Item 1.01. Entry Into a Material Definitive Agreement
On May
17, 2021 (the "Execution
Date"), ImageWare Systems, Inc. (the "Company")
entered into a purchase agreement, dated as of the Execution Date
(the "Purchase
Agreement"), and a registration rights agreement, dated as
of the Execution Date (the "Registration
Rights Agreement"), with Lincoln Park Capital Fund, LLC
("Lincoln
Park"), pursuant to which Lincoln Park has committed to
purchase up to $15,100,000 of the Company's common stock, $0.01 par
value per share (the "Common
Stock").
Under
the terms and subject to the conditions of the Purchase Agreement,
the Company has the right, but not the obligation, to sell to
Lincoln Park, and Lincoln Park is obligated to purchase up to
$15,100,000 worth of shares of Common Stock. Such sales of Common
Stock by the Company, if any, will be subject to certain
limitations, and may occur from time to time, at the Company's sole
discretion, over the 24-month period commencing on the date that a
registration statement covering the resale of shares of Common
Stock that have been and may be issued under the Purchase
Agreement, which the Company agreed to file with the Securities and
Exchange Commission (the "SEC")
pursuant to the Registration Rights Agreement, is declared
effective by the SEC and a final prospectus in connection therewith
is filed and the other conditions set forth in the Purchase
Agreement are satisfied, all of which are outside the control of
Lincoln Park (such date on which all of such conditions are
satisfied, the "Commencement
Date"). The Company has until May 31, 2021 to file the
registration statement.
Under
the Purchase Agreement, on any business day over the term of the
Purchase Agreement, the Company has the right, in its sole
discretion, to present Lincoln Park with a purchase notice (each, a
"Purchase
Notice") directing Lincoln Park to purchase up to 250,000
shares of Common Stock per business day (“Regular Purchase”), which (i)
increases to up to 300,000 shares in the event the price of the
Company’s Common Stock is not below $0.10 per share, (ii)
increases to 350,000 shares of Common Stock per Business Day in the
event the price of the Company’s Common Stock is not below
$0.25 per share, and (iii) increases to 500,000 shares in the event
the price of the Company’s Common Stock is not below $0.50
per share (in each case, subject to adjustment for any
reorganization, recapitalization, non-cash dividend, stock split,
reverse stock split or other similar transaction as provided in the
Purchase Agreement). In each case, Lincoln Park's maximum
commitment in any single Regular Purchase may not exceed $500,000.
The parties may mutually agree to increase the number of shares to
be purchased by Lincoln Park pursuant to any Regular Purchase to up
to 2,000,000 shares. The Purchase Agreement provides for a purchase
price per Purchase Share (the "Purchase
Price") equal to the lesser of:
●
the lowest sale
price of the Company's Common Stock on the purchase date;
and
●
the average of the
three lowest closing sale prices for the Company's Common Stock
during the fifteen consecutive business days ending on the business
day immediately preceding the purchase date of such
shares.
In
addition, on any date on which the Company submits a Purchase
Notice to Lincoln Park, the Company also has the right, in its sole
discretion, to present Lincoln Park with an accelerated purchase
notice (each, an "Accelerated
Purchase Notice") directing Lincoln Park to purchase an
amount of stock (the "Accelerated
Purchase") equal to up to the lesser of (i) three times the
number of shares of Common Stock purchased pursuant to such Regular
Purchase; and (ii) 30% of the aggregate shares of the Company's
Common Stock traded during all or, if certain trading volume or
market price thresholds specified in the Purchase Agreement are
crossed on the applicable Accelerated Purchase Date, the portion of
the normal trading hours on the applicable Accelerated Purchase
Date prior to such time that any one of such thresholds is crossed
(such period of time on the applicable Accelerated Purchase Date,
the "Accelerated
Purchase Measurement Period"), provided that Lincoln Park
will not be required to buy shares of Common Stock pursuant to an
Accelerated Purchase Notice that was received by Lincoln Park on
any business day on which the last closing trade price of the
Company's Common Stock on the OTC Markets (or alternative national
exchange in accordance with the Purchase Agreement) is below $0.25
per share. The parties may mutually agree to increase the number of
shares to be purchased by Lincoln Park pursuant to any Accelerated
Purchase. The purchase price per share of Common Stock for each
such Accelerated Purchase will be equal to the lesser
of:
●
95% of the volume
weighted average price of the Company's Common Stock during the
applicable Accelerated Purchase Measurement Period on the
applicable Accelerated Purchase Date; and
●
the closing sale
price of the Company's Common Stock on the applicable Accelerated
Purchase Date.
