Exhibit 10.35
CONVERTIBLE PROMISSORY NOTE
$1,250,000.00 November 10, 1999
San Diego, California
FOR VALUE RECEIVED, ImageWare Software, Inc., a California corporation
("Maker"), promises to pay to Naoya Harano ("Holder"), or order, at the address
of Holder as set forth on the signature page hereof, or such other place as
Holder may from time to time designate, the principal amount of One Million Two
Hundred Fifty Thousand Dollars ($1,250,000.00), with interest on such amount
until paid, at the rate set forth below and payable as follows:
INTEREST RATE
The amount of outstanding principal shall bear interest at the rate of
ten percent (10%) per annum. Interest shall accrue on the principal balance from
and after November 10, 1999 and shall be calculated on the basis of a 365-day
year.
PAYMENT
A payment of interest only shall be paid annually on each anniversary
of the date of this Note; provided, however, if the Maker does not make such
payment, the amount equivalent to the interest accrued hereunder as of each
anniversary date shall be added to the principal and shall accrue interest at
the rate of ten percent (10%) per annum. All outstanding principal and accrued
and unpaid interest shall be payable upon the earlier of (a) February 10, 2001
or (b) within five business (5) days after the closing of the initial
underwritten public offering of Maker's common stock pursuant to a registration
statement under the Securities Act of 1933.
Any payment hereunder shall be applied first to expenses of collection,
if any, then to accrued interest, and the balance, if any, shall be then applied
to reduction of principal. All amounts due hereunder shall be paid in lawful
money of the United States of America.
CONVERSION OPTION
If the outstanding principal and accrued and unpaid interest due
hereunder has not been paid on or before April 1, 2000 (the "Exercise Date"),
then Holder may, at its option, at any time and from time to time, elect to
convert (the "Conversion Right") all or a portion of the then outstanding
principal and accrued and unpaid interest and any other amount due hereunder
into shares of the Common Stock (the "Shares") of Maker at $1.00 (the
"Conversion Price") per Share. Notwithstanding the section entitled "ADJUSTMENTS
TO THE CONVERSION PRICE" below, it is the intent of the Maker and the Holder
that the Conversion Price is on a post-split basis after the 5.275 to 1 reverse
stock split which is anticipated to occur prior to Maker's filing of a
registration statement for its initial public offering of securities. The
Conversion Right shall be exercisable by written notice to Maker by Holder at
any time after the Exercise Date.
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In order to effect the Conversion Right, Holder shall deliver a copy of
the fully executed Notice of Conversion (the form of which is attached hereto)
to Maker for the Shares. Upon receipt by Maker of the Notice of Conversion from
Holder, Maker shall promptly send a confirmation to Holder stating that the
Notice of Conversion has been received and the date upon which Maker expects to
deliver the Shares which are the subject of such Notice of Conversion. No
fractional Shares shall be issued upon conversion. Amounts converted pursuant to
the foregoing shall be deemed fully paid and satisfied and Holder shall note
such satisfaction in the original copy of this Note.
The Shares shall not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and shall be subject to restrictions on transfer
as imposed by the Securities Act and/or state securities laws. The Holder shall
have the same registration rights with respect to the Shares as have been
granted to Holder in the Stock Purchase Warrant between Holder and Maker of even
date herewith.
Holder represents, warrants and covenants that (i) Holder has had, and
continues to have, access to detailed information with respect to the business,
financial condition, results of operations and prospects of Maker; (ii) Holder
has received or has been provided access to all material information concerning
an investment in Maker represented by the Conversion Right and the Shares; (iii)
as a result of Holder's study of the aforementioned information and Holder's
prior overall experience in financial matters, and Holder's familiarity with the
nature of businesses such as Maker, Holder is properly able to evaluate the
capital structure of Maker, the business of Maker, and the risks inherent
therein; (iv) Holder has been given the opportunity to obtain any additional
information or documents from, and to ask questions and receive answers of, the
officers, directors and representatives of Maker to the extent necessary to
evaluate the merits and risks related to an investment in Maker represented by
the Conversion Right and the Shares; (v) Holder's investment in securities of
Maker pursuant hereto is consistent, in both nature and amount, with Holder's
overall investment program and financial condition; (vi) Holder's financial
condition is such that Holder can afford to bear the economic risk of holding
securities and to suffer a complete loss of Holder's investment in Maker
represented by the Conversion Right and the Shares; and (v) Holder presently
qualifies and will as of the date of the Conversion Right qualify as an
"accredited investor" within the meaning of Regulation D of the rules and
regulations promulgated under the Securities Act.
