commercially reasonable
efforts to obtain any consents necessary for such Dragged Holder to
consummate the Exchange Transaction; (v) refrain from directly or
indirectly taking (or causing any other Person to take) any action
that is prejudicial to or inconsistent with such Exchange
Transaction; and (vi) take any and all reasonably necessary action
in furtherance of the foregoing, to the extent requested by the
Initiating Stockholders or the Board of Directors, at the
Company’s sole expense. Each holder of Series C Preferred
shall receive, in respect of each share of Series C Preferred
exchanged by such holder in any Exchange Transaction, the same form
and amount of consideration issued to each other holder of Series C
Preferred (including the Initiating Stockholders) in respect of
their Series C Preferred.
(b) The Company shall
use commercially reasonable efforts to cause its officers,
employees, agents, contractors and others under its control to
cooperate in any proposed Exchange Transaction and not to take any
action which might impede any such Exchange Transaction. Pending
the completion of any proposed Exchange Transaction, the Company
shall use commercially reasonable efforts to operate in the
ordinary course of business and to maintain all existing business
relationships in good standing.
10. Protective Provisions.
Notwithstanding anything herein to the contrary, the Company shall
not, without obtaining the approval (by vote or written consent) of
the Majority Holders:
(a) create, or
authorize the creation of, any class or series of shares of capital
stock or other securities, or issue, or authorize the issuance of,
any class or series of shares of capital stock or other securities
that ranks senior to or on a parity with the Series C Preferred in
any respect, other than the Series D Preferred;
(b) amend, supplement
or otherwise modify any class or series of shares of capital stock
or other securities so that such shares or securities, after giving
effect to such amendment, supplement or modification, rank senior
to or on a parity with the Series C Preferred in any respect, other
than the Series D Preferred;
(c) issue, or authorize
the issuance of, any additional shares of Series B Preferred, or
amend, supplement or otherwise modify any of the powers,
designations, preferences, privileges, rights, terms or conditions
of the Series B Preferred;
(d) permit any
subsidiary of the Company to issue any shares of capital stock or
other securities, other than issuances of shares of capital stock
or other securities to the Company or to a wholly-owned subsidiary
of the Company;
(e) sell, lease or
otherwise dispose of intellectual property rights owned by or
licensed to the Company or any subsidiary of the Company;
and
(f) create, or
authorize the creation of, or incur, or authorize the incurrence
of, any Indebtedness, other than Permitted Indebtedness, or permit
any subsidiary of the Company to take any such action.
“Indebtedness” means
(x) any liabilities for borrowed money or amounts owed in excess of
$500,000 in the aggregate for all such liabilities and amounts
(other than trade accounts payable incurred in the ordinary course
of business) and (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others,
whether or not the same are or should be reflected in the
Company’s consolidated balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business.
“Permitted
Indebtedness” means all indebtedness of the
Company outstanding on the date hereof and set forth on the
“Disclosure Schedule” to the Securities Purchase
Agreement, dated as of the Issuance Date, by and among the Company
and the initial purchasers of the Series C Preferred.
2 Vote to Change the Terms of or Issue
Preferred Stock. The affirmative vote at a meeting duly
called for such purpose, or the written consent without a meeting,
of the Majority Holders shall be required for any amendment,
supplement, modification or other change (including any amendment,
supplement, modification, alteration, repeal or other change that
is made pursuant to or in connection with a merger, consolidation
or other business combination of or involving the Company) to (i)
the Company’s Certificate of Incorporation which would amend,
alter, change or repeal, or otherwise adversely affect, any of the
powers, designations, preferences, privileges and rights of the
Series C Preferred or (ii) this Certificate of Designations
(including any amendment, supplement, modification or other change
that results in the authorization, creation or designation of
additional shares of Series C Preferred).
11. Lost or Stolen Certificates.
Upon receipt by the Company of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Preferred
Stock Certificates representing the shares of Series C Preferred,
and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company (in form
and substance satisfactory to the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date; provided, however, the
Company shall not be obligated to re-issue Preferred Stock
Certificates if the holder contemporaneously requests the Company
to convert such shares of Series C Preferred into Common Stock and
complies with its obligations to issue Conversion Shares set forth
herein.
12. Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief. The remedies
provided in this Certificate of Designations shall be cumulative
and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a
decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall
limit a holder’s right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate
of Designations. Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof
and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof).
The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Series
C Preferred and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any
such breach, the holders of the Series C Preferred shall be
entitled, in addition to all other available remedies, to an
injunction restraining any breach or the Series C Preferred
holders’ reasonable perception of a threatened breach by the
Company of the provisions of this Certificate of Designations,
without the necessity of showing economic loss and without any bond
or other security being required.
