AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ON A
pril
15, 2008
REGISTRATION
NO. 333-148746
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Pre-Effective
Amendment No.1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IMAGEWARE
SYSTEMS, INC.
(Exact name of registrant
as specified in its charter)
Delaware
|
|
7372
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|
33-0224167
|
(State or other
jurisdiction of
incorporation or organization)
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(Primary Standard
Industrial Classification Code Number)
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|
(I.R.S. Employer Identification
Number)
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10883
Thornmint Road
San
Diego, CA 92127
(858)
673-8600
(Address, including zip
code, and telephone number, including area code, of registrants principal
executive offices)
S. James
Miller, Jr.
Chief
Executive Officer
ImageWare
Systems, Inc.
10883
Thornmint Road
San
Diego, CA 92127
(858)
673-8600
(Name, address, including
zip code, and telephone number, including area code, of agent for service)
Copies to:
Carl
Sanchez, Esq.
Paul,
Hastings, Janofsky & Walker LLP
3579
Valley Centre Drive
San
Diego, California 92130
(858)
720-2500
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of
this registration statement, as determined by the selling stockholder
.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box.
x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed
pursuant to Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
o
Indicate by check
mark wheter the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
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|
Accelerated filer
o
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|
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Non-accelerated filer
x
(Do not check if a smaller reporting
company)
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Smaller reporting
company
o
|
CALCULATION
OF REGISTRATION FEE
Title of each class of
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Proposed maximum
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Proposed maximum
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securities to be
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Amount to be
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offering price per
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aggregate offering
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Amount of
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registered
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registered (1)
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share (2)
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price (2)
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registration fee
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Common stock, par value $0.01 per share
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677,940
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$
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1.125
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$
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762,682.50
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$
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29.97
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(3)
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(1)
Pursuant
to Rule 416 under the Securities Act of 1933, as amended (the Securities
Act), the shares being registered hereunder include such indeterminate number
of shares of the Registrants common stock that may become issuable with
respect to the shares being registered hereunder to prevent dilution resulting
from stock dividends, stock splits, or similar transactions.
(2)
Estimated
solely for the purpose of calculating the amount of the registration fee
pursuant to Rule 457(c) of the Securities Act. The proposed
maximum offering price per share and proposed maximum aggregate offering price
are based upon the average of the high ($1.15) and low ($1.10) sales prices of
the Registrants common stock on April 9, 2008, as reported on the
American Stock Exchange. It is not known how many shares will be sold
under this registration statement or at what price or prices such shares will be
sold.
(3)
In
connection with the Registrants initial filing of this Registration Statement
on Form S-1 (File No. 333-148746) on January 18, 2008, $17.93 of the
registration fee of $29.97 was previously paid.
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), SHALL
DETERMINE.
The information in this
preliminary prospectus is not complete and may be changed. The selling
stockholder may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these
securities, and the selling stockholder is not soliciting offers to buy these
securities, in any jurisdiction where the offer or sale of these securities is
not permitted.
EXPLANATORY NOTE
This Pre-Effective
Amendment No.1 to Form S-1 (File No. 333-148746) (the Form S-1) is being
filed by the Registrant for the purpose of (i) registering additional shares
of common stock, par value $0.01 per share, of the Registrant; (ii) generally
updating the disclosure contained in the Form S-1; and (iii) filing a
revised opinion of Paul, Hastings, Janofsky & Walker LLP, counsel for the
Registrant.
SUBJECT TO COMPLETION, DATED A
pril
15, 2008
PROSPECTUS
677,940 SHARES
IMAGEWARE
SYSTEMS, INC.
COMMON
STOCK
This prospectus
relates to the resale of up to 677,940 shares of common stock of ImageWare
Systems, Inc., a Delaware corporation, by the selling stockholder
identified in this prospectus. The selling stockholder acquired the shares
offered by this prospectus in an asset purchase transaction completed on December 19,
2007.
We will not receive any of the proceeds from the sale
of the shares of our common stock by the selling stockholder.
The price or prices at which the selling stockholder
may sell the shares will be determined by the prevailing market price for the
shares or in negotiated transactions.
Our common stock is
quoted on the American Stock Exchange under the symbol IW. On April 9,
2008 the last reported sales price of our common stock, as reported on the
American Stock Exchange, was $1.12 per share.
INVESTING IN OUR COMMON STOCK
INVOLVES SUBSTANTIAL RISKS.
SEE
THE SECTION ENTITLED RISK FACTORS BEGINNING ON PAGE
4
OF THIS PROSPECTUS TO
READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON
STOCK.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date
of this prospectus is , 2008.
TABLE OF
CONTENTS
You
should rely only on the information contained in this prospectus or any related
prospectus supplement, including the content of all documents now or in the
future incorporated by reference into the registration statement of which this
prospectus forms a part. We have not
authorized, and the selling stockholder may not authorize anyone to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the selling stockholder is
not, making an offer of the shares of our common stock to be sold under this
prospectus in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information contained in this prospectus or any
related prospectus supplement is accurate as of any date other than the date on
the front cover of this prospectus or the related prospectus supplement, or
that the information contained in any document incorporated by reference is
accurate as of any date other than the date of the document incorporated by
reference. Our business, financial
condition, results of operations and prospects may have changed since such
date. Other than as required under the
federal securities laws, we undertake no obligation to publicly update or
revise such information, whether as a result of new information, future events
or any other reason.
i
PROSPECTUS
SUMMARY
This summary highlights information contained
elsewhere in this prospectus. This
summary does not contain all the information that you should consider before
investing in our common stock. You should read this entire prospectus,
including all documents incorporated by reference, carefully, especially Risk
Factors and our financial statements and related notes incorporated by
reference herein. Please see the section entitled Where You Can Find
More Information on page 41 of this prospectus.