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
only as follows:
(a) If at any time on or after the date of this Note, the number of
outstanding shares of Common Stock of Maker is increased by a stock split, stock
dividend, combination, reclassification or other similar event, the Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased.
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(b) In case the Maker shall make or issue, or shall fix a record date
for the determination of eligible holders entitled to receive, a dividend or
other distribution with respect to the shares payable in (i) securities of the
Maker (other than Shares of Common Stock) or (ii) assets (excluding cash
dividends paid or payable solely out of retained earnings), then in each case,
the holder of this Note on conversion hereof at any time after the consummation,
effective date or record date of such event, shall receive, in addition to the
Shares issuable on such conversion prior to such date, the securities or other
assets of the Maker to which such holder would have been entitled upon such date
if such holder had converted this Note immediately prior thereto (all subject to
further adjustment as provided in this Note).
(c) In case of any merger of the Maker with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Maker shall not be the continuing or surviving entity of such reorganization
or merger, or any sale of all or substantially all of the assets of the Maker
(any such transaction being hereinafter referred to as a "Reorganization"),
then, in each case, (i) the holder of this Note shall be provided with written
notice of the proposed Reorganization at least thirty (30) days prior to the
proposed Reorganization date, and (ii) the holder of this Note, on conversion
hereof at any time after the consummation or effective date of such
Reorganization (the "Reorganization Effective Date"), shall receive, in lieu of
the Shares issuable on such conversion prior to the Reorganization Effective
Date, the stock and other securities and property (including cash) to which such
Holder would have been entitled upon the Reorganization Effective Date if such
Holder had converted this Note immediately prior thereto (all subject to further
adjustment as provided in this Note).
(d) In case of any adjustment or readjustment in the price or kind of
securities issuable on the conversion of this Note, the Maker will promptly give
written notice thereof to the holder of this Note setting forth such adjustment
or readjustment and showing in reasonable detail the computation of such
adjustment.
(e) The Maker will not, by amendment of its Articles 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 of this Note,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of this Note against dilution or other
impairment. Without limiting the generality of the foregoing, the Maker (a) will
at all times reserve and keep available a number of its authorized Shares of
Common Stock, free from all preemptive rights therein, which will be sufficient
to permit the conversion of this Note and (b) shall take all such action as may
be necessary or appropriate in order that all Shares as may be issued pursuant
to the conversion of this Note will, upon issuance, be duty and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
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DEFAULT/ACCELERATION
If any one or more of the following events shall occur (hereinafter
called an "Event of Default"), namely: (i) default shall be made in the payment
of any amount owning hereunder when due; or (ii) the Maker shall become
insolvent, or shall be unable to pay its debts as they mature; or shall admit in
writing its inability to pay its debts as they mature; or shall make an
assignment for the benefit of its creditors; or shall file or commence or have
filed or commenced against it any proceeding for any relief under any bankruptcy
or insolvency law or any law or laws relating to the relief of debtors,
readjustment of indebtedness, reorganizations, compositions or extensions (and
in the case of an in voluntary proceeding, the same shall not be dismissed or
stayed within sixty (60) days thereof), THEN, upon the occurrence of any such
Event of Default, Holder at its election, and without presentment, demand,
notice of any kind, all of which are expressly waived by Maker, may declare the
entire outstanding balance of principal and interest thereon immediately due and
payable; provided, however, that upon the occurrence of an Event of Default
described in clause (ii) above, all amounts due hereunder shall become
immediately and automatically due and payable without any requirement of notice
or other action by Holder.