13. Specific Shall Not Limit General;
Construction. No specific provision contained in this
Certificate of Designations shall limit or modify any more general
provision contained herein. This Certificate of Designations shall
be deemed to be jointly drafted by the Company and all initial
purchasers of the Series C Preferred and shall not be construed
against any person as the drafter hereof.
14. Failure or Indulgence Not
Waiver. No failure or delay on the part of a holder of
Series C Preferred in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power
or privilege.
IN
WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate of Designations and does affirm the foregoing as true
this __ day of September, 2020.
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IMAGEWARE
SYSTEMS, INC.
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By:
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Name:
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Kristin
Taylor
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Title:
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Chief
Executive Officer
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EXHIBIT
I
IMAGEWARE SYSTEMS,
INC.
CONVERSION
NOTICE
Reference is made
to the Amended and Restated Certificate of Designations,
Preferences and Rights of the Series C Convertible Preferred Stock
(“Series C
Preferred”) of ImageWare Systems, Inc. (the
“Certificate of
Designations”). In accordance with and pursuant
to the Certificate of Designations, the undersigned hereby elects
to convert the number of shares of Series C Preferred, par value
$0.01 per share (the “Preferred Shares”), of ImageWare
Systems, Inc., a Delaware corporation (the “Company”), indicated below into shares of
Common Stock, par value $0.01 per share (the “Common Stock”), of the Company, by tendering the
stock certificate(s) representing the share(s) of Series C
Preferred specified below as of the date specified
below.
Date of Conversion:
Number
of shares of Series C Preferred to be
converted:
Stock
certificate no(s). of Series C Preferred to be
converted:
Please
confirm the following information:
Conversion Price:
Number
of shares of Common Stock to be
issued:
Number
of shares of Common Stock beneficially owned or deemed beneficially
owned by the Holder on the Date of
Conversion:
Please
issue the Common Stock into which the shares of Series C Preferred
are being converted and, if applicable, any check drawn on an
account of the Company in the following name and to the following
address:
Issue
to:
Facsimile
Number:
Name of
bank/broker due to receive the underlying Common
Stock:
Bank/broker’s
four-digit “DTC” participant number (obtained from the
receiving bank/broker): Authorization:
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[SERIES
C PREFERRED HOLDER]
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By:
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Name:
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Title:
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Dated:
ANNEX
E
Amended
and Restated
Certificate
of Incorporation
of
IMAGEWARE
SYSTEMS, INC.
ImageWare Systems,
Inc. (the “Corporation”), a Delaware
corporation hereby certifies as follows:
A.
The original
Certificate of Incorporation of the Corporation was filed with the
Secretary of the State of Delaware on October 24, 2005 (as amended,
amended and restated, supplemented or otherwise modified prior to
the filing of this Amended and Restated Certificate of
Incorporation, the “Original Certificate of
Incorporation”). This Amended and Restated Certificate
of Incorporation (this “Certificate of
Incorporation”) was duly adopted by the Board of
Directors of the Corporation (the “Board”) and the
stockholders of the Corporation in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law
of the State of Delaware (the “DGCL”).
B.
The Original
Certificate of Incorporation is hereby amended and restated to read
in its entirety as follows:
1. The name of the
Corporation is ImageWare Systems, Inc.
2. The address of the
Corporation’s registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, 19801, County of New
Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the
business of the Corporation and the objects or purposes to be
transacted, promoted or carried on by it are as follows: To engage
in any lawful act or activity for which corporations may be
organized under the DGCL.
4. Capitalization.
(a) The total number of
shares of all classes of stock that the Corporation is authorized
to issue is One Billion, Five Million (1,005,000,000) shares,
consisting of One Billion (1,000,000,000) shares of Common Stock
with a par value of $0.01 per share (“Common Stock”) and Five
Million (5,000,000) shares of Preferred Stock with a par value of
$0.01 per share (“Preferred
Stock”).
(b) Common Stock.