We use the terms we, us, our, the Company and ImageWare
in this prospectus to refer to ImageWare Systems, Inc. and its
consolidated subsidiaries.
Our Business
ImageWare Systems, Inc.
is a leader in the emerging market for software-based identity management
solutions, providing biometric, secure credential, law enforcement and
enterprise authorization. Our flagship
product is the IWS Biometric Engine.
Scalable for small city business or worldwide deployment, our biometric
engine is a multi-biometric platform that is hardware and algorithm
independent, enabling the enrollment and management of unlimited population
sizes. Our identification products are
used to manage and issue secure credentials, including national IDs, passports,
driver licenses, smart cards and access control credentials. Our law
enforcement products provide law enforcement with integrated mug shot,
fingerprint LiveScan and investigative capabilities. We also provide
comprehensive authentication security software, as well as real-time voice
recognition, multilingual speech translation and voice analytics
technologies. Biometric technology is
now an integral part of all markets we address, and all of our products are
integrated into the Biometric Engine Platform.
Elements of the IWS Biometric Engine can be used as investigative tools
for law enforcement utilizing multiple biometrics and forensic data elements,
and to enhance security and authenticity of public and private sector
credentials.
Our biometric technology
is a core software component of an organizations security infrastructure and
includes a multi-biometric identity management solution for enrolling,
managing, identifying and verifying the identities of people by the physical characteristics
of the human body. We develop, sell and support various identity management
capabilities within government (federal, state and local), law enforcement,
commercial enterprises, and transportation and aviation markets for
identification and verification purposes. Our IWS Biometric Engine is a
biometric identity management platform for multi-biometric enrollment,
management and authentication, managing population databases of virtually
unlimited sizes. It is also offered as a Software Development Kit (SDK) based
search engine, enabling developers and system integrators to implement a
biometric solution or integrate biometric capabilities into existing
applications without having to derive biometric functionality from pre-existing
applications. The IWS Biometric Engine
combined with our secure credential platform, IWS EPI Builder, provides a
comprehensive, integrated biometric and secure credential solution that can be
leveraged for high-end applications such as passports, driver licenses, national
IDs, and other secure documents. It can also be utilized within our law
enforcement systems to incorporate any number of various multiple biometrics
into one system.
We recently added
next generation voice recognition, multilingual speech translation and voice
analytics capabilities to our suite of biometric identity management solutions,
enabling users to facilitate and improve communication across major language
groups globally. The ImageWare Mediator products are offered standalone or
integrated with our Biometric Engine platform, providing an advanced
multilingual communications capability. Government, intelligence, defense,
public safety and border control customers are able to realize language
translation and voice recognition capabilities whereby an English-speaking user
can understand and be understood in numerous languages including Spanish,
German, French, Korean, Arabic and Polish, among others. ImageWare Mediator
products support speech to speech translation, multilingual collaboration,
conversational environments, which are represented for both voice and text and
include biometric functionality for speaker identification and voice analytics.
Our law enforcement
solutions enable agencies to quickly capture, archive, search, retrieve, and
share digital images, fingerprints and criminal history records on a
stand-alone, networked, wireless or Web-based platform. We
1
develop, sell and support a suite of modular software products used by
law enforcement and public safety agencies to create and manage criminal
history records and to investigate crime. Our IWS Law Enforcement solution
consists of six software modules: a Capture and Investigative module, which
provides a criminal booking system and related database; a Facial Recognition
module, which uses biometric facial recognition to identify suspects; a Suspect
ID module, which facilitates the creation of full-color, photo-realistic
suspect composites; a wireless module, which provides access to centrally
stored records over the Internet in a connected or wireless fashion; a PDA
add-on module, which enables access to centrally stored records while in the
field on a handheld Pocket PC compatible device combined with central
repository services which allows for inter-agency data sharing on a local,
regional, and/or national level; and a LiveScan module, which incorporates
LiveScan capabilities into IWS Law Enforcement providing integrated fingerprint
and palm print biometric management for civil and law enforcement use.
Our Secure Credential ID
solutions empower customers to create secure and smart digital identification
documents with complete ID systems. We develop, sell and support software and
design systems which utilize digital imaging in the production of photo
identification cards and credentials and identification systems. Our products
in this market consist of IWS EPI Suite, IWS EPI Builder (SDK), Identifier for
Windows and ID Card Maker. These products
allow for the production of digital identification cards and related databases
and records and can be used by, among others, schools, airports, hospitals,
corporations or governments. We have
recently added the ability to incorporate multiple biometrics into the ID
systems we offer with the addition of our new IWS Biometric Engine to our
product line.
Our enterprise
authentication software includes the IWS Desktop Security product which is a
comprehensive authentication management infrastructure solution providing added
layers of security to workstations, networks and systems through advanced
encryption and authentication technologies. IWS Desktop Security is optimized
to enhance network security and usability, and uses multi-factor authentication
methods to protect access, verify identity and help secure the computing
environment without sacrificing ease-of-use features such as quick login.
