Please return the enclosed written consent to us no later than 5:00 p.m., Pacific Time, on October 05, 2011August 22, 2014 via facsimile to (858) 673-1770, via email to wgw@iwsinc.com, or mail to:
ImageWare Systems, Inc.
Attn: Wayne Wetherell, Corporate Secretary
10815 Rancho Bernardo Road, Suite 310
San Diego, CA 92127
Sincerely,
JimBy order of the Board of Directors,
/s/ S. James Miller, Jr.
S. James Miller, Jr.
Chief Executive Officer
Important Notice Regarding the Availability of Consent Solicitation Materials:
The consent solicitation materials are available on the SEC's website at and Chairmanwww.sec.govas well as atwww.proxyconnect.com/imageware.
IMAGEWARE SYSTEMS, INC.
10815 Rancho Bernardo Rd., Suite 310
San Diego, CA 92127
Tel. (858) 673-8600
Fax (858) 673-1770
CONSENT SOLITICATIONSOLICITATION STATEMENT
WRITTEN CONSENT SOLICITATION OF STOCKHOLDERS
September 14, 2011
This Consent Solicitation Statement (“Statement”) and the enclosed Consent areis being mailedfurnished in connection with the solicitation of written consents byof the Board of Directorsstockholders of ImageWare Systems, Inc., a Delaware corporation (the "Company"“Company”, “us”, “we” or “our”). These materials were first sent, to approve an amendment (the “Amendment”) to the Company'sCompany’s 1999 Stock Option Plan (the “1999 Plan”) to increase the number of shares authorized for issuance thereunder from approximately 4.0 million to approximately 7.0 million.
Our Board of Directors choose to seek stockholder approval of the Amendment by written consent ("Written Consent"), rather than calling a special meeting of stockholders, in order to eliminate the costs and management time involved in holding a special meeting. Written Consents are being solicited from all of our stockholders of record pursuant to Section 228(b) of the Delaware General Corporation Law and Section 2.11 of our Bylaws.
Who May Consent
This Consent Solicitation Statement and attached form of Written Consent are being mailed to eligible stockholders on or about September 14, 2011.July 1, 2014.
The mailing address On June 20, 2014, the record date for the determination of the principal executive officestockholders entitled to act with respect to this Consent Solicitation (the “Record Date”), we had 92,431,144 shares of the Company is 10815 Rancho Bernardo Road, Suite 310, San Diego, California 92127.
Consents are to be submitted by no later than 5:00 p.m., Pacific Time, on October 05, 2011 subject to extension by our Board of Directors, to the Company at the address stated above, or via facsimile to (858) 673-1770.
VOTING RIGHTS AND SOLICITATION
Any stockholder executing a Consent has the power to revoke it at any time before October 05, 2011 (or, if earlier, the date on which at least the minimum number of shares have consented in order to approve the Proposals set forth herein), by delivering written notice of such revocation to the Secretary of the Company. The cost of soliciting Consents will be paid by the Company and may include reimbursement paid to brokerage firms and others for their expense in forwarding solicitation material. Solicitation will be made primarily through the use of the mail but also personally or by telephone. Regular employees of the Company may also, without additional remuneration, solicit Consents personally or by telephone.
Only holders of record of our common stock, par value $0.01 per share (“Common Stock”), and 239,400 shares of Series B Preferred Stock, par value $0.01 per share (“Series B Preferred”Preferred”), Series C 8% Convertible Preferred Stock (“Series C Preferred”), and Series D 8% Convertible Preferred Stock (“Series D Preferred”) at the closeoutstanding, each of business on August 05, 2011, the record date for determining those stockholders whowhich are entitled to give Consents (“Record Date”), are entitledact with respect to receive notice of and vote on the Proposals. At the close of business on the Record Date, the Company had the following shares of our Common Stock, Series B Preferred, Series C Preferred, and Series D Preferred issued and outstanding:
· | 26,328,062 shares of Common Stock were issued and outstanding, and held by approximately 1,421 holders of record; |
· | 239,400 shares of Series B Preferred were issued and outstanding and held by approximately 33 holders of record; |
· | 2,200 shares of Series C Preferred were issued and outstanding, and held by approximately 4 holders of record; and |
· | 2,085 shares of Series D Preferred were issued and outstanding and held by approximately 15 holders of record. |
Holdersthis Consent Solicitation. Each holder of Common Stock will beis entitled to one vote per share of Common Stock held, asand, subject to certain limitations set forth in our Certificate of the Record Date, and holdersIncorporation, each holder of our Series B Preferred will beis entitled to one vote for eachper share of our Common Stock issuable upon conversion of the Series B Preferred held as of the Record Date, voting as a single class. Holders of Series C Preferred and Series D Preferred will be entitled to one vote for each share of our Series C Preferred and Series D Preferred held as of the Record Date, solely with respect to Proposal No. 2, voting as a separate class, with respect to the Certificate of Designations for the Series C Preferred and Certificate of Designations for the Series D Preferred, as the case may be.
Each share of our Series B Preferred, Series C Preferred, and Series D Preferred are entitled to payment of dividends, which are payable at the option of the Company in either cash or additional shares of Preferred Stock. As a result of the accrual of dividends, the Series B Preferred, the Series C Preferred and Series D Preferred are convertible into 56,734, 6,043,310 and 5,428,435 shares of our Common Stock, respectively.
On these matters, abstentions (including failures to return Consents) and broker non-votes have the same effect as a negative vote. If you sign and return the written consent but do not indicate how you want to vote as to each of the Proposals, your consent will be treated as a consent authorizing each of the Proposals.
Important Notice Regarding the Availability of Materials for this Consent Solicitation
This Statement and the written consent form to be completed by shareholders in connection herewith are also available on the SEC's website at www.sec.gov and at www.proxyconnect.com/imageware.
PROPOSAL 1
AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
General
On July 25, 2011, the Board of Directors unanimously adopted resolutions approving, and requesting that the stockholders authorize, an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock from 50,000,000 shares to 150,000,000 shares (“Certificate Amendment”). This Certificate Amendment will not change the total number of authorized shares of the Company’s Preferred Stock (4,000,000). The Board of Directors determined that this Certificate Amendment is advisable and in the best interests of the Company and its stockholders and directed that it be submitted for the approval of the stockholders via this solicitation of Consents. This increase in the number of authorized shares of Common Stock will become effective upon filing the Certificate Amendment with the Secretary of State of the State of Delaware, which filing the Company currently plans to make as soon as reasonably practicable after receiving Consents from the stockholders representing a majority of the outstanding shares of Common Stock of the Company, including shares of Common Stock issuable upon conversion of ourshares of Series B Preferred held on the Record Date. As of the Record Date, outstanding shares represented 92,478,991 votes, consisting of 92,431,144 attributable to Common Stock voting as a single class. and 47,847 attributable to Series B Preferred.