Dividends. Subject to the
rights, preferences, privileges, restrictions and other matters
pertaining to the Preferred Stock that may from time to time be
issued, the holders of the Common Stock shall be entitled to
receive, when, as and if declared by the Board, out of any assets
of the Corporation legally available therefore, such dividends as
may be declared from time to time by the Board.
i. Liquidation; Dissolution. In
the event of any liquidation, dissolution or winding up (either
voluntary or involuntary) of the Corporation, the holders of shares
of Common Stock shall be entitled to receive the assets and funds
of the Corporation available for distribution after payments to
creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to
the number of shares held by them, respectively, without regard to
class.
ii. Voting Rights. Except as
otherwise required by law, or as otherwise fixed by resolution or
resolutions of the Board with respect to one or more series of
Preferred Stock, the entire voting power and all voting rights
shall be vested exclusively in the Common Stock, and each
stockholder of the Corporation who at the time possesses voting
power for any purpose shall be entitled to one vote for each share
of such stock standing in his name on the books of the Corporation.
There shall be no cumulative voting. Each holder of Common Stock
shall have one vote in respect of each share of Common Stock held
by him or her on all matters voted upon by the stockholders. Except
as otherwise required by law, holders of Common Stock shall not be
entitled to vote on any amendment to this Certificate of
Incorporation (including any certificate of designation relating to
any series of Preferred Stock) that relates primarily to the terms
of one or more outstanding series of Preferred Stock if the holders
of such affected series are entitled, either separately or together
with the holders of one or more other such series, to vote thereon
pursuant to this Amended and Restated Certificate of Incorporation
(including any certificate of designation relating to any series of
Preferred Stock) or pursuant to the DGCL.
Undesignated Preferred Stock.
The remaining shares of Preferred Stock may be issued from time to
time in one or more series. Subject to the limitations and
restrictions in this section 4(c) set forth, the Board, by
resolution or resolutions, is authorized to create or provide for
any such series, and to fix the designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including,
without limitation, the authority to fix or alter the dividend
rights, dividend rates, conversion rights, exchange rights, voting
rights, rights and terms of redemption (including sinking and
purchase fund provisions), the redemption price or prices, the
dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred
Stock and the number of shares constituting any such series, and
the designation thereof, or any of them and to increase or decrease
the number of shares of any series so created, subsequent to the
issue of that series but not below the number of shares of such
series then outstanding. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
There shall be no limitation or restriction on any variation
between any of the different series of Preferred Stock as to the
designations, preferences and relative, participating, optional or
other special rights, and the qualifications, limitations or
restrictions thereof; and the several series of Preferred Stock
may, except as hereinafter in this section 4(c) otherwise expressly
provided, vary in any and all respects as fixed and determined by
the resolution or resolutions of the Board, providing for the
issuance of the various series; provided, however, that all shares
of any one series of Preferred Stock shall have the same
designation, preferences and relative, participating, optional or
other special rights and qualifications, limitations and
restrictions.
(c) Series B Preferred Stock. The
rights, preferences, restrictions and other matters relating to the
Series B Preferred Stock are as follows:
i. Dividends. The holders of
shares of Series B Preferred Stock shall be entitled to receive
cumulative dividends in cash, subject to the availability of, and
only out of, any funds legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable
other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock of the
Corporation; provided, however, that such convertible securities or
rights shall not rank, as to dividend or liquidation rights, prior
to or on a parity with the Series B Preferred Stock) on the Common
Stock or any other series of Preferred Stock or series or class of
any other stock of the Corporation and prior and in preference to
any payment of monies to any sinking or purchase fund on the common
stock or any other series of Preferred Stock or series or class of
any other stock of the corporation for the redemption or repurchase
thereof, at the rate of $0.2125 per share per annum payable in
equal semiannual installments of $0.10625 per share, on the last
business day of October and April each year, and upon redemption of
the Series B Preferred Stock or conversion thereof as otherwise
provided herein. Dividends for less than a full calendar
semi-annual period shall be prorated, based on the actual number of
days elapsed during such semiannual period, divided by 180 days.
Declared dividends on outstanding shares of the Series B Preferred
Stock shall be paid to record holders as they appear on the stock
register of the Corporation at the close of business on the 15th
day of the month containing such dividend date as may be fixed by
the Board in advance of such dividend date, provided that no such
record date shall be more than 30 days prior to such dividend
date.