Additionally, IWS Desktop Security provides an easy integration with various
smart card-based credentials including the Common Access Card (CAC), Homeland Security
Presidential Directive 12 (HSPD-12) Personal Identity Verification (PIV)
credential, and Transportation Worker Identification Credential (TWIC) with an
organizations access control process. IWS Desktop Security provides the
crucial end-point component of a Logical Access Control System (LACS), and when
combined with a Physical Access Control System (PACS), organizations benefit
from a complete door to desktop access control and security model.
Our offices are located
at 10883 Thornmint Road, San Diego, California 92127, and our telephone number
at this address is (858) 673-8600. Our
website address is www.iwsinc.com.
Information contained on our website, or that can be accessed through
our website, is not a part of this prospectus.
See the section entitled Where You Can Find More Information on page 41
of this prospectus.
Our common stock is
traded on the American Stock Exchange (AMEX) under the symbol IW.
The Offering
On December 19,
2007, we completed the purchase of certain assets (the Asset Purchase) of Sol
Logic, Inc., a California corporation (Sol Logic or the Selling
Stockholder), pursuant to an Asset Purchase Agreement and Plan of
Reorganization (the Asset Purchase Agreement) entered into by and among the
Company, Sol Logic, Frank Mitchell, a shareholder of Sol Logic, and Wink Jones,
as Sol Logics representative (the Seller Representative).
In consideration for the
acquisition of the acquired assets, we: (1) issued to Sol Logic on December 19,
2007 935,089 shares of our common stock, and (2) agreed to issue to Sol
Logic on June 19, 2008 that number of shares of our common stock equal to
the quotient obtained by dividing $1,502,000 by the greater of (A) $1.633
and (B) the volume weighted average closing price of our common stock over
the 20 trading-day period ending on June 18, 2008, as reported on AMEX or
the Over-the-Counter Bulletin Board (OTCBB).
On March 28, 2008, we
amended the terms of the Asset Purchase pursuant to Amendment No. 1 to the
Asset Purchase Agreement, by and between the Company and the Seller
Representative (the Purchase Agreement Amendment, and together with the Asset
Purchase Agreement, the Amended Purchase Agreement).
Under the terms of the
Purchase Agreement Amendment, in consideration for the acquired assets, we
issued to Sol Logic an aggregate of 677,940 shares of our common stock (the
Initial Shares), 467,545 of which were previously issued to Sol Logic on the
date of execution of the Asset Purchase Agreement, and 210,395 of which were
released to Sol Logic from the escrow fund established on the date of execution
of the Asset Purchase Agreement.
In addition, in the event
certain milestones are achieved as set forth in the Amended Purchase Agreement,
we will be obligated to issue that number of additional shares of our common
stock (the Additional Shares) obtained by dividing $1,921,924 by the greater
of (A) $1.10 and (B) the volume weighted average closing price of our common
stock over the 20 trading-day period immediately prior to the date the
Additional Shares are issued, as reported on AMEX or the OTCBB.
2
In connection with the Asset Purchase Agreement, we
entered into a Registration Rights Agreement with Sol Logic (the Rights
Agreement), pursuant to which we agreed to register 306,185 of the shares
issued to Sol Logic on December 19, 2007, for resale by Sol Logic to allow Sol
Logic to satisfy its outstanding obligations
to creditors. In connection with the Amended Purchase Agreement, we agreed to
register all of the Initial Shares for resale by Sol Logic. This prospectus
relates to the resale by the Selling Stockholder of up to 677,940 shares of our
common stock. We will not receive any proceeds from the sale of securities by
the Selling Stockholder. See Use of Proceeds on page 15 of this
prospectus.
3
RISK
FACTORS
An investment in our common stock involves a high
degree of risk. Before investing in our common stock, you should consider
carefully the specific risks detailed in this Risk Factors section and any
applicable prospectus supplement, together with all of the other information
contained in this prospectus and any prospectus supplement. If any of these
risks occur, our business, results of operations and financial condition could
be harmed, the price of our common stock could decline, and you may lose all or
part of your investment.
Risks Related to Our Business
We have incurred net losses in
our six most recent fiscal years and AMEX has issued us a letter that it
intends to remove our common stock from listing and registration on the exchange
.
The AMEX Company
Guide (the Company Guide) provides that AMEX will normally consider
suspending dealings in, or removing from the list, securities of a company
which sustains net losses in its five most recent fiscal years and has shareholders
equity of less than $6,000,000, unless the company has total market
capitalization of at least $50,000,000, or total assets and revenue of
$50,000,000. We have sustained net losses during our six most recent fiscal
years, and as of December 31, 2007, our shareholders equity was
approximately $3,527,000. In addition, we do not meet the alternative minimum
market capitalization or total asset and revenue requirements.
On December 14,
2007, we received a letter from AMEX indicating that we do not comply with AMEXs
continued listing standards due to our inability to maintain compliance with
Sections 1003(a)(ii), 1003(a)(iii) and 1003(a)(iv) of the Company
Guide and that AMEX intends to remove our common stock from listing and
registration on AMEX by filing a delisting application with the Securities and
Exchange Commission (SEC). The letter
from AMEX states that we were not in compliance with (i) Section 1003(a)(ii) of
the Company Guide because our shareholders equity was less than $4,000,000 and
we sustained losses from continuing operations and/or net losses in three out
of our four most recent fiscal years, and (ii) Section 1003(a)(iii) of
the Company Guide because our shareholders equity was less than $6,000,000 and
we sustained losses from continuing operations and/or net losses in our five
most recent fiscal years. We had also
been notified by AMEX that we were not in compliance with Section 1003(a)(iv) of
the Company Guide in that we had sustained losses which are so substantial in relation
to our overall operations or our existing financial resources, or our financial
condition had become so impaired that it appeared questionable, in the opinion
of AMEX, as to whether we would be able to continue operations and/or meet our
obligations as they matured.