If Proposal 1 is approved, Stockholders who wish to consent to the Company’s CertificateAmendment must return the attached form of Incorporation will be amendedWritten Consent either by mail, facsimile or email on or before 5:00 p.m. Pacific Time on August 22, 2014 (the “Expiration Date”). The Company expressly reserves the right, in its sole discretion and regardless of whether any of the conditions of the Consent Solicitation have been satisfied, subject to reflectapplicable law, at any time prior to Expiration Date to (i) terminate the 100,000,000 share increase inConsent Solicitation for any reason, including if the numberconsent of authorized sharesstockholders holding a majority of the Company’s Common Stock. The proposed Certificate Amendment isoutstanding shares has been received, (ii) waive any of the conditions to the Consent Solicitation, or (iii) amend the terms of the Consent Solicitation.
Stockholders who wish to consent must deliver their properly completed and executed Written Consents to the Corporate Secretary of the Company in accordance with the instructions set forth in its entirety below:the attached form of Written Consent. The Company reserves the right (but is not obligated) to accept any Written Consent received by any other reasonable means or in any form that reasonably evidences the giving of consent to the approval of the Amendment.
“The total IF YOU HOLD YOUR STOCK IN “STREET NAME”, YOU MUST INSTRUCT YOUR BROKER OR NOMINEE TO APPROVE THE AMENDMENT. IF YOU FAIL TO DO SO, YOUR BROKER OR NOMINEE MAY NOT RETURN THE WRITTEN CONSENT. Any beneficial owner of the Company who is not a record holder must arrange with the person who is the record holder or such record holder’s assignee or nominee to: (i) execute and deliver a Written Consent on behalf of such beneficial owner; or (ii) deliver a proxy so that such beneficial owner can execute and deliver a Written Consent on its own behalf.
Requests for copies of this Consent Solicitation Statement should be directed to ImageWare Systems, Inc. at the address or telephone number set forth above.
We will act as tabulation agent for this Consent Solicitation Statement. If you have any questions regarding your form of Written Consent please contact us directly at (858) 673-8600 (ext. 390).
Consent Required
Stockholder approval of the Amendment will be effective upon receipt by us of affirmative Written Consents, not previously revoked, representing at least 46,239,497 shares, or a majority of all classes of stock that the Corporation is authorized to issue is One Hundred and Fifty Four Million (154,000,000) shares, consisting of One Hundred and Fifty Million (150,000,000) shares of Common Stock with a par valueand Series B Preferred issued and outstanding as of $.01 per share (“Common Stock”)the Record Date and Four Million (4,000,000) sharesentitled to consent to the approval of Preferred Stock with a par valuethe Amendment. Accordingly, abstentions from submitting your Written Consent will have the effect of $.01 per share (“Preferred Stock”).” disapproving the Amendment.
PurposeRevocation of and Rationale for Proposed Certificate AmendmentConsents
The objective You may withdraw or change you Written Consent at any time prior to the Expiration Date by submitting a written notice of revocation to the proposed increase inCompany’s Corporate Secretary at the address set forth above. A notice of revocation or withdrawal must specify the record stockholder’s name and the number of authorizedshares being withdrawn. After the Expiration Date, all written consents previously executed and delivered and not revoked will become irrevocable.
Absence of Appraisal Rights
Stockholders who abstain from consenting to the approval of the Amendment, or who withhold consent of the Amendment, do not have the right to an appraisal of their shares of Common Stock or Series B Preferred, or any similar dissenters’ rights under the Delaware General Corporation Law, our Certificate of Incorporation or Bylaws.
Expenses of this Solicitation
This solicitation is to ensure thatbeing made by the Company’s Board of Directors, and the Company has a sufficient numberwill bear the entire cost of shares authorized for future issuances,the solicitation, including issuance of up to: (i) 23,790,282preparation, printing and mailing costs. Written Consents will be solicited principally through the mail, but our directors, officers and employees may solicit Written Consents personally, by phone or by e-mail. Arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward these consent solicitation materials to stockholders whose shares of Common Stock thatare held of record by such entities, and we will reimburse suck brokerage firms, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection herewith. In addition, we may be issued upon conversionpay for and utilize the services of certain shares of convertible Preferred Stock (“Preferred Shares”) and certain convertible Promissory Notes of the Company that remain unconverted as of the date of this Statement (the “Notes”); and (ii) 16,261,410 shares of Common Stock that may be issued upon exercise of certain outstanding warrants of the Company (“Warrants”). The Preferred Shares were originally issued to certain investorsindividuals or companies we do not regularly employ in connection with financings consummated by the Company in 1996, 2006, 2007 and 2008, and the Notes were issued principally to a significant investor in December 2010 and June 2011.this consent solicitation, if management determines it advisable.
As of August 30, 2011, there were approximately 26,328,062 shares of Common Stock issued and outstanding, and another 42,143,600 shares required to be issued under incentive plans, Warrants, Preferred Shares, Notes and other written agreements (“Derivative Securities”). Specifically, as of August 30, 2011:
| • | 26,328,062 shares of our Common Stock were issued and outstanding;
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| • | 11,615,340 shares of our Common Stock were reserved for issuances upon conversion of our Preferred Shares;
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| • | 12,174,942 shares of our Common Stock were reserved for issuance upon conversion of Notes; |
1,731,907 shares of our Common Stock are required to be issued upon exercise of outstanding options under the terms of the 1999 Stock Award Plan; and
16,621,410 shares of our Common Stock are required to be issued upon exercise of outstanding Warrants and other written agreements.
The Company currently does not have enough authorized shares available for issuance upon conversion or exercise of its Derivative Securities, including certain Notes and Warrants issued to a significant investor in the Company, which investor acknowledges that the conversion of such Notes and the exercise of such Warrants requires the approval of the Certificate Amendment. The Warrants and Notes were issued in connection with various financing transactions that occurred between October 2010 and June 2011, and were issued typically as a unit. The Warrants are exercisable for a total of 7,550,000 shares of Common Stock, of which 300,000 are exercisable at $1.25 per share of Common Stock and 7,250,000 are exercisable at $.50 per share. The Warrants expire at various dates between November 2010 and June 2013. The Notes each have a term of twenty-four months, total $6.0 million in principal amount, and accrue interest at a rate of 6% per annun. The Notes are convertible into a total of 11,889,008 shares of Common Stock, of which $5,500,000 is convertible at $.50 per share of Common Stock, and $500,000 is convertible at $1.25 per share.