Liquidation; Dissolution. (a)
In the event of any liquidation, dissolution or winding up (either
voluntary or involuntary) of the Corporation, the holders of Series
B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock or any other series of
Preferred Stock or series or class of any other stock of the
Corporation by reason of their ownership thereof, an amount per
share equal to the sum of (i) $2.50 for each outstanding share of
Series B Preferred Stock (hereafter referred to as the
“Original Series B
Issue Price”) and (ii) an amount equal to accrued but
unpaid dividends on such share. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of
the Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts,
then, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the amount
of such stock owned by each such holder. The Corporation shall mail
to each holder of Series B Preferred Stock, at least twenty (20)
days prior to any liquidation event, a notice setting forth the
date on which such event is expected to become effective and the
type and amount of anticipated proceeds per share of Common Stock
to be distributed with respect thereto and shall afford each such
holder the opportunity to convert such shares of Series B Preferred
Stock pursuant to paragraph iii of this section 4(d) (conditional
upon the consummation of such liquidation event) prior to the
consummation thereof, (b) a consolidation or merger of the
Corporation with or into any other corporation or corporations, or
a sale, conveyance or disposition of all or substantially all of
the assets of the Corporation or the effectuation of an acquisition
of the Corporation by another entity by means of a transaction or
series of related transactions in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of (a
“Sale”), shall be deemed
to be a liquidation; provided, however, that if holders of Series B
Preferred Stock are to receive more than the preferential amounts
due them under subsection (a) of this paragraph ii in the Sale,
then the Sale shall not be a liquidation and all holders of Series
B Preferred Stock shall participate ratably with the holders of
Common Stock and the holders of any other series of Preferred Stock
with similar rights in proportion to the amount of shares owned by
each such holder on an as-converted basis and shall not be entitled
to receive any preferential amounts.
ii. Conversion. The holders of the
Series B Preferred Stock shall have conversion rights as follows
(the “Conversion
Rights”):
(a) Right to Convert. Subject to
subsection (c) of this paragraph iii, each share of Series B
Preferred Stock plus accrued but unpaid dividends thereon shall be
convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Series B Preferred Stock,
into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Series B Issue
Price plus the aggregate amount of accrued but unpaid dividends
thereon by the Conversion Price at the time in effect for such
share. The initial Conversion Price per share for shares of Series
B Preferred Stock shall be the Original Series B Issue Price;
provided however, that the Conversion Price for the Series B
Preferred Stock shall be subject to adjustment as set forth in
subsection (c) of this paragraph iii.
(b) Mechanics of Conversion. Before
any holder of Series B Preferred Stock shall be entitled to convert
the same into shares of Common Stock, he shall surrender the
certificate or certificates therefor, duly endorsed in blank, at
the office of the Corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice by mail,
postage prepaid, to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to
such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such
surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection
with an underwritten offer of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the
option of any holder tendering Series B Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon
such conversion of the Series B Preferred Stock shall not be deemed
to have converted such Series B Preferred Stock until immediately
prior to the closing of such sale of securities.
Conversion Price Adjustments of
Preferred Stock. The Conversion Price of the Series B
Preferred Stock shall be subject to adjustment from time to time as
follows: (i) in the event the Corporation should at any time or
from time to time after the date of the issuance of any shares of
Series B Preferred Stock fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or
the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as
“Common Stock
Equivalents”) without payment of any consideration by
such holder for the additional shares of Common Stock or the Common
Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of
the Series B Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such
increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to Common Stock
Equivalents or other rights or securities of the Corporation; and
(ii) if the number of shares of Common stock outstanding at any
time after the date of the issuance of any shares of Series B
Preferred Stock is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Preferred Stock
shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in outstanding
shares.
(c) Other Distributions. In the
event the Corporation shall declare a distribution with respect to
the outstanding shares of Common Stock payable in securities of
other persons, evidences of indebtedness issued by the Corporation
or other persons, assets or options or rights not referred to in
subsection (c) of this section iii then, in each such case for the
purpose of this subsection (d) of section iii, the holders of the
Series B Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the
number of shares of Common Stock of the Corporation into which
their shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common
Stock of the Corporation entitled to receive such
distribution.
(d) Recapitalizations. If at any
time or from time to time there shall be a capital reorganization
of the Corporation or any reclassification of the Common Stock or
in case of the consolidation or merger of the Corporation with any
other person or entity or in case of any sale, conveyance or
disposition of all or substantially all of the assets of the
Corporation to an affiliate of the Corporation (other than a
subdivision, combination a liquidation or a Sale as provided for
elsewhere herein), the Corporation and the person or entity formed
by such consolidation or resulting from such capital
reorganization, reclassification of capital stock or merger, as the
case may be, shall make provision in the articles or certificate of
incorporation or other governing instruments of such person such
that each share of Series B Preferred Stock shall thereafter be
convertible only into the kind and amount of shares of stock, other
securities, cash and other property receivable upon such capital
reorganization, reclassification of capital stock, consolidation,
merger, sale, conveyance or disposition, as the case may be, by a
holder of the number of shares of Common Stock into which such
shares of Series B Preferred Stock was convertible immediately
prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale, conveyance or disposition. In
any such case, appropriate adjustment shall be made in the
application of the provisions of this section 4(d) with respect to
the rights of the holders of the Series B Preferred Stock after
such capital reorganization, reclassification of capital stock,
consolidation, merger, sale, conveyance or disposition to the end
that the provisions of this section 4(d) (including adjustment of
the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series B Preferred Stock) shall
be applicable after that event as nearly equivalent as may be
practicable.
