REGISTRATION RIGHTS AGREEMENTS
This Registration Rights Agreement (the "Agreement") is dated as of
February ___, 1999 by and between R Squared Limited, an Irish corporation
("Holder"), and ImageWare Software, Inc., a California corporation (the
"Company").
RECITALS
A. The Company is concurrently issuing Holder a warrant (the
"Warrant") to purchase 1,710,686 shares of Series C Convertible Preferred
Stock ("Series C Preferred"), which is convertible into shares of the
Company's Common Stock (the "Common Stock"), or, alternatively, to purchase
shares of Common Stock directly in connection with the Holder's loan of
$500,000 to the Company; provided, however, the Warrant shall be
automatically cancelled and of no further effect if the Company obtains
equity financing (the "Financing") from institutional investors of $7,500,000
or more on or before April 10, 1999 or as such date is extended pursuant to
that Securities Purchase Agreement as of the date herewith between Holder and
the Company (the "Securities Purchase Agreement").
B. Holder and the Company desire to enter into this Agreement for the
purpose of inducing Holder to make that loan to the Company. This Agreement
shall immediately terminate on the date when the Company obtains the
Financing if the Company obtains the Financing on or before April 10, 1999 or
as such date is extended pursuant to the Securities Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following
meanings:
AFFILIATE. The term "Affiliate" with respect to any
Shareholder shall mean any person or entity directly or indirectly
controlling, controlled by or under common control with that Shareholder
(for purposes of this definition, "control" as used with respect to a
person or entity, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of
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management and policies of such person or entity, whether by ownership
of voting securities, by contract or otherwise).
COMMON STOCK. The term "Common Stock" shall mean the Common
Stock of the Company, par value $0.01 per share.
EXCHANGE ACT. The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
FULLY-DILUTED COMMON STOCK. The term "Fully-Diluted Common
Stock" shall mean all of the outstanding Common Stock of the Company,
assuming conversion, exercise or exchange of all outstanding
convertible, exercisable or exchangeable securities, options, warrants
and similar instruments into or for Common Stock (regardless of whether
such convertibles securities are then convertible, exercisable or
exchangeable). As provided in Section 3.5, all such calculations shall
be appropriately adjusted for stock splits, stock dividends and other
similar events as described therein.
PREFERRED STOCK. The term "Preferred Stock" shall mean the
Series C Preferred Stock of the Company, par value $0.01 per share.
QUALIFIED IPO. The term "Qualified IPO" shall mean a public
offering of the Company's Common Stock under the Securities Act which
results in gross proceeds to the Company in of not less than $10 million
at an offering price per share (as constituted on the date hereof) of
not less than $5.00.
REGISTRABLE SECURITIES. The term "Registrable Securities"
shall mean shares of Company's Common Stock issued upon any one or more
conversions of Preferred Stock issued to the Holder in connection with
the Warrant; PROVIDED, HOWEVER, that a Registrable Security shall cease
to be a Registrable Security at such time that (i) the Registrable
Security has been effectively registered under the Securities Act and
disposed of in accordance with registration statement covering it or
(ii) has been sold to the public pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act and any legend
required under federal or state securities laws has been removed from
the certificate representing such Registrable Security.
RELATED PARTY. The term "Related Party" shall mean (i) with
respect to the Holder, any parent, controlling stockholder, general
partner, controlling member or two-thirds (2/3) or more owned subsidiary
of the Holder, or (ii) with respect to the Holder, a trust, corporation,
partnership, limited liability company or other entity, the
beneficiaries, stockholders, partners,
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members, owners or persons holding a two-thirds (2/3) or more
controlling interest of which consist of the Holder and/or such other
persons or entities referred to in the immediately preceding clause (i).
SECURITIES ACT. The term "Securities Act" shall mean the
Securities Act of 1933, as amended.
SHARES. The term "Shares" shall mean shares of Common Stock
issued or issuable upon the conversion of the Series C Preferred Stock.