To allow for the conversion of all Derivative Securities, and for the other reasons discussed in this Statement, the Board of Directors believes that the number of shares of Common Stock available for issuance should be increased in order 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, forward stock splits and other corporate purposes that may occur in the future without 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 the Company the flexibility that the Board of Directors views as important in facilitating the effective use of the Company’s securities.
The Company will be required to seek additional financing in the future to satisfy its working capital requirements. In such event, the Company may desire to issue and sell shares of its Common Stock. These financings are often conducted at a discount to the prevailing market price of the Common Stock. Currently, the market price of the Company’s Common Stock is approximately $0.70 per share. 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 stockholders. 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 stockholders. Although the Company will seek additional sources of working capital, including in connection with a Qualified Financing discussed in Proposal 2, the Company currently does not have any commitments, arrangements, understandings or agreements, written or oral, regarding the issuance of additional shares of Common Stock.
Although the Company has no present obligations to issue additional shares of Common Stock (except in connection with outstanding Derivative Securities), the Board of Directors believes that it is prudent to increase the number of authorized shares of Common Stock from 50,000,000 to 150,000,000 in order to have a sufficient number of shares of Common Stock to meet the Company’s business and financing needs, which may include raising additional capital in connection with a Qualified Financing, converting outstanding Derivative Securities into shares of Common Stock, or issuing Common Stock in connection with future financings. In the event Proposal 1 is not approved, the Company would be required to consider the issuance of shares of Preferred Stock or other securities to address its financing requirements, and/or negotiate with holders of its Derivative Securities to restructure such Derivative Securities, each on terms that may be less favorable to stockholders that the terms that may be available in the event the Company had sufficient authorized shares of Common Stock available for such purposes.
Effect of Proposed Certificate Amendment
The increase in the authorized shares of Common Stock will not have any immediate effect on the rights of existing stockholders. If the stockholders approve the proposed Certificate Amendment and the Certificate of Incorporation is amended, the 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 the stockholders of the Company, except as provided under the Delaware General Corporation Law 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 are then listed or traded. Current holders of Common Stock do not have preemptive or similar rights, which mean that current stockholders 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 Common Stock. It may also adversely affect the market price of the Common Stock. However, in the event additional shares are issued in transactions that position the Company to take advantage of favorable business opportunities or provide working capital sufficient to allow the Company to pursue and/or expand its business plan, the market price may increase.
This proposed Certificate Amendment will not otherwise alter or modify the rights, preferences, privileges or restrictions of the Common Stock.
Anti-Takeover Effects
Although the proposed Certificate Amendment 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 the 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 the Board of Directors determines is not in the best interests of the Company and its stockholders, thus diluting the ownership and voting rights of the person seeking to obtain control of the Company. In certain circumstances, the issuance of Common Stock without further action by the stockholders 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 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 the Company’s stock, and the possible removal of the Company’s incumbent management. The Company is not aware of any proposed attempt to take over the Company or of any attempt to acquire a large block of the Company’s Common Stock.
Approvals Required
The affirmative written consent of the holders of a majority of the outstanding shares of Common Stock, including shares of Common Stock issuable upon conversion of our Series B Preferred, voting together as a single class, is required to approve this Proposal 1.
The Board of Directors recommends that stockholders sign and return Consents for the approval of the amendment of the Company's Certificate of Incorporation to increase the authorized number of shares of Common Stock of the Company from 50,000,000 shares to 150,000,000 shares.
PROPOSAL 2
AMENDMENT OF THE CERTIFICATE OF INCORPORATIONTO BE ACTED UPON BY AN AMENDMENT TO THE CERTIFICATE OF DESIGNATIONS OF THE COMPANY’S SERIES C 8% CONVERTIBLE PREFERRED STOCK AND SERIES D 8% CONVERTIBLE PREFERRED STOCK TO, WITHOUT LIMITATION, PROVIDE FOR THE AUTOMATIC CONVERSION OF THE PREFERRED STOCK INTO COMMON STOCK UPON CONSUMMATION OF A QUALIFIED FINANCING
General
On August 29, 2011, the Board of Directors unanimously adopted resolutions approving, and requesting that the stockholders authorize, an amendment to the Company’s Certificate of Incorporation by an amendment to Section 6 of each of the Certificate of Designations of the Company’s Series C 8% Convertible Preferred Stock (the “Series C Preferred”) and Series D 8% Convertible Preferred Stock (the “Series D Preferred”) (together, the “Preferred Stock”) to, without limitation, provide for the automatic conversion of the Preferred Stock into shares of the Company’s Common Stock upon consummation of a financing, or series of financings, resulting in gross proceeds to the Company of at least $10.0 million (a “Qualified Financing”), provided such financing or financings occur prior to December 31, 2011. The proposed amendment to the Company’s Certificate of Designations for each of the Series C Preferred and Series D Preferred is set forth in its entirety on Annex A attached hereto, and is incorporated herein by this reference (the “Preferred Amendment”). If approved by stockholders, the Preferred Amendment will become effective upon filing the Certificate Amendment with the Secretary of State of the State of Delaware, which filing the Company currently plans to make as soon as reasonably practicable after receiving Consents from the stockholders necessary to approve the Preferred Amendment.
Although stockholders are being asked to consider an amendment to the Certificate of Designations for the Series C Preferred and Series D Preferred Certificate of Designations together, holders of Series C Preferred and Series D Preferred vote as a separate class with respect to Proposal 2. As a result, it is possible that a majority of holders of either the Series C Preferred or Series D Preferred vote against Proposal 2, notwithstanding a vote for Proposal 2 by a majority of the holders of Common Stock. In this case, Proposal 2 will not be approved. Conversely, holders of a majority of either the Series C Preferred or Series D Preferred may vote for Proposal 2, notwithstanding a vote against Proposal 2 by a majority of the holders of Common Stock. In this case, Proposal 2 will similarly not be approved.
Purpose and Rationale of the Proposed Preferred Amendment
The Company recently announced that it has been awarded, and, while no assurances can be given, is currently pursuing numerous significant agreements to provide its multi-biometric identity management solutions to prospective clients, including sovereign governments, worldwide. To execute its business plan, and provide for its working capital requirements, the Company is currently seeking additional working capital. In furtherance of this objective, management has been engaged in discussions with several of its significant stockholders, as well as investment bankers. During these discussions, and given the current challenging capital markets, management has determined that the Company’s capital structure consisting of several classes of equity securities, including Preferred Shares requiring the payment of dividends, is presenting a challenge to obtaining financing on terms deemed acceptable to the Company. While no commitments for financing have been provided, management believes, based on these discussions, that the Company will be in a substantially improved position to negotiate terms and conditions more favorable to the Company in the event it were able to covert its outstanding Preferred Stock into Common Stock, thereby simplifying its capital structure.