No Fractional Shares and Certificate
as to Adjustments. (i) No fractional shares shall be issued
upon conversion of the Series B Preferred Stock. If any fractional
interest in shares of Common Stock would, except for the provisions
of this subsection 4(f), be deliverable upon the conversion of any
Series B Preferred Stock, the Corporation shall, in lieu of
delivering the fractional share therefore, adjust such fractional
interest by payment to the holder of such converted Series B
Preferred Stock an amount in cash equal to the current market value
of such fractional interest (computed to the nearest cent). Whether
or not cash in lieu of fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
shares of Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common
Stock issuable upon such aggregate conversion. (ii) Upon the
occurrence of each adjustment or readjustment of the Conversion
Price of Series B Preferred Stock pursuant to this paragraph iii of
section 4(d), the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series B Preferred
Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B)
the Conversion Price at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of a share
of Series B Preferred Stock.
(e) Notices of Record Date. In the
event of any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other
distribution, any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail
to each holder of Series B Preferred Stock, at least twenty (20)
days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character
of such dividend, distribution or right.
(f) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred
Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Preferred
Stock, in addition to such other remedies as shall be available to
the holder of such Series B Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes.
(g) Notices. Any notice required by
the provisions of this section 4 to be given to the holder of
shares of Series B Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed
to each holder of record at his address appearing on the books of
the Corporation.
iii. Voting
Rights.
(a) The holder of each
share of Series B Preferred Stock shall have the right to one (1)
vote for each share of Common Stock into which such Series B
Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the
nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any
shareholders, meeting in accordance with the Bylaws, and shall be
entitled to vote, together with holders of Common Stock, with
respect to any question upon which holders of Common Stock have the
right to vote.
Election of Directors.
Notwithstanding subsection iv.(a) above, so long as the Corporation
is in default in the payment of any dividends due the holders of
Series B Preferred Stock, the holders of Series B Preferred Stock,
voting as a separate class, shall be entitled to elect one (1)
director of the Corporation and the holders of Series B Preferred
Stock and Common Stock, voting on an as converted basis, shall be
entitled to elect the remaining directors of the Corporation. At
such time as the Corporation is no longer in default on the payment
of any dividends due the holders of Series B Preferred Stock, the
special voting provisions set forth in the preceding sentence shall
no longer be effective and the voting provisions of section iv(a)
above shall apply. The director elected by the holders of Series B
Preferred Stock shall thereupon be deemed to have resigned. At any
meeting held for the purpose of electing directors, the presence in
person or by proxy of the holders of a majority of the Series B
Preferred Stock then outstanding shall constitute a quorum of the
Series B Preferred Stock for the election of directors to be
elected solely by the holders of Series B Preferred Stock. A
vacancy in any directorship elected by the holders of Series B
Preferred Stock shall be filled only by vote of the holders of
Series B Preferred Stock and a vacancy in the directorship elected
by the holders of Series B Preferred Stock and Common Stock voting
together shall be filled only by the vote of the holders of Series
B Preferred Stock and Common Stock voting together as provided
above.
iv. Redemption.
(a) Redemption by the Corporation.