2. REGISTRATION RIGHTS
2.1 PIGGYBACK REGISTRATION RIGHTS
(a) RIGHT TO PIGGYBACK. Subject to Sections 2.1(b) and 2.1(c)
below, whenever the Company proposes to register any shares of Common
Stock (or securities convertible into or exchangeable for, or options to
purchase, Common Stock) with the Securities and Exchange Commission (the
"Commission") under the Securities Act (other than pursuant to a
Registration on Form S-4 or S-8, or any successor forms thereto) (a
"Piggyback Registration"), the Company (i) will give written notice to
Holder at least 30 days prior to the anticipated filing date of its
intention to effect such a registration, which notice will specify the
proposed offering price, the kind and number of securities proposed to
be registered, the distribution arrangements and such other information
that at the time would be appropriate to include in such notice, and
(ii) will, subject to Section 2.1(c) below, include in such Piggyback
Registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 20
days after the date of the Company's notice. Except as may otherwise be
provided in this Agreement, Registrable Securities with respect to which
such request for Registration has been received will be registered by
the Company and offered to the public in a Piggyback Registration
pursuant to this Section 2 on terms and conditions at least as favorable
as those applicable to the registration of shares of Common Stock to be
sold by the Company and by any other person selling under such Piggyback
Registration.
(b) NUMBER OF PIGGYBACK REGISTRATIONS. Holder shall be
entitled to unlimited Piggyback Registrations, and the expenses of each
(including the fees and expenses of counsel for the Holder in accordance
with Section 2.5(b) below) shall be borne by the Company in accordance
with the provisions of Section 2.5 hereof.
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(c) PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing
underwriter or underwriters, if any, advise the Holder in writing that
in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably
determine (and notify the Holder of such determination), after
consultation with an investment banker of nationally recognized
standing, that the number or kind of securities proposed to be sold in
such registration (including Registrable Securities to be included
pursuant to Section 2.1(a) above) is inconsistent with that which can be
sold in such registration without having a material effect on the
success of the offering (including, without limitation, an impact on the
selling price or the number of securities that any participant may
sell), the Company will include in such registration the number of
securities, if any, which, in the opinion of such underwriter or
underwriters, or the Company, as the case may be, can be sold as
follows: (i) first, the shares the Company proposes to sell, and (ii)
second, the Registrable Securities requested to be included in such
registration by the Holder.
(d) SELECTION OF UNDERWRITERS. If any Piggyback Registration
is an underwritten offering, the Company will (i) select a managing
underwriter or underwriters to administer the offering, which managing
underwriter or underwriters will be of nationally recognized standing,
and (ii) determine the terms under which such underwriting shall take
place.
2.2 REGISTRATION PROCEDURES. With respect to any Piggyback
Registration (generically, a "Registration"), the Company shall, subject to
Sections 2.1(c), as expeditiously as practicable:
(a) prepare and file with the Commission, within 90 days
after mailing the applicable Notice, a registration statement or
registration statements (the "Registration Statement") relating to the
applicable Registration on any appropriate form under the Securities
Act, which form shall be available for the sale of the Registrable
Securities in accordance with the intended method or methods of
distribution thereof; PROVIDED, HOWEVER, that the Company will include
in any Registration Statement on a form other than Form S-1 all
information that the Holder shall reasonably request and shall include
all financial statements required by the Commission to be filed
therewith, cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc. ("NASD") or any
securities exchange or the NASDAQ, and use its best efforts to cause
such Registration Statement to become effective; PROVIDED FURTHER, that
before filing a Registration Statement or prospectus related thereto (a
"Prospectus") or any amendments or supplements thereto, the Company will
furnish to the Holder covered by such Registration Statement and the
underwriters, if any, copies of all such
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documents proposed to be filed, which documents will be subject to the
reasonable review of such Holder and underwriters and their respective
counsel, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which
the stockholders of a majority of the Registrable Securities covered by
such Registration Statement or the underwriters, if any, shall
reasonably object;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep each Registration Statement effective for the
applicable period, or such shorter period which will terminate when all
Registrable Securities covered by such Registration Statement have been
sold; cause each Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus; the Company shall not be deemed to have used its best
efforts to keep a Registration Statement effective during the applicable
period if it voluntarily takes any action that would result in the
Holder covered thereby not being able to sell such Registrable
Securities during that period unless such action is required under
applicable law, provided that the foregoing shall not apply to actions
taken by the Company in good faith and for valid business reasons,
including, without limitation, the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the
requirements of Section 2.2(k) below, if applicable;
(c) notify the Holder and the managing underwriters, if any,
promptly, and (if requested by any such person or entity) confirm such
advice in writing, (A) when the Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective, (B) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, (D) if at any time
the representaitons and warranties of the Company contemplated by
Section 2.2(n) below cease to be true and correct, (E) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose and
(F) of the happening of any event which makes any statement
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made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements therein not
misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a holder
of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the
purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten offering of the Registrable Securities to
be sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the matters to
be incorporated in such Prospectus supplement or post-effective amendment;
(f) furnish to each managing underwriter and, if requested by the
holders of a majority of the Registrable Securities being sold, to Holder,
without charge, at least one signed copy of the Registration Statement and
any amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits (including those
incorporated by reference);
(g) deliver to Holder and the underwriters, if any, without charge, as
many copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as Holder and underwriters may reasonably