Management also believes that conversion of our Preferred Stock will improve the Company’s balance sheet. In the event Proposal 2 is approved, and the Company consummates a Qualified Financing prior to December 31, 2011, all Series C Preferred and Series D Preferred will automatically convert to Common Stock. The conversion of our Preferred Stock would reduce our obligation to pay dividends to the holders of our Preferred Stock. The holders of our Preferred Stock are currently entitled to receive dividends at a rate of 8% per annum. As of the Record Date, the holders of our Series C Preferred and Series D Preferred were entitled to receive approximately $831,780 and $638,814 in unpaid dividends, respectively, or approximately $378.08 and $306.39 per share of Series C Preferred and Series D Preferred, respectively. The dividends on our Preferred Stock are cumulative and payable either in cash or shares of our Common Stock.
In the event of our liquidation, or any merger, consolidation, sale of assets or other transaction that is treated as a liquidation for purposes of our Preferred Stock, we are required to pay the holders of Preferred Stock the stated value of their shares plus all accrued and unpaid dividends prior to any amounts being paid to the holders of our Common Stock. The continuous accretion of dividends on our Preferred Stock and the resulting increase in the liquidation preference of those shares significantly impairs our ability to obtain additional equity financing on favorable terms as well as our ability to increase stockholder value.
Based on a stated value per share of Series C Preferred and Series D Preferred of $1,000 per share, as set forth in the applicable Certificate of Designations, and a current conversion price of $0.50 per share, each share of Series C Preferred and Series D Preferred is currently convertible into 2,000 shares of Common Stock. Including accrued but unpaid dividends as of the Record Date, each share of Series C Preferred and Series D Preferred is convertible into approximately 2,756 and 2,613 shares of Common Stock, respectively. In the event stockholders approve Proposal 2, and the Company consummates a Qualified Financing, the Preferred Stock would convert into approximately 11,511,190 shares of Common Stock, resulting in substantial dilution to existing holders of our Common Stock.
Effect of Proposed Preferred Amendment
The Certificate of Designations, included as part of the Certificate of Incorporation of the Company, as currently in effect, does not provide for the automatic conversion of the Series C Preferred or Series D Preferred into Common Stock. As a result, approval of Proposal 2 could have the affect of forcing the holders of Series C Preferred and Series D 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 C Preferred and Series D 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 C Preferred and Series D 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 respective Certificates of Designations of the Series C Preferred and Series D Preferred, which set forth all of the rights and preferences of the Series C Preferred and Series D Preferred. The Original Certificate of Designations of the Series C Preferred and Series D Preferred were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 20, 2006 and March 15, 2007, respectively.
Rights of Series C Preferred and Series D Preferred
| | Rights of Common Stock |
Dividends – Holders of Series C Preferred and Series D Preferred are entitled to receive cumulative dividends payable either in cash or in Common Stock upon conversion of the Preferred Stock, at the rate per share of 8% per annun.
| | Dividends – Holders of Common Stock are not entitled to the payment of dividends.
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Voting Rights – Holders of Preferred Stock have no voting rights, other than to vote with respect to any proposed alteration or change that would adversely affect the powers, preferences or rights given to the applicable Preferred Stock, or alter or amend the applicable Certificate of Designations.
| | Voting Rights – Holders of Common Stock are entitled to vote on any matter coming before stockholders for approval, including the election of directors.
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Liquidation – Holders of Preferred Stock are entitled to receive, after the distribution of any assets of the Company to holders of any senior securities, an amount equal to the stated value of the applicable Preferred Stock, upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.
| | Liquidation – Holders of Common Stock are not entitled to any priority in the event of any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary.
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In the event stockholders approve Proposal 2, resulting in an amendment to the applicable Certificate of Designations, only Section 6 of each Certificate of Designations will be amended. The most significant proposed revision to Section 6 is the addition of the provision, in Section 6(b), that provides for the automatic conversion of the Preferred Stock in the event the Company consummates a Qualified Financing. Certain other conforming revisions, and revisions deemed necessary for a holder of Preferred Stock to understand the conversion process, have also been proposed to Section 6. However, certain revisions have been proposed to Section 6 that a stockholder may consider important, including elimination of the trading market limitations, as well as revisions that are currently effective, but have been proposed simply for clarity. The proposed revisions that a stockholder may consider important are, without limitation, set forth in the following chart. The description of differences is illustrative only, and stockholders should read Annex A carefully prior to deciding to provide their consent to Proposal 2.
Rights of Existing Series C Preferred and Series D Preferred
| | Rights of Proposed Amended Series C Preferred and Series D Preferred |
Trading Market Limitations – The current Certificates of Designations provide that the Company cannot issue, upon conversion of the Preferred Stock, a number of shares of Common Stock, which, when aggregated with certain other issuances of Common Stock, would exceed approximately 2.7 million shares of Common Stock, without stockholder approval. This limitation was originally included in the Certificate of Designations to address the shareholder approval requirement imposed by the AMEX. This requirement is proposed to be deleted in the Preferred Amendments given the delisting of the Company’s Common Stock from AMEX.
| | Trading Market Limitations – There are no trading market limitations set forth in the proposed Preferred Amendments. As a result, approximately 9.7 million additional shares of Common Stock would be issued upon conversion of the Preferred Stock, resulting in substantial dilution to existing holders of Common Stock.
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Mechanics of Conversion – Following notice of conversion, shares of Common Stock are required to be delivered to holders within three trading days. Upon request, the Company is required to use its best efforts to deliver the shares of Common Stock issuable upon conversion electronically.
| | Mechanics of Conversion – Following notice of conversion, the Company is required to notify its transfer agent to issue the shares of Common Stock within three trading days. The Company is not required to deliver the shares of Common Stock issuable upon conversion electronically.
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Compensation for Failure to Timely Deliver Certificates – In the event the Company fails to timely deliver the Common Stock certificates upon conversion of the Preferred Stock, the holder is entitled to certain compensation, as set forth in the Certificates of Designations.
| | Compensation for Failure to Timely Deliver Certificates – In the event the Company fails to timely deliver the certificates, the holder is not entitled to any defined compensation.
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Status of Shares Upon Conversion – The Certificates of Designations contain several references to the registration of the shares of Common Stock issuable upon conversion of the Preferred Stock under the Securities Act of 1933, as amended (the “Act”).
| | Status of Shares Upon Conversion – Since the registration statement registering the Common Stock issuable upon conversion of the Preferred Stock is not current, any reference in Section 6 of the Preferred Amendments to such registration has been eliminated. As a result, the shares issuable upon either a voluntary or automatic conversion will contain a restrictive legend prohibiting their resale except pursuant to an effective registration statement covering the resale, or an exemption from registration under the Act.