(i) The Corporation shall have the right, but not the obligation,
exercisable at any time or from time to time, upon at least sixty
(60) days’ prior written notice to the holders of the
outstanding shares of Series B Preferred Stock to redeem all or
some of the outstanding shares of Series B Preferred Stock, pro
rata, by paying a sum per share equal to the Original Series B
Issue Price (subject to adjustments as a result of distributions,
if any, made pursuant to subsection iii(c) plus an amount equal to
all accrued but unpaid dividends, if any, through the date of
redemption. (ii) In compliance with the applicable notice period
set forth in this subsection v(a), the Corporation shall mail,
postage prepaid, to each holder of record of Series B Preferred
Stock to be redeemed, at such holder’s address last shown on
the records of the Corporation, notifying such holder of such
redemption, specifying the date fixed for the redemption (the
“Redemption
Date”), which shall also be the date on which such
holder’s Conversion Rights as to the shares called for
redemption shall terminate, and calling upon such holder to
surrender to the Corporation, and in the manner and at the place
designated, such holder’s certificate or certificates
representing the shares of Series B Preferred Stock to be redeemed
(such notice is hereinafter referred to as the “Redemption Notice”), On
or prior to the Redemption Date, each holder of the Series B
Preferred Stock to be redeemed shall surrender its certificate or
certificates representing such shares to the Corporation, in the
manner and at the place designated in the Redemption Notice, and
thereupon the appropriate redemption price as specified in this
subsection v(a) (the “Redemption Price”) of
such shares (except that such number of shares shall be reduced by
the number of shares which shall have been converted pursuant to
subsection 3 hereof between the date of notice of redemption and
the date on which Conversion Rights to such shares terminate) shall
be payable to the order of the person whose name appears on such
certificate or certificates as the owner therefor and each
surrendered certificate shall be canceled. From and after the
Redemption Date, unless there shall have been a default in payment
of the Redemption Price (whether because there is no source of
funds legally available for such redemption or because such funds
shall not be paid or made available for payment), all rights of the
holders of the Series B Preferred Stock (except the right to
receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the
books of the Corporation or be deemed to be outstanding for any
purpose whatsoever.
(b) Redemption Consideration.
Amounts to be paid pursuant to subsection v(a) above shall be paid,
at the sole discretion of the Corporation, in cash or notes or any
combination of cash and notes. The notes, if issued by the
Corporation in satisfaction of the redemption of Series B Preferred
Stock, shall bear interest, payable monthly, at ten percent (10%)
per annum and shall provide for repayment of the principal amount
in two equal installments on the next two immediately succeeding
anniversary dates of the date of redemption of the shares of Series
B Preferred Stock so requested to be redeemed.
Surrender of Certificate.
Except as prohibited pursuant to applicable California corporate
law, on or after the Redemption Date, each holder of Series B
Preferred Stock to be redeemed shall surrender to this Corporation
the certificate or certificates representing such shares, and
thereupon the Redemption Price of such shares shall be payable to
the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate
shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(c) No Dividends After Redemption.
From and after the Redemption Date, unless there shall have been a
default in payment of the Redemption Price, all dividends on the
Series B Preferred Stock designated for redemption in the
Redemption Notice shall cease to accrue, all rights of the holders
of such shares as holder of Series B Preferred Stock (except the
right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be
outstanding for any purpose whatsoever. Subject to the rights of
series of Preferred Stock which may from time to time come into
existence, if the funds of the Corporation legally available for
redemption on shares of Series B Preferred Stock on any Redemption
Date are insufficient to redeem the total number of shares of
Series B Preferred Stock to be redeemed on such date, those funds
which are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of such
shares to be redeemed. The shares of Series B Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights
and preferences provided herein. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, at
any time thereafter when additional funds of the Corporation are
legally available for the redemption of shares of Series B
Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the Corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed;
provided, however, that this Corporation shall give ten (10) days
advance written notice to each such holder of shares to be redeemed
that the Corporation at that time has funds available for the
redemption of shares of Series B Preferred Stock, and any such
holder may direct that the Corporation not redeem any or all of
that holder’s remaining shares previously requested by that
holder to be redeemed, and such shall not be redeemed, so long as
written notice of such direction is received by the Corporation no
later than ten (10) days after this Corporation’s advance
notice was given.
v. Covenants. So long as the
Corporation is in default on any provision of this section 4(d),
the Corporation shall not repurchase or redeem any shares of Common
Stock or any shares of any series of Preferred Stock of the
Corporation, except for shares of Series B Preferred
Stock.
vi. Reissuance of Series B Preferred
Stock. Any share or shares of Series B Preferred Stock or of
any other series or class of stock of the Corporation acquired by
the Corporation by reason of redemption, purchase, conversion or
otherwise shall be restored to the status of authorized by unissued
shares of Preferred Stock.
vii. Residual
Rights. Preferred Stock shall not have any pre-emptive
rights. All rights accruing to the outstanding shares of the
Corporation not expressly provided for to the contrary herein shall
be vested in the Common Stock.