request; the Company consents to the use of each Prospectus or any amendment
or supplement thereto by each of the selling stockholders and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or
supplement thereto;
(h) prior to any public offering of Registrable Securities, register or
qualify or cooperate with the selling stockholders, the underwriters, if any,
and their respective counsel in connection with the registration or
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qualification of such Registrable Securities for the offer and sale under the
securities or "Blue Sky" laws of such jurisdictions as any seller or
underwriter reasonably requests in writing, considering the amount of
Registrable Securities proposed to be sold in each such jurisdiction, and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; PROVIDED, HOWEVER, that the Company will not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified or to take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject;
(i) cooperate with the selling stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing
any restrictive legends and in such denominations and registered in such
names as the managing underwriters may request at least two business days
prior to any sale of Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by Section 2.2(c)(F)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed, or cause such Registrable
Securities to be authorized for trading on the NASDAQ National Market System
if any similar securities issued by the Company are then so authorized, if
requested by the holders of a majority of such Registrable Securities or the
managing underwriters, if any;
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable Registration Statement;
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(n) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith in order to facilitate
the disposition of such Registrable Securities as shall be reasonably
necessary, and in connection therewith, (A) make such representations and
warranties to the Holder and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in primary
underwritten offerings; (B) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and
the holders of a majority of the Registrable Securities being sold) addressed
to Holder and the underwriters, if any, covering the matters customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by Holder and underwriters; (C) obtain
"cold comfort" letters and updates thereof from the Company's independent
certified public accountants addressed to the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (D) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures
set forth in Section 2.4 below with respect to all parties to be indemnified
pursuant to said Section; and (E) the Company shall deliver such documents
and certificates as may be requested by the holders of a majority of the
Registrable Securities being sold and the managing underwriters, if any, to
evidence compliance with Section 2.2(c)(F) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(o) make available for inspection during normal business hours by a
representative of the holders of a majority of the Registrable Securities,
any underwriter participating in any disposition pursuant to such
Registration, and any attorney or accountant retained by the representative
or underwriter, all financial and other records, and pertinent corporate
documents of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; PROVIDED, HOWEVER, that any records, information or
documents that are designated by the Company in writing as confidential shall
be kept confidential by such persons unless disclosure of such records,
information or documents is required by court or administrative order or any
regulatory body having jurisdiction;
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(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make earnings statements satisfying
the provisions of Section II(a) of the Securities Act generally available to
its security holders no later than 45 days after the end of any 12-month
period (or 90 days, if such period is a fiscal year) (A) commencing at the
end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts underwritten offering, or (B) if not
sold to underwriters in such an offering, beginning with the first month of
the Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12-month periods;
and
(q) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the Holder and to the managing underwriters, if any,
make the Company's representatives available for discussion of such document
and make such changes in such document prior to the filing thereof as counsel
for the Holder or underwriters may reasonably request.
The Company may require each seller of Registrable Securities as to
which any Registration is being effected to furnish to the Company such
information regarding the proposed distribution of such securities as the
Company may from time to time reasonably request in writing.
Holder agrees by acquisition of Registrable Securities that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 2.2(c)(F), Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
until Holder's receipt of copies of the supplemented or amended Prospectus as
contemplated by Section 2.2(k), or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus, and, if so directed by the
Company, Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Registrable Securities. In the event the Company
shall give any such notice, the six-month time period referred to in Sections
2.1(b) shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date
when each seller of Registrable Securities covered by such Registration
Statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 2.2(c)(F) or the Advice.
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2.3 REGISTRATION EXPENSES.
(a) GENERALLY. All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, including,
without limitation, all registration and filing fees, the fees and expenses
of the counsel and accountants for the Company (including the expenses of any
"cold comfort" letters and special audits required by or incident to the
performance of such persons), all other costs and expenses of the Company
incident to the preparation, printing and filing under the Securities Act of
the Registration Statement (and all amendments and supplements thereto) and
furnishing copies thereof and of the Prospectus included therein, the costs
and expenses incurred by the Company in connection with the qualification of
the Registrable Securities under the state securities or "Blue Sky" laws of
various jurisdictions, the costs and expenses associated with filings
required to be made with the NASD and any securities exchange or the NASDAQ
(including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations thereof), the costs and expenses of listing the Registrable
Securities for trading on a national securities exchange or authorizing them
for trading on the NASDAQ National Market System and all other costs and
expenses incurred by the Company in connection with any Registration
hereunder; PROVIDED, HOWEVER, that, except as otherwise provided in Section
2.3(b) below, the Company shall not bear the costs and expenses of any
selling Holder for underwriters' commissions, brokerage fees or transfer
taxes, or the fees and expenses of any counsel, accountants or other
representative retained by any selling Holder.