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While approval of the Preferred Amendment and conversion of the Preferred Stock into Common Stock upon consummation of a Qualified Financing will result in the loss of certain rights by holders of Preferred Stock, 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 affects of such loss and dilution, and positions the Company to obtain financing on terms far more favorable to the Company and its stockholders, thereby allowing the Company to execute is business plan and continue as a going concern.
Approvals Required
The affirmative written consent of the holders of (i) a majority of the outstanding shares of Common Stock, including Common Stock issuable upon conversion of our Series B Preferred, voting together as a single class; (ii) a majority of the outstanding shares of Series C Preferred, voting as a separate class with respect to the amendment to the Series C Preferred Certificate of Designations; and (iii) a majority of the outstanding shares of Series D Preferred, voting as a separate class with respect to the amendment to the Series D Preferred Certificate of Designations, is required to approve this Proposal 2.
The Board of Directors recommends that stockholders sign and return Consents for the approval of the amendment to the Certificate of Designations of the Company’s Series C 8% Convertible Preferred Stock and Series D 8% Convertible Preferred Stock.
PROPOSAL 3STOCKHOLDERS:
AMENDMENT TO THE COMPANY’SOUR 1999 STOCK AWARDOPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN BY 2,159,442 SHARESTHEREUNDER FROM 4.0 MILLION TO 7.0 MILLION
Approvals Required Proposal
The affirmative written consent of the holders of a majority of the outstanding shares of Common Stock, including shares of Common Stock issuable upon conversion of our Series B Preferred, voting together as a single class, is required to approve this Proposal 3.
The Board of Directors recommends that stockholders sign and return Consents for the approval of the proposed amendment to the Company’s 1999 Stock Award Plan to provide for the issuance of an additional 2,159,442 shares of Common Stock under the Plan.
Proposal
The Board of Directors of the Company unanimously approved an amendmentof the Amendment to the 1999 Stock Award Plan (the “Plan”) on July 25, 2011,May 19, 2014, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance under the 1999 Plan by an aggregate of 2,159,4423.0 million shares from 1,840,558approximately 4.0 million shares to a new total of 4,000,000approximately 7.0 million shares. 1,731,9073,695,082 shares of our Common Stock are currently required to be issuedreserved for issuance under the 1999 Plan upon exercise of outstanding options. As a result, the Company has currently only 108,65126,682 shares remaining in the Plan available to grant. The proposed increase in the number of shares of Common Stock reserved for issuance under the Plan is for purposes of treating the Outstanding Options as incentive stock, or qualified stock options under the terms of the Plan, therefore conferring certain favorable tax benefits to the grantees of such Outstanding Options as well as establishing a reserve for future stock option grants and other awards to employees of the Company and others pursuant to the terms of the Plan.
Background and Purpose
There are currently only 108,651 shares of Common Stock available for issuance upon exercise of stock options or other awards under the 1999 Plan. In addition, (i)The proposed Amendment will allow the Company to bring the numbermaintain a sufficient pool of authorizedavailable shares of Common Stock available for future grantgrants under the 1999 Plan.
Material Terms and Conditions
Purpose. The primary purpose of the Plan is to attract and retain the best available personnel in order to promote the success of our business and to facilitate the ownership of our stock by employees and others who provide services to us.
Administration. Our Board of Directors administers the Plan, provided that the Board may delegate such administration to the Compensation Committee.
Eligibility. Under the Plan, awards may be granted to employees, officers, directors or consultants, as provided in the Plan.
Terms of Grants. The term of each award granted under the Plan will be contained in a stock option or other agreement between the recipient and us and such terms will be determined by the board of directors consistent with the provisions of the Plan, including the following:
Purchase Price. The purchase price of the Common Stock subject to each incentive stock award will not be less than the fair market value (as set forth in the Plan), or in the case of the grant of an incentive stock award to a principal stockholder, not less that 100% of fair market value of such Common Stock at the time such award is granted.
| • | Vesting. The dates on which each award (or portion thereof) will vest and the conditions precedent to such vesting, if any, will be fixed by the Board of Directors, in its discretion, at the time such award is granted.
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| • | Transferability. No award will be transferable, except by will or the laws of descent and distribution, and any award may vest during the lifetime of the recipient only by such recipient. No award granted under the Plan shall be subject to execution, attachment or other process. |
Award Adjustments. In the event of any change in the outstanding stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Board or the committee may adjust proportionally (a) the number of shares of Common Stock (i) reserved under the Plan, (ii) available for Incentive Stock Options and Nonstatutory Options and (iii) covered by outstanding stock awards or restricted stock purchase offers; (b) the stock prices related to outstanding grants; and (c) the appropriate fair market value and other price determinations for such grants. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board or the committee will be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code applies, and other grants by means of substitution of new grant agreements for previously issued grants or an assumption of previously issued grants.
Termination, Modification and Amendment. The Board may, insofar as permitted by law, from time to time, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that without the approval of the stockholders, no such revision or amendment may (i) increase the number of shares subject to the Plan, (ii) decrease the price at which grants may be granted, (iii) materially increase the benefits to participants, or (iv) change the class of persons eligible to receive grants under the Plan; provided no such action may alter or impair the rights and obligations under any option, or stock award, or restricted stock purchase offer outstanding as of the date thereof without the written consent of the participant.
The Board of Directors recommends that stockholders sign and return Consents for the approval of the amendment of the Company's 1999 Equity Incentive Plan to increase the number of shares of Common Stock available for issuance under the Plan by 2,159,442 shares.