NO WAIVER BY HOLDER
The acceptance by Holder of any payment under this Note after the date
such payment is due, or the failure to declare an Event of Default as herein
provided, shall not constitute a waiver of any of the terms of this Note or the
right to require the prompt payment when due of future or succeeding payments or
to declare an Event of Default for any failure to so pay or for any other
default. The acceptance by Holder of a payment of a portion of any installment
at any time that such installment is due in full shall not cure or excuse the
default caused by the failure to pay such installment in full and shall not
constitute a waiver of the right to require full payment when due of all future
or succeeding installments.
ATTORNEYS' FEES AND COSTS
In the event Holder takes any action to enforce any provision of this
Note, either through legal proceedings or otherwise, Maker promises to
immediately reimburse Holder for reasonable attorneys' fees and all other costs
and expenses so incurred. Maker shall also reimburse Holder for all attorneys'
fees and costs reasonably incurred in the representation of Holder in any
bankruptcy, insolvency, reorganization or other debtor-relief proceeding of or
relating to Maker or any security for the obligations hereunder, or for any
action to enforce any judgment rendered hereon or relating to enforcement
hereof.
WAIVERS
The Maker, endorsers, guarantors and sureties of this Note hereby waive
diligence, demand, presentment, protest and demand and notice of such protest,
demand, dishonor and non-payment of this Note; expressly agree that this Note,
or any payment or performance or other term hereunder,
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may be renewed, modified or extended from time to time and at any time; and
consent to the acceptance or release of security for this Note or the release of
any party or guarantor, all without in any way affecting their liability and
waive the right to plead any and all statutes of limitations as a defense to any
demand on this Note, or on any guaranty thereof, or to any agreement to pay the
same to the full extent permissible by law.
MAXIMUM INTEREST
In no event whatsoever shall the amount paid, or agreed to be paid, to
Holder for the use, forbearance or detention of money to be loaned hereunder or
otherwise, or for the performance or payment of any covenant or obligation
contained herein, exceed the maximum amount permissible under applicable law. If
from any circumstance whatsoever fulfillment of any provision hereof exceeds the
limit of validity prescribed by law, then, IPSO FACTO, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if from any such
circumstance Holder shall ever receive as interest under this Note or otherwise
an amount that would exceed the highest lawful rate, such amount that would be
excessive interest shall be applied to the reduction of the principal amount
owing hereunder (without charge for prepayment) and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal,
such excess shall be refunded to Maker.
PREPAYMENT
Maker may prepay this Note in full or in part at any time without
premium. No partial prepayment shall release Maker from thereafter tendering
required payments until the Note is paid in full. Upon any election by Maker to
prepay this Note, Holder shall have the right to accept such prepayment or elect
to convert the amount sought to be prepaid. If such prepayment is made prior to
the Exercise Date, Holder shall retain the right to purchase shares in the
amount of such prepayment at the Conversion Price provided Holder exercises such
right within 30 days after the Exercise Date.
BINDING ON SUCCESSORS
The terms of this Note shall inure to the benefit of and bind the
parties hereto and their heirs, legatees, devisees, representatives, successors
and assigns. As used herein the term "Maker" shall include the undersigned Maker
and any other person or entity who may subsequently become liable for the
payment hereof. The term "Holder" shall include the named Holder as well as any
other person or entity to whom this Note or any interest in this Note is
conveyed, transferred or assigned.
AUTHORITY TO BIND
Each person signing this Note on behalf of Maker represents and
warrants that he has full authority to do so and that this Note binds the
corporation.
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TIME OF ESSENCE
It is agreed that time is of the essence as to every term, condition
and provision of this Note.
NOTICE
All notices, demands and other communications required or permitted
hereunder shall be in writing and shall be deemed effective the earliest of (i)
actual delivery if delivered by personal delivery, (ii) three (3) days following
deposit, first class postage prepaid, with the United States mail, (iii) upon
the earliest to occur, if sent by certified postage prepaid mail, of three (3)
days following deposit thereof in the United States mail or receipt (or refusal
to accept delivery), or (iv) on the next business day after timely and proper
deposit with an overnight air courier with request for next business day
delivery. For purposes of notice, the address of Maker shall be as set forth on
the signature page hereof and the address of the Holder shall be as set forth on
the signature page hereof; provided, however, that any party shall have the
right to change its address for notice hereunder to any other location by giving
notice to the other party in the manner set forth above.