(b) COUNSEL AND OUT-OF-POCKET FEES. Notwithstanding Section 2.3(a)
above, in connection with each Registration hereunder, the Company will
reimburse the selling stockholders for the reasonable fees and disbursements
of not more than one counsel, which counsel shall be chosen by the holders of
a majority of the Registrable Securities covered by the Registration.
2.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify, to
the full extent permitted by law, Holder, its officers, directors and agents
and each person who controls such Holder within the meaning of the Securities
Act and the Exchange Act (each, an "Indemnified Holder"), against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged
untrue statement of a material fact contained in any Registration Statement,
Prospectus or preliminary Prospectus, or any omission or alleged
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omission to state therein a material fact necessary to make the statements
therein (in the case of a Prospectus or any preliminary Prospectus, in light
of the circumstances under which they were made) not misleading, except to
the extent that such untrue statement or omission is caused by any
information with respect to such Indemnified Holder furnished in writing to
the Company by such Indemnified Holder or its representative expressly for
use therein. The Company will also indemnify underwriters, selling brokers,
dealer managers and similar securities industry professionals participating
in the distribution, their officers and directors and each person who
controls such persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to Indemnified Holders; PROVIDED,
HOWEVER, that if pursuant to an underwritten public offering of Registrable
Securities, the Company and any underwriters enter into an underwriting or
purchase agreement relating to such offering that contains provisions
relating to indemnification and contribution between the Company and such
underwriters, such provisions shall be deemed to govern indemnification and
contribution as between the Company and such underwriters.
2.5 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any Registration, Holder shall furnish to the Company in writing such
information with respect to the Holder as the Company reasonably requests for
use in connection with any Registration Statement, Prospectus or preliminary
Prospectus, and agrees to indemnify, to the full extent permitted by law, the
Company, the directors and the officers of the Company signing the
Registration Statement and each person who controls the Company (within the
meaning of the Securities Act and the Exchange Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue statement
of a material fact or any omission to state a material fact required to be
stated therein or necessary to make the statements in the Registration
Statement, Prospectus or preliminary Prospectus (in the case of the
Prospectus or any preliminary Prospectus, in light of the circumstances under
which they were made) not misleading, to the extent, and only to the extent,
that such untrue statement or omission is caused by any information with
respect to the Holder so furnished in writing by the Holder or its
representative specifically for inclusion therein. In no event shall the
liability of any selling Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information with respect to such persons or entities so furnished
in writing by such persons or entities or their representatives specifically
for inclusion in any Registration Statement, Prospectus or preliminary
Prospectus.
2.6 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity entitled
to indemnification hereunder will (i) give prompt written notice to the
indemnifying
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party after the receipt by the indemnified party of a written notice of the
commencement of any action, suit, proceeding or investigation or threat
thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; PROVIDED,
HOWEVER, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding Section 2.4(a) except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist
between such indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party will not
be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying party will
be required to consent to the entry of any judgment or to enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel in any one jurisdiction for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
2.7 CONTRIBUTION. If for any reason the indemnification provided
for in the preceding Section 2.4(a) is unavailable to an indemnified party as
contemplated by such Section, then the indemnifying party, in lieu of
indemnification, shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but
also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations; PROVIDED, HOWEVER,
that no selling stockholder shall be required to contribute in an amount
greater than the difference between the net proceeds received by the Holder
with respect to the sale of Registrable Securities and all amounts already
contributed by the Holder with respect to such claims, including amounts paid
for any legal or other fees or expenses incurred by the Holder.