OWNERSHIP OF SECURITIES
The following table sets forth certain information with respect to the ownership of our Common Stock as of August 30, 2011 assuming Proposal 1 is approved, and the impact on a significant stockholder in the event Proposal 2 is not approved and the Company elects not to issue shares of Common Stock to such stockholder upon the exercise or conversion of certain Derivative Securities, by (i) each person who is known by us to own of record or beneficially more than 10% of our Common Stock, (ii) each of our directors and officers. Unless otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares of Common Stock. Shareholdings include shares held by family members. The addresses of the individuals listed below are in the Company’s care at 10815 Rancho Bernardo Road, Suite 310, San Diego, California 92127 unless otherwise noted.
| | Proposal 1 Not Approved | | Proposal 1 Approved |
| Name and Address | Number of Shares (1) | Percent of Class (2) | | Number of Shares (1) | | Percent of Class (2) | |
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Directors and Named Executive Officers: | | | | | | | | |
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Chairman, Chief Executive Officer | | | | | | | | |
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SVP of Administration, Chief Financial Officer | | | | | | | | |
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VP of Business Development | | | | | | | | |
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Total beneficial ownership of directors and officers as a group (9 persons): | | | | | | | | |
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Gruber & McBaine Capital Management LLC 50 | | | | | | | | |
Osgood Place San Francisco, CA (12) | | | | | | | | |
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| (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 August 30, 2011.June 20, 2014. |
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(2) | Percentages are rounded to nearest one-tenth of one percent. Percentages are based on 26,328,06292,431,144 shares of Common Stock outstanding as of August 30, 2011.June 20, 2014. Options that are presently exercisable or exercisable within 60 days of the August 30, 2011June 20, 2014 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. |
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| (3) | Includes 75,201 shares held jointly with spouse, and 133,40061,364 shares issuable upon exercise of warrants, 933,050 shares issuable upon exercise of stock options, and 70,109 shares issuable upon conversion of promissory notes, each exercisable within 60 days of June 20, 2014. |
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| (4) | Includes 30,002 shares issuable upon exercise of stock options exercisable within 60 days of August 30, 2011. Also includes 122,727 warrants and notes convertible into 98,247 shares of Common Stock.June 20, 2014. |
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(4)(5) | Includes 32,502 shares issuable upon exercise of 7,918stock options exercisable within 60 days of August 30, 2011.June 20, 2014. |
(5) | |
| (6) | Includes 13,636 shares issuable upon exercise of 7,918warrants, 30,002 shares issuable upon exercise of stock options, and 24,713 shares issuable upon conversion of promissory notes, each exercisable within 60 days of August 30, 2011.June 20, 2014. |
(6) | Includes of 9,170 options exercisable within 60 days of August 30, 2011. Also includes 27,271 warrants and notes convertible into 21,833 shares of Common Stock. |
| (7) | Includes of 7,918 options exercisable within 60 days of August 30, 2011. |
(8) | Includes of 7,918 options exercisable within 60 days of August 30, 2011. Also includes 27,271 warrants and notes convertible into 21,833 shares of Common Stock. |
(9) | Includes 80,000 options exercisable within 60 days of August 30, 2011. |
(10) | Includes 106,666 options exercisable within 60 days of August 30, 2011. Also includes 122,727 warrants and notes convertible into 98,247 shares of Common Stock. |
(11) | Includes 81,666 options exercisable within 60 days of August 30, 2011. |
(12) | Based on certain of our records and a Schedule 13G filed with the SEC on February 3, 2011. Includes 1,022,438 shares issuable upon exercise of warrants. Also included are 7,400,860 shares of Common Stock issuable upon the conversion of Series C Preferred and Series D Preferred. Patrick McBaine exercises sole voting and dispositive power over all reported shares. |
(13) | Based on a Schedule 13D filed with the SEC on February 4, 2011. Includes 5,400,000 shares issuable upon exercise of warrants. Also included are 929,326 shares of Common Stock issuable upon the conversion of Series C Preferred and Series D Preferred. |
(14) | Includes 7,550,00088,889 shares issuable upon exercise of warrants and 995,8585,002 shares of Common Stock issuable upon the conversion of Series D Preferred. Also includes notes convertible into 11,988,329 shares of Common Stock. The issuance of 7,250,000 and 11,988,329 shares of Common Stock upon exercise of warrants and conversionstock options, each exercisable within 60 days of notes, respectively, is subject to approval of Proposal 1. NeilJune 20, 2014. Mr. Goldman exercises sole voting and dispositive power over all24,588,724 shares, and shared voting and dispositive power over 9,030,000 reported shares.shares, of which 6,000,000 shares are owed by Goldman Partners, LP, 3,000,000 shares are owned by the Goldman Family 2012 GST Trust and 30,000 shares are owed by The Neal and Marlene Goldman Foundation. |
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| (8) | Includes 46,670 shares issuable upon exercise of stock options exercisable within 60 days of June 20, 2014. |
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| (9) | Includes 88,889 shares issuable upon exercise of warrants and 34,172 shares issuable upon exercise of stock options exercisable within 60 days of June 20, 2014. |
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| (10) | Includes 203,350 shares issuable upon exercise of stock options exercisable within 60 days of June 20, 2014. |
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| (11) | Includes 61,364 shares issuable upon exercise of warrants, 263,354 shares issuable upon exercise of stock options, and 59,921 shares issuable upon conversion of promissory notes, each exercisable within 60 days of June 20, 2014. |
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| (12) | Includes 450,884 shares issuable upon exercise of stock options exercisable within 60 days of June 20, 2014. |
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| (13) | Address for this beneficial owner is 754 S. County Rd., Palm Beach, Florida 33480. |
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| (14) | Based on ownership information from the Schedule 13D/A filed by Bruce Toll on July 25, 2013, and Company records. This figure includes 3,200,172 shares held by BET Funding LLC, of which Mr. Toll is the majority owner. |
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| (15) | Address for this beneficial owner is 795 Ridge Lake Blvd., Suite 106, Memphis Tennessee 38120. |
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| (16) | Based on ownership information from the Schedule 13G filed by Traditional Investment Fund, LTD (“Traditional Investment”) on February 6, 2013. Mr. Thomas Wallace, manager of Traditional Investment, has shared voting and dispositive power of these shares. |
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| (17) | Address for this beneficial owner is Canon's Court, 22 Victoria Street, Hamilton D0 HM 11. |
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| (18) | Based on ownership information from the Schedule 13G/A filed by Revelation Special Situations Fund Ltd. (“Revelation Fund”) on April 23, 2013. Mr. Chris Kuchanny, Chairman and Chief Financial Officer of Revelation Capital Management Ltd. (“Revelation”) has shared voting and dispositive power of these shares. |
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| (19) | Includes 265,280 shares issuable within 60 days of June 20, 2014 upon exercise of warrants. |
* less than 1% |
DISSENTERS' RIGHTS OF APPRAISALADDITIONAL INFORMATION
Deadline for Receipt of Stockholder Proposals
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, stockholder proposals to be included in our next Proxy Statement must be received by us at our principal executive offices at 10815 Rancho Bernardo Rd., Suite 310, San Diego, CA 92127, addressed to our Corporate Secretary, no later than March 3, 2015. These proposals must comply with applicable Delaware law, does not provide for appraisal rights with respect to the Proposals being acted upon.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No person who has been a director or executive officer of the Company at any time since the beginning of our fiscal year ended December 31, 2010rules and no associate of any of the foregoing persons has any substantial interest, direct or indirect,regulations promulgated by security holding or otherwise, in any matter to be acted upon.