We filed an appeal
of AMEXs determination and requested an oral hearing before an AMEX Listing
Qualifications Panel (a Qualifications Panel). On March 10, 2008, we received
a letter from AMEX granting our request. Our hearing with a Qualifications
Panel is scheduled for April 16, 2008. If the Qualifications Panel does not
grant the relief sought, our common stock will be delisted from AMEX following
which it is expected that our common stock would be quoted on the OTCBB. As a consequence of any such delisting, the
public price of our common stock could be adversely affected and a stockholder
would likely find it more difficult to dispose of, or to obtain accurate
quotations as to the prices of, our common stock.
We have a history of significant recurring losses totaling
approximately $75.9 million, and these losses may continue in the future
.
As of December 31,
2007, we had an accumulated deficit of $75.9 million, and these losses may
continue in the future. We will need to raise capital to fund our continuing
operations, and financing may not be available to us on favorable terms or at
all. In the event financing is not available in the time frame required, we
will be forced to sell certain of our assets or license our technologies to
others. We expect to continue to incur significant sales and marketing,
research and development, and general and administrative expenses. As a result,
we will need to generate significant revenues to achieve profitability and we may
never achieve profitability.
Our operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. We may experience
fluctuations in our quarterly results of operations as a result of:
4
·
varying demand
for and market acceptance of our technology and products;
·
changes in our
product or customer mix;
·
the gain or loss
of one or more key customers or their key customers, or significant changes in
the financial condition of one or more of our key customers or their key
customers;
·
our ability to
introduce, certify and deliver new products and technologies on a timely basis;
·
the announcement
or introduction of products and technologies by our competitors;
·
competitive
pressures on selling prices;
·
costs associated
with acquisitions and the integration of acquired companies, products and technologies;
·
our ability to
successfully integrate acquired companies, products and technologies, including
the assets acquired from Sol Logic;
·
our accounting
and legal expenses; and
·
general economic
conditions.
These factors, some of which are not within our
control, may cause the price of our stock to fluctuate substantially. To
respond to these and other factors, we may need to make business decisions that
could result in failure to meet financial expectations. If our quarterly
operating results fail to meet or exceed the expectations of securities
analysts or investors, our stock price could drop suddenly and significantly.
Most of our expenses, such as employee compensation, inventory and debt
repayment obligations, are relatively fixed in the short term. Moreover, our
expense levels are based, in part, on our expectations regarding future revenue
levels. As a result, if our revenue for a particular period were below our
expectations, we would not be able to proportionately reduce our operating
expenses for that period. Any revenue shortfall would have a disproportionately
negative effect on our operating results for the period.
We received a going concern opinion from our independent
registered public accounting firm for the fiscal years ended December 31,
2006 and 2007, which may negatively
impact our business.
We received a report from Stonefield Josephson, Inc.,
our independent registered public accounting firm (Stonefield Josephson),
regarding our consolidated financial statements for the fiscal year ended December 31,
2006 and 2007, which included an explanatory paragraph stating that the
consolidated financial statements were prepared assuming we will continue as a
going concern. The report also stated that our substantial net losses and
monetary liabilities have raised substantial doubt about our ability to
continue as a going concern. The going concern opinion for the fiscal
year ended December 31, 2007, may fail to dispel any continuing doubts
about our ability to continue as a going concern and could adversely affect our
ability to enter into collaborative relationships with business partners, to
raise additional capital and to sell our products, and could have a material
adverse effect on our business, financial condition and results of operations.
5
We currently have limited cash
resources and we will require additional funding to finance our working capital
requirements for at least the next twelve months
.
We currently have limited cash resources and we will
require financing to fund our anticipated working capital requirements for at
least the next twelve months. If we are not able to generate positive cash
flows from operations in the near future, we will be required to seek
additional funding through public or private equity or debt financing. There
can be no assurance that additional financing will be available on acceptable
terms, or at all. If we are required to sell equity to raise additional funds,
our existing stockholders may incur substantial dilution and any shares so
issued may have rights, preferences and privileges superior to the rights,
preferences and privileges of our outstanding common stock. If we seek debt
financing, the terms of the financing may require us to agree to restrictive
covenants or impose other obligations that limit our ability to grow our
business, acquire necessary assets or take other actions that we consider
necessary or desirable. Also, we may be
required to obtain funds through arrangements with third parties that require
us to relinquish rights to certain of our technologies or products that we
would seek to develop or commercialize ourselves. In addition, our ability to
raise additional capital may be dependent upon our common stock being listed on
AMEX. We have not satisfied the criteria for continued listing on AMEX in the
past and we cannot guarantee that we will be able to satisfy the criteria for
continued listing on AMEX in the future.
Our current ineligibility to use
the Registration Statement on Form S-3 may affect our ability to
finance our working capital requirements for
the next twelve months
.
As a result of the fact that our Current Report on Form 8-K,
filed with the SEC on December 21, 2007, was filed after the deadline for
its filing, we became ineligible through December 2008 to register shares
of our common stock on a Form S-3 Registration Statement. Certain
investors, for whom the ability to resell their shares relatively soon after
they acquire them is important, may only be willing to participate in private
financings by us if we can register their shares using a Form S-3
Registration Statement. Therefore, our
ineligibility to use Form S-3 could limit our ability to raise additional
capital for at least the next 12 months or such longer period that we are
ineligible to use the Form S-3 Registration Statement.