SEVERABILITY
Every provision hereof is intended to be several and if any provision
is determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable, such illegality, invalidity or unenforceability shall not affect
the other provisions hereof, which shall remain binding and enforceable.
MODIFICATION
This Note may not be changed or modified orally, nor may any right or
provision hereof be waived orally, but in each instance only by an instrument in
writing signed by the party against which enforcement of such change,
modification or waiver is sought.
REMEDIES CUMULATIVE
Each and every right, remedy and power hereby granted to Holder or
allowed it by law or other agreement shall be cumulative and not exclusive and
may be exercised by Holder from time to time.
CURRENCY CONVERSION
It is the intent of the Maker and Holder that the principal of this
Note be subject to adjustment based upon the fluctuation of the rate of exchange
between U.S. dollars and Japanese yen between the date hereof and the date of
repayment of the principal hereunder. It is agreed that the rate of exchange
between U.S. dollars and Japanese yen as of the date of this Note is 104.55
Japanese yen per U.S. dollar, and therefore the original principal amount of
this Note of
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$1,250,000.00 is as of the date hereof equal to 130,687,500 Japanese yen (the
"Original Yen Amount"). Thus, the principal amount of this Note shall be
adjusted as of the time of final payment hereunder so that the amount repaid
hereunder in U.S. dollars shall equal, based upon the foreign exchange rate
published in the Wall Street Journal on such repayment date setting forth the
foreign exchange rate as of the business day proceeding the date of repayment,
the Original Yen Amount. Maker and Holder acknowledge that such adjustment may
either increase or decrease the principal amount owing hereunder as of the date
of repayment.
IMPERIAL BANK LOAN
Maker shall use its best efforts to obtain the consent of Imperial Bank
to permit Maker to grant to Holder a security interest in the assets of Maker to
secure Maker's obligations to Holder hereunder and shall make a written request
to Imperial Bank for such consent within 45 days from the date of this Note and
will provide a copy of such written request to Holder. During the term of this
Note, upon notice by Holder to Maker of Holder's desire to pay off in full and
receive an assignment of Maker's outstanding obligation to Imperial Bank under
Maker's existing line of credit with Imperial Bank, Maker shall cooperate with
Holder (which shall not include any expenditure of funds) to cause Imperial Bank
to permit such repayment and assignment.
GOVERNING LAW
This Note shall be governed by and construed under the internal laws of
the State of California. This Note shall be deemed made and entered into in San
Diego County, California.
HOLDER: MAKER:
ImageWare Software, Inc., a California
corporation
/s/ Naoya Horano /s/ S. James Miller, Jr.
- ------------------------------------ By: -----------------------------------
Naoya Harano S. James Miller, Jr., President
ADDRESS: ADDRESS:
c/o Atlus Co., Ltd. 10883 Thornmint Road
4-8 Kagurazaka San Diego, California 92127
Shinjuku-ku, Tokyo, Japan Attn: S. James Miller, Jr.
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NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert $________________ principal
amount of the Convertible Promissory Note dated November 10, 1999 (the "Note")
issued by ImageWare Software, Inc. ("Maker"), plus all accrued and unpaid
interest on such principal amount (i.e. $______________), into shares of common
stock ("Common Stock") of Maker according to the conditions of the Note, as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
The undersigned represents and warrants that al offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Note shall be made pursuant to registration of the Common Stock under the
Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
In the event this Notice of Conversion is for the remaining amount owing under
the Note, the undersigned acknowledges that this Notice of Conversion shall not
become effective until and unless the original copy of this Note marked "PAID IN
FULL" has been delivered to Maker or other satisfactory evidence of payment of
the Note is provided to Maker.
Date of Conversion:__________________________
Applicable Conversion Price:_________________
Number of Shares of
Common Stock to be Issued:___________________
Signature:___________________________________
Name:________________________________________
Address:_____________________________________
ACKNOWLEDGED AND AGREED:
IMAGEWARE SOFTWARE, INC.
By:______________________________
Name:____________________________
Title:___________________________ Date:_________________________________
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