The
Company may also direct Lincoln Park on any business day on which
an Accelerated Purchase has been completed and all of the shares to
be purchased thereunder have been properly delivered to Lincoln
Park in accordance with the Purchase Agreement, to purchase an
amount of stock (the "Additional
Accelerated Purchase") equal to up to the lesser of (i)
three times the number of shares purchased pursuant to such Regular
Purchase; and (ii) 30% of the aggregate number of shares of the
Company's Common Stock traded during a certain portion of the
normal trading hours on the applicable Additional Accelerated
Purchase date as determined in accordance with the Purchase
Agreement (such period of time on the applicable Additional
Accelerated Purchase date, the "Additional
Accelerated Purchase Measurement Period"). The parties may
mutually agree to increase the number of shares to be purchased by
Lincoln Park pursuant to any Additional Accelerated
Purchase. Additional Accelerated Purchases will be equal to
the lower of:
●
95% of the volume
weighted average price of the Company's Common Stock during the
applicable Additional Accelerated Purchase Measurement Period on
the applicable Additional Accelerated Purchase date;
and
●
the closing sale
price of the Company's Common Stock on the applicable Additional
Accelerated Purchase date.
The
aggregate number of shares that the Company can sell to Lincoln
Park under the Purchase Agreement may in no case exceed that number
which, together with Lincoln Park’s then current holdings of
Common Stock, exceed 4.99% of the Common Stock outstanding
immediately prior to the delivery of the Purchase
Notice.
Lincoln
Park has no right to require the Company to sell any shares of
Common Stock to Lincoln Park, but Lincoln Park is obligated to make
purchases as the Company directs, subject to certain conditions.
There are no upper limits on the price per share that Lincoln Park
must pay for shares of Common Stock.
The
Company has agreed with Lincoln Park that it will not enter into
any "variable rate" transactions with any third party for a period
defined in the Purchase Agreement.
The
Company issued to Lincoln Park 1,000,000 shares of Common Stock as
commitment shares in consideration for entering into the Purchase
Agreement on the Execution Date.
The
Purchase Agreement and the Registration Rights Agreement contain
customary representations, warranties, agreements and conditions to
completing future sale transactions, indemnification rights and
obligations of the parties. The Company has the right to terminate
the Purchase Agreement at any time, at no cost or penalty, subject
to the survival of certain provisions set forth in the Purchase
Agreement. During any "event of default" under the Purchase
Agreement, all of which are outside of Lincoln Park's control,
Lincoln Park does not have the right to terminate the Purchase
Agreement; however, the Company may not initiate any regular or
other purchase of shares by Lincoln Park, until such event of
default is cured. In addition, in the event of bankruptcy
proceedings by or against the Company, the Purchase Agreement will
automatically terminate.
Actual
sales of shares of Common Stock to Lincoln Park under the Purchase
Agreement will depend on a variety of factors to be determined by
the Company from time to time, including, among others, market
conditions, the trading price of the Common Stock and
determinations by the Company as to the appropriate sources of
funding for the Company and its operations. Lincoln Park has no
right to require any sales by the Company but is obligated to make
purchases from the Company as it directs in accordance with the
Purchase Agreement. Lincoln Park has covenanted not to cause or
engage in any manner whatsoever, any direct or indirect short
selling or hedging of the Company's shares.
In
connection with the execution of the Purchase Agreement, the
Company sold, and Lincoln Park purchased, 1.0 million shares of
Common Stock for a purchase price of $100,000 (“Original
Purchase”).
Lincoln
Park represented to the Company, among other things, that it was an
"accredited investor" (as such term is defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, as amended (the
"Securities
Act")), and the Company sold the securities in reliance upon
an exemption from registration contained in Section 4(a)(2) of the
Securities Act and Regulation D promulgated
thereunder.
The
foregoing descriptions of the Purchase Agreement and the
Registration Rights Agreement are qualified in their entirety by
reference to the full text of such agreements, copies of which are
attached hereto as Exhibit 10.1 and 10.2, respectively, and each of
which is incorporated herein in its entirety by reference. The
representations, warranties and covenants contained in such
agreements were made only for purposes of such agreements and as of
specific dates, were solely for the benefit of the parties to such
agreements and may be subject to limitations agreed upon by the
contracting parties.
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