We depend upon a small number of
large system sales ranging from $500,000 to in excess of $2,000,000, and we may
fail to achieve one or more large system sales in the future
.
Historically, we have derived a substantial portion of
our revenues from a small number of sales of large, relatively expensive
systems, typically ranging in price from $500,000 to $2,000,000. If we fail to
receive orders for these large systems in a given sales cycle on a consistent basis,
our business could be significantly harmed. Further, our quarterly results are
difficult to predict because we cannot predict in which quarter, if any, large
system sales will occur in a given year. As a result, we believe that
quarter-to-quarter comparisons of our results of operations are not a good
indication of our future performance. In some future quarters, our operating
results may be below the expectations of securities analysts and investors, in
which case the market price of our common stock may decrease significantly.
Our lengthy sales cycle may cause
us to expend significant resources for as long as one year in anticipation of a
sale to certain customers, yet we still may fail to complete the sale
.
When considering the purchase of a large computerized
identity management system, potential customers of ours may take as long as one
year to evaluate different systems and obtain approval for the purchase. Under
these circumstances, if we fail to complete a sale, we will have expended
significant resources and received no revenue in return. Generally, customers
consider a wide range of issues before committing to purchase our products,
including product benefits, ability to operate with their current systems,
product reliability and their own budgetary constraints. While potential
customers are evaluating our products, we may incur substantial selling costs
and expend significant management resources in an effort to accomplish
potential sales that may never occur.
A significant number of our customers
and potential customers are government agencies that are subject to unique
political and budgetary constraints and have special contracting requirements
which may affect our ability to obtain new and retain current government
customers
.
A significant number of our customers are government
agencies. These agencies often do not set their own budgets
6
and therefore have little control over the amount of
money they can spend from quarter-to-quarter or year-to-year. In addition,
these agencies experience political pressure that may dictate the manner in
which they spend money. Due to political and budgetary processes and other
scheduling delays that may frequently occur relating to the contract or bidding
process, some government agency orders may be canceled or substantially
delayed, and the receipt of revenues or payments from these agencies may be
substantially delayed. In addition, future sales to government agencies will
depend on our ability to meet government contracting requirements, certain of
which may be onerous or impossible to meet, resulting in our inability to
obtain a particular contract. Common requirements in government contracts
include bonding requirements, provisions permitting the purchasing agency to
modify or terminate at will the contract without penalty, and provisions
permitting the agency to perform investigations or audits of our business
practices, any of which may limit our ability to enter into new contracts or
maintain our current contracts.
We may fail to create new
applications for our products and enter new markets, which may have an adverse
effect on our operations, financial condition and prospects
.
We believe our future success depends in part on our
ability to develop and market our technology for applications other than
booking systems for the law enforcement market. If we fail in these goals, our
business strategy and ability to generate revenues and cash flow would be
significantly impaired. We intend to expend significant resources to develop
new technology, but the successful development of new technology cannot be
predicted and we cannot guarantee we will succeed in these goals.
We occasionally rely on systems
integrators to manage our large projects, and if these companies do not perform
adequately, we may lose business
.
We occasionally act as a subcontractor to systems
integrators who manage large projects that incorporate our systems,
particularly in foreign countries. We cannot control these companies, and they
may decide not to promote our products or may price their services in such a
way as to make it unprofitable for us to continue our relationship with them.
Further, they may fail to perform under agreements with their customers, in
which case we might lose sales to these customers. If we lose our relationships
with these companies, our business, financial condition and results of
operations may suffer.
If the patents we own or license,
or our other intellectual property rights, do not adequately protect our
products and technologies, we may lose market share to our competitors and our
business, financial condition and results of operations would be adversely
affected
.
Our success depends significantly on our ability to
protect our rights to the technologies used in our products. We rely on patent
protection, trade secrets, as well as a combination of copyright and trademark
laws and nondisclosure, confidentiality and other contractual arrangements to
protect our technology. However, these legal means afford only limited
protection and may not adequately protect our rights or permit us to gain or
keep any competitive advantage. In addition, we cannot be assured that any of
our current and future pending patent applications will result in the issuance
of a patent to us. The U.S. Patent and Trademark Office (PTO) may deny or
require significant narrowing of claims in our pending patent applications, and
patents issued as a result of the pending patent applications, if any, may not
provide us with significant commercial protection or be issued in a form that
is advantageous to us. We could also incur substantial costs in proceedings
before the PTO. These proceedings could result in adverse decisions as to the
claims included in our patents.
Our issued and licensed patents and those that may be
issued or licensed in the future may be challenged, invalidated or
circumvented, which could limit our ability to stop competitors from marketing
related products. Additionally, upon expiration of our issued or licensed patents,
we may lose some of our rights to exclude others from making, using, selling or
importing products using the technology based on the expired patents. We also
must rely on contractual rights with the third parties that license technology
to us to protect our rights in the technology licensed to us. Although we have
taken steps to protect our intellectual property and technology, there is no
assurance that competitors will not be able to design around our patents. We
also rely on unpatented proprietary technology. We cannot assure you that we
can meaningfully protect all our rights in our unpatented proprietary
technology or that others will not independently develop substantially
equivalent proprietary products or processes or otherwise gain
7
access to our unpatented proprietary technology. We
seek to protect our know-how and other unpatented proprietary technology with
confidentiality agreements and intellectual property assignment agreements with
our employees. However, such agreements may not provide meaningful protection
for our proprietary information in the event of unauthorized use or disclosure
or other breaches of the agreements or in the event that our competitors
discover or independently develop similar or identical designs or other
proprietary information. In addition, we rely on the use of registered and
common law trademarks with respect to the brand names of some of our products.