STOCKHOLDER PROPOSALS
The deadline for submitting stockholder proposals for inclusion in our proxy statement and form of proxy for the next annual meeting of stockholders is a reasonable time before we begin to print and send our proxy materials. Proposals received after such time will be considered untimely. In addition, the acceptance of such proposals is subject to the Securities and Exchange Commission guidelines.and the procedures set forth in our Bylaws.
We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and all other applicable requirements.
Stockholder Communications with the Board of Directors
Our Board of Directors provides stockholders with the ability to send communications to the Board of Directors, and stockholders may do so at their convenience. In particular, stockholders may send their communications to: Board of Directors, c/o Corporate Secretary, ImageWare Systems, Inc., 10815 Rancho Bernardo Rd., Suite 310, San Diego, CA 92127. All communications received by the Corporate Secretary are relayed to the Board of Directors of the Company.
IMAGEWARE SYSTEMS, INC.
WRITTEN CONSENT SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF IMAGEWARE SYSTEMS, INC.
The undersigned hereby acknowledges receipt of a copy of the accompanying Notice of Consent Solicitation and the Consent Solicitation Statement of ImageWare Systems, Inc. (the “Company”) dated July 1, 2014 and hereby revokes any consent or consents heretofore given. This consent may be revoked at any time before 5:00 p.m. (Pacific Time), on August 22, 2014, unless the solicitation period is shortened or extended by the Company in its sole discretion (“Expiration Date”). The undersigned, as holder of shares of the Company’s common stock, par value $0.01 per share, CUSIP No. 45245S108 (“Common Stock”), hereby takes the following actions with respect to all shares of Common Stock held by him, her or it as follows:
| | [X] Please mark your votes as indicated in this example. |
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| | | | | | | | FOR | | AGAINST | | ABSTAIN | |
| | APPROVAL OF AN AMENDMENT TO THE COMPANY’S 1999 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE FROM 4.0 MILLION TO 7.0 MILLION | | | | | | [ ] | | [ ] | | [ ] | |
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This Written Consent, when properly executed and returned to the Company, will be voted in the manner directed herein by the undersigned. IF NO DIRECTION IS MADE FOR THE PROPOSAL, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE VOTED FOR THE PROPOSAL. When shares of Common Stock are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, give full legal title as such. If a corporation, sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. ALL CONSENTS MUST BE RECEIVED BY 5:00 P.M., PACIFIC TIME, ON THE EXPIRATION DATE. | | IMPORTANT: This Consent Card must be signed exactly as your name appears hereon. If more than one name appears, all persons so designated should sign. Attorneys, executors, administrators, trustees and guardians should indicate their capacities. If the signer is a corporation, please print full corporate name and indicate capacity of duly authorized officer executing on behalf of the corporation. If the signer is a partnership, please print full partnership name and indicate capacity of duly authorized person executing on behalf of the partnership. Dated: ________________________, 2014 |
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| (Print Name of Stockholder) |
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| (Signature of Stockholder) |
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| (Second Signature if held jointly) |
IMPORTANT: PLEASE COMPLETE, SIGN, AND DATE YOUR WRITTEN CONSENT PROMPTLY
AND FAX IT TO (858) 673-1770, OR RETURN IT IN THE ENVELOPE PROVIDED TO:
ImageWare Systems, Inc.
Attn: Wayne Weatherell, Corporate Secretary
10815 Rancho Bernardo Road, Suite 310
San Diego, California, 92127
Your executed written consent can also be sent via email in PDF form to wgw@iwsinc.com.
Your written consent should be received by the Company on or before August 22, 2014
HOUSEHOLDING OF SOLICITING MATERIALS
The Securities and Exchange Commission permits companies and intermediaries such as brokers to satisfy the delivery requirements for soliciting materials with respect to two or more stockholders sharing the same address by delivering a single set of soliciting materials addressed to those stockholders. This process, which is commonly referred to as “householding”, potentially provides extra conveniences for stockholders and cost savings for companies.
Although we do not intend to household for our stockholders of record, some brokers household our soliciting materials, delivering a single set of soliciting materials to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate set of soliciting materials, or if you are receiving multiple sets of soliciting materials and wish to receive only one, please notify your broker. Stockholders who currently receive multiple sets of the soliciting materials at their address and would like to request “householding” of their communications should contact their broker.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the Securities Exchange Act of 1934 and in accordance with that Act, we file periodic reports, documents and other information with the Securities and Exchange Commission relating to our business, financial statements and other matters. These reports and other information may be inspected and are available for copying at the offices of the Securities and Exchange Commission, 100 F. Street NE, Washington, DC 20549 or may be accessed at www.sec.gov.
By Order of the Board of Directors
Dated: September 14, 2011
Jim Miller
Chairman and Chief Executive Officer
ANNEX A
Proposed Amendment
To
Certificate of Designation of Preferences, Rights and Limitations
of
Series C 8% Convertible Preferred Stock
and
Series D 8% Convertible Preferred Stock
Proposal 2 would amend Section 6 of the Certificate of Designation of Preferences, Rights, and Limitations of each of the Company's Series C 8% Convertible Preferred Stock and Series D 8% Convertible Preferred Stock to read substantially in its entirety as follows, subject to compliance with applicable law:
Section 6. Conversion.
a)Conversions at Option of Holder. Each share of Preferred Stock shall be convertible at the option of the Holder thereof, at any time and from time to time from and after the Original Issue Date (“Optional Conversion”). Holders shall effect Optional Conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Optional Conversion Date”). If no Optional Conversion Date is specified in a Notice of Conversion, the Optional Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder
b)Automatic Conversion. Each share of Preferred Stock shall automatically convert into shares of Common Stock at such time as the Corporation closes a financing transaction, or series of financing transactions, involving the sale of Common Stock of the Corporation, including securities convertible into Common Stock, resulting in gross proceeds to the Corporation at such closing of at least $10,000,000 (a “Qualified Financing”), provided such Qualified Financing occurs on or before December 31, 2011 (“Automatic Conversion”). The date on which the Corporation consummates a Qualified Financing is referred to as the “Automatic Conversion Date”.
c)Conversion Shares. The number of shares of Common Stock issuable upon conversion shall be that number of shares of Common Stock determined by dividing the Stated Value of such share of Preferred Stock, plus any accrued dividends not previously paid in cash on such share of Preferred Stock, by the Conversion Price. To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Preferred Stock to the Corporation unless, in the case of an Optional Conversion, less than all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Optional Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.
d)Conversion Price. The conversion price for the Preferred Stock shall equal $0.50, subject to adjustment herein (the “Conversion Price”).
e)Mechanics of Conversion
i.Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Optional Conversion Date or the Automatic Conversion Date, as the case may be (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the Corporation’s registered transfer agent of its Common Stock irrevocable instructions to issue the Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred Stock. Each certificate or certificates representing shares of Common Stock issued upon conversion of shares of Preferred Stock shall bear a restrictive legend prohibiting their resale except pursuant to an effective registration statement covering the resale of such shares declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended, or an exemption from registration thereunder.
ii.Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
iii.Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of all outstanding shares of Preferred Stock and payment of dividends hereunder. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
iv.Fractional Shares. Upon a conversion hereunder, the Corporation shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time. If the Corporation elects not, or is unable, to make such a cash payment, the Holders shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.
v.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock so converted and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.
