Form of Exchange Agreement

This Exchange Agreement (this “Agreement”) is dated as of September __, 2017, by and among ImageWare Systems, Inc., a Delaware corporation (the “Company”), and each of the signatories to this Agreement (each, a “Stockholder”).

WHEREAS, as of the date hereof, the Stockholder beneficially owns that number of shares of the Company’s Preferred Stock, $0.01 par value, and in such series, as more particularly set forth below the Stockholder’s name on the signature page to this Agreement;

WHEREAS, in connection with a public offering (the “Public Offering”) of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”), and as a condition to the consummation of the Public Offering, Stockholders owning at least 66.6% of the issued and outstanding shares of the Company’s (i) Series E Convertible Preferred Stock, (ii) Series F Convertible Preferred Stock, and (iii) Series G Convertible Preferred Stock (such preferred stock collectively the “Exchanged Preferred”), are required to exchange their Exchanged Preferred for Series A Preferred, the designations, powers, preferences and relative and other special rights of which are set forth in the Certificate of Designations, Preferences and Rights attached hereto as Exhibit A (the “Certificate of Designations”); and

WHEREAS, the Stockholder desires to cancel the Exchanged Preferred currently held by the Stockholder, in exchange for that number of shares of Series A Preferred set forth below the Stockholder’s name on the signature page to this Agreement, in accordance with the terms and conditions set forth herein.

1.2     The closing under this Agreement (the “Closing”) shall take place upon the satisfaction of each of the conditions set forth in Sections 4 and 5 hereof (the “Closing Date”).

1.3     Within five (5) business days after the Closing, the Company shall issue and deliver to each Stockholder a certificate evidencing the Series A Preferred.

 

2.2     Such Stockholder understands that the shares of Series A Preferred are being offered and sold in reliance on specific provisions of Federal and state securities laws, and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Stockholder set forth herein for purposes of qualifying for exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”), and applicable state securities laws.

2.3     Such Stockholder is an “accredited investor” as defined under Rule 501 of Regulation D, promulgated under the Securities Act.

2.6     Such Stockholder owns and holds, beneficially and of record, the entire right, title, and interest in and to the Exchange Shares free and clear of all rights and Encumbrances (as defined below), and each Stockholder has full power and authority to transfer and dispose of the Exchange Shares free and clear of any right or Encumbrance. Other than the transactions contemplated by this Agreement, there is no outstanding plan, pending proposal, or other right of any person to acquire all or any of the Exchange Shares. “Encumbrances” shall mean any security or other property interest or right, claim, lien, pledge, option, charge, security interest, contingent or conditional sale, or other title claim or retention agreement, interest or other right or claim of third parties, whether perfected or not perfected, voluntarily incurred or arising by operation of law, and including any agreement (other than this Agreement) to grant or submit to any of the foregoing in the future.

2.7    Such Stockholder, in its capacity as a holder of Series E Convertible Preferred Stock, Series F Convertible Preferred Stock, and/or Series G Convertible Preferred Stock, as the case may be, hereby approves, subject to and effective upon the consummation of both the Exchange and the Qualified Financing (as defined below), the designation of a series of the Series A Preferred with the preferences and rights set forth in the Certificate of Designations.

3.5    The execution and delivery by the Company of, and the performance by the Company of its obligations under, this agreement will not contravene any (i) provision of applicable law, (ii) the charter or bylaws of the Company, (iii) any agreement or other instrument binding upon the Company or any of its subsidiaries, (iv) any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any of its subsidiaries or (v) applicable rules and regulations of OTCQB Marketplace, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement other than those consents, approvals, authorizations, orders or qualifications which have been obtained.

3.6    Since January 1, 2016, the Company has filed all required reports and other documents of the Company identified in Rule 144(c)(1) under the Securities Act. The documents of the Company filed with the Securities and Exchange Commission (the “SEC”) in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), from the commencement of the fiscal year covered by the Company’s most recent Annual Report on Form 10-K to the date of this agreement (the “SEC Documents”), as of their respective dates, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the audited financial statements and unaudited interim financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim financial statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited interim financial statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate).

 

 

 

3.7     Since the date of the most recent balance sheet included in the Company’s audited financial statements contained in the Company’s most recent Annual Report on Form 10-K, except as disclosed in the SEC Documents filed subsequent to such Form 10-K, there has been no Material Adverse Effect. Since the date of the most recent balance sheet included in the Company’s audited financial statements contained in the Company’s most recent Annual Report on Form 10-K, except as disclosed in the SEC Documents filed subsequent to such Form 10-K, neither the Company nor any of its subsidiaries has (i) declared or paid any dividends other than regular quarterly dividends on the Company’s securities, (ii) sold any assets outside of the ordinary course of business or (iii) made any material capital expenditures (either individually or in the aggregate). Neither the Company nor any of its subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Company or any subsidiary have any knowledge or reason to believe that any of their respective creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.

3.8     The Company and each of its subsidiaries has timely filed and will timely file true, correct and complete income and other material tax returns required to be filed by or on behalf of such entities and has timely paid and will timely pay all income and other material taxes required to be paid by or on behalf of such entities (whether or not shown as due on any tax return).

4.4           Stockholders holding at least 66.6% of the issued and outstanding shares of Exchanged Preferred shall have executed this Agreement.

5.6     In accordance with the terms of the Series A Preferred set forth in the Certificate of Designations, Robert T. Clutterbuck and Charles Frischer shall have been elected as directors of the Company, effective as of the Closing Date.

 

 

 

IN WITNESS WHEREOF, this Agreement was duly executed on the date first written above.