Our common law trademarks provide less protection than our registered
trademarks. Loss of rights in our trademarks could adversely affect our
business, financial condition and results of operations.
Furthermore, the laws of foreign countries may not
protect our intellectual property rights to the same extent as the laws of the
United States. If we fail to apply for intellectual property protection or if
we cannot adequately protect our intellectual property rights in these foreign
countries, our competitors may be able to compete more effectively against us,
which could adversely affect our competitive position, as well as our business,
financial condition and results of operations.
If third parties claim that we
infringe their intellectual property rights, we may incur liabilities and costs
and may have to redesign or discontinue selling certain products
.
Whether a product infringes a patent involves complex
legal and factual issues, the determination of which is often uncertain. We
face the risk of claims that we have infringed on third parties intellectual property
rights. Searching for existing intellectual property rights may not reveal
important intellectual property and our competitors may also have filed for
patent protection, which is not as yet a matter of public knowledge, or claimed
trademark rights that have not been revealed through our availability searches.
Our efforts to identify and avoid infringing on third parties intellectual
property rights may not always be successful. Any claims of patent or other
intellectual property infringement, even those without merit, could:
·
increase the
cost of our products;
·
be expensive and
time consuming to defend;
·
result in us
being required to pay significant damages to third parties;
·
force us to
cease making or selling products that incorporate the challenged intellectual
property;
·
require us to
redesign, reengineer or rebrand our products;
·
require us to
enter into royalty or licensing agreements in order to obtain the right to use
a third partys intellectual property, the terms of which may not be acceptable
to us;
·
require us to
indemnify third parties pursuant to contracts in which we have agreed to
provide indemnification to such parties for intellectual property infringement
claims;
·
divert the
attention of our management; and
·
result in our
customers or potential customers deferring or limiting their purchase or use of
the affected products until the litigation is resolved.
In addition, new patents obtained by our competitors
could threaten a products continued life in the market even after it has
already been introduced.
8
The failure to successfully
integrate any business or asset acquisitions into our existing operations, or
if we discover previously undisclosed liabilities, could negatively affect our
business, financial condition and results of operations
.
We completed the acquisition
of certain assets of Sol Logic in December 2007,
and we plan to
continue to review potential acquisition candidates. Our business and our
strategy include building our business through acquisitions. However,
acceptable acquisition candidates may not be available in the future or may not
be available on terms and conditions acceptable to us.
Successful acquisitions depend upon our ability to
identify, negotiate, complete and integrate suitable acquisitions and to obtain
any necessary financing. Even if we complete acquisitions, we may experience:
·
difficulties in
integrating any acquired companies, personnel and products into our existing
business;
·
delays in
realizing the benefits of the acquired company or products;
·
diversion of our
managements time and attention from other business concerns;
·
limited or no
direct prior experience in new markets or countries we may enter;
·
higher costs of
integration than we anticipated; and
·
difficulties in
retaining key employees of the acquired business who are necessary to manage
these acquisitions.
In addition, an acquisition could materially impair
our operating results by causing us to incur debt or requiring us to amortize
acquisition expenses and acquired assets. We may also discover deficiencies in
internal controls, data adequacy and integrity, product quality, regulatory
compliance and product liabilities that we did not uncover prior to our
acquisition of such businesses, which could result in us becoming subject to
penalties or other liabilities. Any difficulties in the integration of acquired
businesses or unexpected penalties or liabilities in connection with such
businesses could have a material adverse effect on our business, financial
condition and results of operations.
We operate in foreign countries
and are exposed to risks associated with foreign political, economic and legal
environments and with foreign currency exchange rates
.
With our acquisition of G&A Imaging Ltd. in 2001,
we have significant foreign operations. As a result, we are exposed to risks,
including among others, risks associated with foreign political, economic and
legal environments and with foreign currency exchange rates. Our results may be
adversely affected by, among other things, changes in government policies with
respect to laws and regulations, anti-inflation measures, currency conversions,
remittance abroad and rates and methods of taxation.
We depend on key personnel, the
loss of any of whom could materially adversely affect future operations
.
Our success will depend to a significant extent upon
the efforts and abilities of our executive officers and other key personnel.
The loss of the services of one or more of these key employees and any negative
market or industry perception arising from the loss of such services could have
a material adverse effect on us and the trading price of our common stock. Our business will also be dependent upon our
ability to attract and retain qualified personnel. Acquiring and keeping these
personnel could prove more difficult or cost substantially more than estimated
and we cannot be certain that we will be able to retain such personnel or
attract a high caliber of personnel in the future.
Compliance
with Section 404 of the Sarbanes-Oxley Act of 2002 may result in substantial
costs to us and a diversion of management attention and resources, and failure
to maintain adequate internal controls over financial reporting could result in
our business being harmed and our stock price declining.
Section 404 of the Sarbanes-Oxley Act of 2002 requires
us to document and test the effectiveness of our internal controls over
financial reporting in accordance with an established control framework and to
report on our managements conclusion as to the effectiveness of these internal
controls over financial reporting beginning with the fiscal year ending
December 31, 2007. This section also
requires that our independent registered public accounting firm provide an
attestation report on our internal control over financial reporting beginning
with the fiscal year ending December 31, 2008.