WRITTEN CONSENT SOLICITED
ON BEHALF OF
THE BOARD OF DIRECTORS
OF IMAGEWARE SYSTEMS, INC.
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. WHEN PROPERLY EXECUTED, THIS CONSENT WILL BE VOTED AS DESIGNATED BY THE UNDERSIGNED.
The undersigned withouthereby acknowledges receipt of a copy of the formalityaccompanying Notice of convening a meeting, doesConsent Solicitation Statement and the Consent Solicitation Statement of ImageWare Systems, Inc. (the “Company”) dated July 1, 2014 and hereby voterevokes any consent or consents heretofore given. This consent may be revoked at any time before 5:00 p.m. (Pacific Time), on August 22, 2014, unless the solicitation period is shortened or extended by the Company in its sole discretion (“Expiration Date”). The undersigned, as holder of shares of the Company’s Series B Preferred Stock (“Series B Preferred”), hereby takes the following actions with respect to all of the shares of Common Stock andSeries B Preferred Stock of ImageWare Systems, Inc. held by the undersigned,him, her or it as follows as to each of the proposals set forth below:
The Board of Directors recommends that you consent to Proposal 1follows:
1. | Proposal to amend the Certificate of Incorporation to increase the authorized number of shares of the Company’s Common Stock from 50,000,000 shares to 150,000,000 shares. |
[MARK ONLY ONE OF THE FOLLOWING THREE BOXES]
CONSENT | CONSENT WITHHELD | ABSTAIN[X] Please mark your votes as indicated in this example. |
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o | o | o |
The Board of Directors recommends that you consent to Proposal 2
2. | Proposal to amend the Certificate of Incorporation by an amendment to the Certificate of Designations of the Company’s Series C 8% Convertible Preferred Stock and Series D 8% Convertible Preferred Stock (together, "Preferred Stock") to, without limitation, provide for the automatic conversion of the Preferred Stock into shares of the Company’s Common Stock upon consummation of a financing, or series of financings, resulting in gross proceeds to the Company of at least $10.0 million, on or before December 31, 2011. |
[MARK ONLY ONE OF THE FOLLOWING THREE BOXES]
CONSENT | CONSENT WITHHELD | ABSTAIN |
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o | o | o |
The Board of Directors recommends that you consent to Proposal 3
3. | Proposal to amend the Company’s 1999 Stock Award Plan (the “Plan”) to increase the number of shares of Common Stock reserved for issuance under the Plan by an aggregate of 2,159,442 shares to a new total of 4,000,000 shares. |
[MARK ONLY ONE OF THE FOLLOWING THREE BOXES]
CONSENT | CONSENT WITHHELD | ABSTAIN |
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o | o | o |
The undersigned represents that the undersigned owns the following number of shares of Common Stock, Series B Preferred Stock (“Series B Preferred”), Series C 8% Convertible Preferred Stock (“Series C Preferred”), or Series D 8% Convertible Preferred Stock (“Series D Preferred”) of ImageWare Systems, Inc. (please insert number): _________________. Indicate below whether such holding represents shares of Common Stock, Series B Preferred, Series C Preferred, or Series D Preferred:
Common Stock: o Series B Preferred: o Series C Preferred: o Series D Preferred: o
If you own more than one class of voting securities, please indicate the number of shares you own, and the type of securities below:
Please sign exactly as the name or names appear on your stock certificate(s). If the shares are issued in the names of two or more persons, all such persons should sign the consent form. A consent executed by a corporation should be signed in its name by its authorized officers. Executors, administrators, trustees, and partners should indicate their titles when signing.
Date: | | _______________________________, 2011 |
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Stockholder Name (printed): | | |
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Signature: | | | | | | | | FOR | | AGAINST | | ABSTAIN | |
| | APPROVAL OF AN AMENDMENT TO THE COMPANY’S 1999 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE FROM 4.0 MILLION TO 7.0 MILLION | | | | | | [ ] | | [ ] | | [ ] | |
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Title (if applicable): | | |
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Signature (ifThis Written Consent, when properly executed and returned to the Company, will be voted in the manner directed herein by the undersigned. IF NO DIRECTION IS MADE FOR THE PROPOSAL, THIS CONSENT, IF SO EXECUTED AND RETURNED, WILL BE VOTED FOR THE PROPOSAL. When shares of Series B Preferred are held jointly):by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, give full legal title as such. If a corporation, sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. ALL CONSENTS MUST BE RECEIVED BY 5:00 P.M., PACIFIC TIME, ON THE EXPIRATION DATE. | | IMPORTANT: This Consent Card must be signed exactly as your name appears hereon. If more than one name appears, all persons so designated should sign. Attorneys, executors, administrators, trustees and guardians should indicate their capacities. If the signer is a corporation, please print full corporate name and indicate capacity of duly authorized officer executing on behalf of the corporation. If the signer is a partnership, please print full partnership name and indicate capacity of duly authorized person executing on behalf of the partnership. Dated: ________________________, 2014 |
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| | (Print Name of Stockholder) |
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Title (if applicable):(Signature of Stockholder) |
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| (Second Signature if held jointly) |
IMPORTANT: PLEASE COMPLETE, SIGN, AND DATE YOUR WRITTEN CONSENT PROMPTLY
AND FAX IT TO (858) 673-1770, OR RETURN IT IN THE ENVELOPE PROVIDED TO:
ImageWare Systems, Inc.
Attn: Wayne Weatherell, Corporate Secretary
10815 Rancho Bernardo Road, Suite 310
San Diego, California, 92127
Your executed written consent can also be sent via email in PDF form to wgw@iwsinc.com.
Your written consent should be received by the Company on or before October 05, 2011.August 22, 2014.
If signing as attorney, executor, administrator, trustee or guardian, please give full title as such, and, if signing for a corporation, give your title. When shares are in the names of more than one person, each should sign.
Important Notice Regarding the Availability of Consent Solicitation Materials:
The consent solicitation materials are available on the SEC's website at www.sec.gov as well as at www.proxyconnect.com/imageware.