2.8 RULE 144. The Company agrees that at all times after it has
filed a registration statement pursuant to the requirements of the Securities
Act relating to any class of equity securities of the Company, it will file
in a timely manner all reports required to be filed by it pursuant to the
Securities Act and the Exchange Act and will take such further action as any
Holder may reasonably request in order that such
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Holder may effect sales of Registrable Securities pursuant to Rule 144. At
any reasonable time and upon request of Holder, the Company will furnish the
Holder with such information as may be necessary to enable the Holder to
effect sales of Common Stock pursuant to Rule 144 under the Securities Act
and will deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, the Company
may deregister any class of its equity securities under Section 12 of the
Exchange Act or suspend its duty to file reports with respect to any class of
its securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
2.9 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. Holder may not
participate in any underwritten registrations hereunder unless Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting arrangements approved by the Company, and (ii) accurately
completes in a timely manner and executes all questionnaires, powers of
attorney, underwriting agreements and other documents customarily required
under the terms of such underwriting arrangements.
3. DEFINITIONS
3.1 SPECIFIC PERFORMANCE, ETC. The Company and Holder, in addition
to being entitled to exercise all rights provided herein, in the Company's
Certificate of Incorporation or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. Each party agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
3.2 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall
be in writing and shall be deemed to have been duly received when received if
personally delivered; when transmitted if transmitted by telecopy, electronic
or digital transmission method; the day after it is sent, if sent for next
day delivery to a domestic address by recognized overnight delivery service
(e.g., Federal Express); and upon receipt, if sent by certified or registered
mail, return receipt requested. In each case notice shall be sent to:
If to Holder:
R Squared Limited
c/o Royal Bank of Canada Trust Co. (Cayman Limited)
P.O. Box 1586
Cardinal Avenue, George Town
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Grand Cayman
Cayman Island, B.W.I.
Attn: Mr. Robin Garnham
With a Copy to:
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
650 Town Center Drive, 4th. Floor
Costa Mesa, California 92626-1925
Attn: John J. Giovannone, Esquire
Telecopy: (714) 513-5130
If to Company:
ImageWare Software, Inc.
10883 Thornmint Road
San Diego, California 92127
Attn: Chief Executive Officer
Telecopy: (619) 673-0291
With a Copy to:
LUCE, FORWARD, HAMILTON & SCRIPPS LLP
600 West Broadway, Suite 2600
San Diego, California 92101
Attn: Robert G. Copeland, Esquire
Telecopy: (619) 232-8311
or to such other place and with such other copies as any party may designate
as to itself by written notice to the others.
3.3 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties
hereto. The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers of or
consents to departures from the provisions hereof may not be given unless
approved in writing by the Company and Holder. No action taken pursuant to
this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party
taking such
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action. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or
privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
3.4 TERMINATION. This Agreement shall terminate and cease to be
of any further force or effect upon the date (i) the Company obtains the
Financing on or before April 10, 1999, or as such date is extended pursuant
to the Securities Purchase Agreement, or (ii) the Company merges with and
into another corporation or other entity where, upon consummation of the
merger, the holders of the Company's voting stock immediately prior to the
merger will hold less than 50% of the voting stock of the surviving
corporation immediately after the merger.
3.5 RECAPITALIZATIONS, EXCHANGE, ETC. AFFECTING THE COMPANY'S
STOCK. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the Shares and to any and all shares of capital
stock of the Company that may be issued in respect of, in exchange for, or in
substitution of the Shares and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalizations and the
like occurring after the date hereof.
3.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.7 HEADINGS. The headings of the Articles and Sections herein
are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
3.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California;
provided, however, that if any law or laws of such state shall require or
permit the application of the laws of any other state or other jurisdiction,
such law or laws shall be disregarded with the result that the remaining laws
of the State of California shall nonetheless apply.
3.9 CONSTRUCTION. Differences in language as between similar
provisions covering similar matters may reflect differences in style rather
than a different substantive intent and should be construed accordingly.
3.10 EXPENSES. Except as otherwise specified in this Agreement,
each party hereto shall pay its own legal, accounting, out-of-pocket and
other expenses incident to this Agreement and to any action taken by such
party in preparation for carrying this Agreement into effect.
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3.11 INVALIDITY. In the event that any one or more of the
provisions contained in this Agreement or in any other document or instrument
referred to herein, shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, then to the maximum extent permitted by law,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such document or instrument.
3.12 CUMULATIVE REMEDIES. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
(the "Company")
IMAGEWARE SOFTWARE, INC.,
a California corporation
By: /s/ S. James Miller Jr.
------------------------------
Name: S. JAMES MILLER JR.
------------------------------
Title: Chairman & CEO
--------------------
("Holder")
R SQUARED LIMITED,
an Irish corporation
By: /s/ M.P. AP P. Stradling
------------------------------
Name: M.P. AP P. STRADLING
------------------------------
Title: Director
------------------------------
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