Our management completed its evaluation of the effectiveness of our
disclosure controls and procedures as of December 31, 2007 and concluded that
our internal controls over financial reporting were effective as of that
date.
9
The standards that must
be met for management to continue to assess the internal control over financial
reporting are complex and will require significant documentation, testing and
possible remediation to meet the detailed standards. In addition, the attestation process that
must be performed by our independent registered public accounting firm is new
and complex. We may encounter problems or delays in completing the activities
necessary to continue to make assessments of our internal control over
financial reporting, completing the implementation of any requested
improvements, or receiving an unqualified attestation of our assessment by our
independent registered public accountants.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place is a costly and time-consuming effort that
needs to be evaluated frequently, so compliance with these new rules could
require us to incur substantial costs and may require a significant amount of
time and attention of management, which could seriously harm our business,
financial condition and results of operations. If we are unable to continue to
assess our internal control over financial reporting as effective, or if our
independent registered public accounting firm is unable to provide an
unqualified attestation report on our assessment, investors may lose confidence
in us and our stock price may be negatively impacted.
We face competition from
companies with greater financial, technical, sales, marketing and other
resources, and, if we are unable to compete effectively with these competitors,
our market share may decline and our business could be harmed
.
We face competition from other established companies.
A number of our competitors have longer operating histories, larger customer
bases, significantly greater financial, technological, sales, marketing and
other resources than we do. As a result,
our competitors may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards or client requirements, more
quickly develop new products or devote greater resources to the promotion and
sale of their products and services than we can. Likewise, their greater capabilities in these
areas may enable them to better withstand periodic downturns in the identity
management solutions industry and compete more effectively on the basis of
price and production. In addition, new
companies may enter the markets in which we compete, further increasing
competition in the identity management solutions industry.
We believe that our ability to compete successfully
depends on a number of factors, including the type and quality of our products
and the strength of our brand names, as well as many factors beyond our
control. We may not be able to compete successfully against current or future
competitors, and increased competition may result in price reductions, reduced
profit margins, loss of market share and an inability to generate cash flows
that are sufficient to maintain or expand the development and marketing of new
products, any of which would adversely impact our results of operations and
financial condition.
Risks Related to Our Securities
The holders of our preferred
stock have certain rights and privileges that are senior to our common stock,
and we may issue additional shares of preferred stock without stockholder
approval that could have a material adverse effect on the market value of the
common stock
.
Our Board of Directors (Board) has the authority to
issue a total of up to 4,000,000 shares of preferred stock and to fix the
rights, preferences, privileges, and restrictions, including voting rights, of
the preferred stock, which typically are senior to the rights of the common
stockholders, without any further vote or action by the common stockholders.
The rights of our common stockholders will be subject to, and may be adversely
affected by, the rights of the holders of the preferred stock that have been
issued, or might be issued in the future. Preferred stock also could have the
effect of making it more difficult for a third party to acquire a majority of
our outstanding voting stock. This could delay, defer, or prevent a change in
control. Furthermore, holders of preferred stock may have other rights,
including economic rights, senior to the common stock. As a result, their
existence and issuance could have a material adverse effect on the market value
of the common stock. We have in the past issued and may from time to time in
the future issue, preferred stock for financing or other purposes with rights,
preferences, or privileges senior to the common stock. As of December 31,
2007, we had three series of preferred stock outstanding, Series B
10
preferred stock, Series C 8% convertible
preferred stock and Series D 8% convertible preferred stock.
The provisions of our Series B
Preferred Stock prohibit the payment of dividends on the common stock unless
the dividends on those preferred shares are first paid. In addition, upon a
liquidation, dissolution or sale of our business, the holders of the Series B
Preferred Stock will be entitled to receive, in preference to any distribution
to the holders of common stock, initial distributions of $2.50 per share, plus
all accrued but unpaid dividends.
Pursuant to the terms of our Series B Preferred Stock we are
obligated to pay cumulative cash dividends on shares of Series B Preferred
Stock from legally available funds at the annual rate of $0.2125 per share,
payable in two semi-annual installments of $0.10625 each, which cumulative
dividends must be paid prior to payment of any dividend on our common stock. As
of December 31, 2007, we had cumulative undeclared dividends on the Series B
Preferred Stock of approximately $9,000.
The Series C
Preferred Stock has a liquidation preference equal to its stated value, plus
any accrued and unpaid dividends thereon and any other fees or liquidated
damages owing thereon. The Series C Preferred Stock accrues cumulative
dividends at the rate of 8.0% of the stated value per share per annum. At the option of the Company, the dividend
payment may be made in the form of cash, after the payment of cash dividends to
the holders of Series B Preferred Stock, or common stock issuable upon
conversion of the Series C Preferred Stock. Each share of Series C Preferred Stock
is convertible at any time at the option of the holder into a number of shares
of common stock equal to the stated value (initially $1,000 per share, subject
to adjustment), plus any accrued and unpaid dividends, divided by the
conversion price (initially $1.50 per share, subject to adjustment). Subject to
certain limitations, the conversion price per share shall be adjusted in the
event of certain subsequent stock dividends, splits, reclassifications,
dilutive issuances, rights offerings, and reclassifications. Certain activities may not be undertaken by
the Company without the affirmative vote of a majority of the holders of the
outstanding shares of Series C Preferred Stock. As of December 31,
2007, we had cumulative undeclared dividends on the Series C Preferred
Stock of approximately $234,000.