(d) Series D Convertible Preferred
Stock. Subject to the terms of the certificate of
designations of Series D Convertible Preferred Stock
(“Series D
Preferred”), the rights, preferences, restrictions and
other matters relating to the Series D Preferred are as
follows:
Election of Directors. Subject
to Section 4(d)iv hereof, for so long as any shares of Series D
Preferred are outstanding, the holders of Series D Preferred,
voting as a separate class, shall be entitled to elect two (2)
directors of the Corporation (together, the “Series D Directors”). A
vacancy in any directorship elected by the holders of Series D
Preferred shall be filled only by vote of a majority of the shares
owned by the holders of Series D Preferred. Two (2) of the
directors of the Corporation shall be independent directors
(together, the “Independent Directors”),
and shall initially be appointed by a majority vote of Kristin
Taylor and the Series D Directors. From and after the first annual
meeting of the Board following the date hereof, each of the
Independent Directors shall be elected by vote of a majority of the
shares owned by the holders of Preferred Stock, on an as-converted
basis, and Common Stock voting together as a single
class.
i. For so long as any
shares of Series D Preferred are outstanding, this Certificate of
Incorporation may not be modified, amended or waived without the
prior written consent of the holders of a majority of the shares of
Series D Preferred.
5. Bylaws. The Board is expressly
authorized to make, alter or repeal the Bylaws of the Corporation
(the “Bylaws”).
6. Election of Directors. Except
as otherwise provided by resolutions of the Board designating the
rights, powers and preferences of any Preferred Stock, the number
of directors of the Corporation shall initially be five (5), as set
forth on Annex A
attached hereto, and may thereafter be fixed from time to time,
exclusively by resolution of a majority of the directors then in
office, in accordance with the Bylaws. Elections of directors need
not be by written ballot unless the Bylaws shall so
provide.
7. Removal of Directors. Subject
to any limitations imposed by law and to any rights of any class or
series of Preferred Stock having the right to elect directors under
specified circumstances, any director may be removed from office
with or without cause by the affirmative vote of the holders of the
majority of the voting power of all the then-outstanding shares of
capital stock entitled to vote generally in the election of
directors, voting as a single class.
8. Creditors. Whenever a
compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation
and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or
stockholder thereof, or on the application of any receiver or
receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279
of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall,
if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this
Corporation.
9. Amendment. Notwithstanding
Sections 4(b)iii and 4(e)ii hereof, this Certificate of
Incorporation may not be amended in a manner that would materially
and adversely affect (on its face) the holders of any series of
Preferred Stock disproportionately as compared to other series of
Preferred Stock, in each case, without the consent of a majority of
the holders of such disproportionately affected series of Preferred
Stock.
Director Liability;
Indemnification. To the fullest extent permitted by Delaware
statutory or decisional law, as amended or interpreted, no director
of this Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director. This section 10 does not affect the
availability of equitable remedies for breach of fiduciary duties.
To the extent permitted by applicable law, the Corporation is also
authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware
law permits the Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons,
vote of stockholders or disinterested directors or otherwise, in
excess of the indemnification and advancement otherwise permitted
by Section 145 of the DGCL, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect
to actions for breach of duty to the Corporation, its stockholders
and others. Any repeal or modification of any of the foregoing
provisions of this section 10 shall be prospective and shall not
adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the
liability of any director with respect to any acts or omissions of
such director occurring prior to, such repeal or
modification.
10. Action By Stockholders. Any
corporate action required or permitted to be taken at any annual or
special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents
in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the Corporation
(either by hand or by certified or registered mail, return receipt
requested) at its registered office in the State of Delaware or its
principal place of business, or to an officer or agent of the
Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded.
11. Corporate Opportunities. The
Corporation renounces any interest or expectancy of the Corporation
in, or in being offered an opportunity to participate in, or in
being informed about, an Excluded Opportunity. An
“Excluded Opportunity” is any matter, transaction or
interest that is presented to, or acquired, created or developed
by, or which otherwise comes into the possession of, (i) any
director of the Corporation who is not an employee of the
Corporation or any of its subsidiaries (a “Non-Employee Director”),
or (ii) any holder of Preferred Stock or any affiliate, partner,
member, director, stockholder, employee, agent or other related
person of any such holder, other than someone who is an employee of
the Corporation or any of its subsidiaries (collectively,
“Covered
Persons”), unless such matter, transaction or interest
is presented to, or acquired, created or developed by, or otherwise
comes into the possession of, a Covered Person expressly and solely
in such Covered Person’s capacity as a director of the
Corporation. Without limiting the generality of the foregoing, the
Corporation specifically renounces any rights the Corporation might
have in any Excluded Opportunity, even if the Excluded Opportunity
is one that the Corporation or its subsidiaries might reasonably be
deemed to have pursued or had the ability or desire to pursue if
granted the opportunity to do so. Furthermore, it shall not be
deemed a breach of any fiduciary or other duties, if any, whether
express or implied, for any Non-Employee Director or holder of
Preferred Stock to permit itself or one of its affiliates to engage
in an Excluded Opportunity in preference or to the exclusion of the
Corporation and such Non-Employee Director or holder of Preferred
Stock or any of their respective affiliates shall have no
obligation to disclose to the Corporation or any of its
subsidiaries any information related to its business or
opportunities, disclose to the Corporation or the Board any
confidential information regarding any Excluded Opportunity in the
possession of such Non-Employee Director or holder of Preferred
Stock even if it is material and relevant to the Corporation and/or
the Board, present Excluded Opportunities to the Corporation,
refrain from engaging in any line of business, refrain from
investing in any person or refrain from doing business with any
person.
12. Exclusive Jurisdiction For
Certain Actions.
Exclusive Forum. Unless the
Board otherwise approves, in accordance with Section 141 of
the DGCL, this Certificate of Incorporation or the Bylaws of the
Corporation, the selection of an alternate forum, the Court of
Chancery of the State of Delaware (or, if the Court of Chancery of
the State of Delaware does not have jurisdiction, the Superior
Court of the State of Delaware or, if the Superior Court of the
State of Delaware also does not have jurisdiction, the United
States District Court for the District of Delaware) shall, to the
fullest extent permitted by applicable law, be the sole and
exclusive forum for (i) any derivative action or proceeding
brought on behalf of the Corporation, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any
director, officer or other employee of the Corporation to the
Corporation or the Corporation’s stockholders, (iii) any
action asserting a claim against the Corporation arising pursuant
to any provision of the DGCL, this Certificate of Incorporation or
the Bylaws of the Corporation, (iv) any action to interpret,
apply, enforce or determine the validity of this Certificate of
Incorporation or the Bylaws of the Corporation or (v) any
action asserting a claim against the Corporation governed by the
internal affairs doctrine (each a “Covered Corporate
Proceeding”).
Unless
the Board consents in writing to the selection of an alternative
forum, the federal district courts of the United States of America
shall be the exclusive forum for the resolution of any complaint
asserting a cause of action arising under the Securities Act of
1933, as amended (the “Covered Securities
Proceeding” and together with “Covered Corporate
Proceedings,” the “Covered Proceeding”). Any
person or entity purchasing or otherwise acquiring any interest in
any security of the Corporation shall be deemed to have notice of
and consented to this provision.
(a) Personal Jurisdiction. If any
action the subject matter of which is a Covered Corporate
Proceeding is filed in a court other than the Court of Chancery of
the State of Delaware, or, where permitted in accordance with
paragraph (a) above, the Superior Court of the State of
Delaware or the United States District Court for the District of
Delaware (each, a “Foreign Corporate
Action”), in the name of any person or entity (a
“Claiming
Party”) without the prior approval of the Board or one
of its committees in the manner described in paragraph
(a) above, such Claiming Party shall be deemed to have
consented to (i) the personal jurisdiction of the Court of
Chancery of the State of Delaware or, where applicable, the
Superior Court of the State of Delaware and the United States
District Court for the District of Delaware, in connection with any
action brought in any such courts to enforce paragraph
(a) above (an “Enforcement Action”) and
(ii) having service of process made upon such Claiming Party
in any such Enforcement Action by service upon such Claiming
Party’s counsel in the Foreign Corporate Action as agent for
such Claiming Party.
If any
action the subject matter of which is a Covered Securities
Proceeding is filed in a court other than a federal district court
of the United States of America (each, a “Foreign Securities
Action”), in the name of a Claiming Party without the
prior consent of the Board or one of its committees in the manner
described in paragraph (a) above, such Claiming Party shall be
deemed to have consented to (i) the personal jurisdiction of
the federal district court of the United States of America, in
connection with any Enforcement Action and (ii) having service
of process made upon such Claiming Party in any such Enforcement
Action by service upon such Claiming Party’s counsel in the
Foreign Securities Action as agent for such Claiming
Party.
(b) Notice and Consent. Any person
or entity purchasing or otherwise acquiring any interest in the
shares of capital stock of the Corporation shall be deemed to have
notice of and consented to the provisions of this Section 13 and
waived any argument relating to the inconvenience of the forums
referenced above in connection with any Covered
Proceeding.
13. DGCL Section 203. The
Corporation expressly elects not to be governed by Section 203 of
the DGCL.
IN
WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be made, executed and acknowledged by its duly
authorized officer this [___] day of September, 2020.
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IMAGEWARE
SYSTEMS, INC.
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By:
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Name:
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Kristin
Taylor
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Title:
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Chief
Executive Officer
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[EXHIBITS
INTENTIONALLY OMITTED]