The Series D
Preferred Stock has a liquidation preference equal to its stated value, plus
any accrued and unpaid dividends thereon and any other fees or liquidated
damages owing thereon. The Series D Preferred Stock accrues cumulative
dividends at the rate of 8.0% of the stated value per share per annum. At the option of the Company, the dividend
payment may be made in the form of cash, after the payment of cash dividends to
the holders of Series B and Series C Preferred Stock, or common stock
issuable upon conversion of the Series D Preferred Stock. Each share of Series D Preferred Stock
is convertible at any time at the option of the holder into a number of shares
of common stock equal to the stated value (initially $1,000 per share, subject
to adjustment), plus any accrued and unpaid dividends, divided by the
conversion price (initially $1.90 per share, subject to adjustment). Subject to
certain limitations, the conversion price per share shall be adjusted in the
event of certain subsequent stock dividends, splits, reclassifications,
dilutive issuances, rights offerings, and reclassifications. Certain activities may not be undertaken by
the Company without the affirmative vote of a majority of the holders of the
outstanding shares of Series D Preferred Stock. As of December 31,
2007, we had cumulative undeclared dividends on the Series D Preferred
Stock of approximately $98,000.
Our stock price has been
volatile, and your investment in our common stock could suffer a decline in
value
.
There has been significant volatility in the market
price and trading volume of equity securities, which is unrelated to the
financial performance of the companies issuing the securities. These broad
market fluctuations may negatively affect the market price of our common stock.
You may not be able to resell your shares at or above the price you pay for
those shares due to fluctuations in the market price of our common stock caused
by changes in our operating performance or prospects and other factors.
Some specific factors that may have a significant
effect on our common stock market price include:
·
actual or
anticipated fluctuations in our operating results or future prospects;
·
our
announcements or our competitors announcements of new products;
11
·
the publics
reaction to our press releases, our other public announcements and our filings
with the SEC;
·
strategic
actions by us or our competitors, such as acquisitions or restructurings;
·
new laws or
regulations or new interpretations of existing laws or regulations applicable
to our business;
·
changes in
accounting standards, policies, guidance, interpretations or principles;
·
changes in our
growth rates or our competitors growth rates;
·
developments
regarding our patents or proprietary rights or those of our competitors;
·
our inability to
raise additional capital as needed;
·
substantial
sales of common stock underlying warrants and preferred stock;
·
concern as to
the efficacy of our products;
·
changes in
financial markets or general economic conditions;
·
sales of common
stock by us or members of our management team; and
·
changes in stock
market analyst recommendations or earnings estimates regarding our common
stock, other comparable companies or our industry generally.
Our future sales of our common
stock could adversely affect its price and our future capital-raising
activities could involve the issuance of equity securities, which would dilute
your investment and could result in a decline in the trading price of our
common stock
.
We may sell securities in the public or private equity
markets if and when conditions are favorable, even if we do not have an
immediate need for additional capital at that time. Sales of substantial
amounts of our common stock, or the perception that such sales could occur,
could adversely affect the prevailing market price of our common stock and our
ability to raise capital. We may issue additional common stock in future
financing transactions or as incentive compensation for our executive
management and other key personnel, consultants and advisors. Issuing any
equity securities would be dilutive to the equity interests represented by our
then-outstanding shares of common stock. The market price for our common stock
could decrease as the market takes into account the dilutive effect of any of
these issuances. Furthermore, we may enter into financing transactions at
prices that represent a substantial discount to the market price of our common
stock. A negative reaction by investors and securities analysts to any
discounted sale of our equity securities could result in a decline in the
trading price of our common stock.
If registration rights that we
have previously granted are exercised, then the price of our common stock may
be adversely affected
.
We have agreed to
register with the SEC up to 677,940 shares of common stock which are included
in the registration statement of which this prospectus is a part. In the event these securities are registered
with the SEC, they may be freely sold in the open market provided the
registration statement of which this prospectus forms a part remains effective
and subject to trading restrictions to which our affiliates holding the shares
may be subject from time to time. We expect that we also will be required to
register any securities sold in future private financings. Additionally, the
number of shares of our common stock underlying issued and outstanding warrants
and preferred stock registered under prior registration statements, many of
which are now available for resale under Rule 144 of the Securities Act,
is substantial and sales of such underlying stock could cause significant
dilution. The sale of a significant
amount of shares in the open market, or the perception that these sales may
occur, could cause the trading price of our common stock to decline or become
highly volatile.
12
Our corporate documents and
Delaware law contain provisions that could discourage, delay or prevent a
change in control of our company
.
Provisions in our certificate of incorporation and
bylaws may discourage, delay or prevent a merger or acquisition involving us
that our stockholders may consider favorable. For example, our certificate of
incorporation authorizes preferred stock, which carries special rights,
including voting and dividend rights. With these rights, preferred stockholders
could make it more difficult for a third party to acquire us.
We are also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. Under these
provisions, if anyone becomes an interested stockholder, we may not enter
into a business combination with that person for three years without special
approval, which could discourage a third party from making a takeover offer and
could delay or prevent a change of control. For purposes of Section 203, interested
stockholder means, generally, someone owning 15% or more of our outstanding
voting stock or an affiliate of ours that owned 15% or more of our outstanding
voting stock during the past three years, subject to certain exceptions as
described in Section 203.
We do not expect to pay cash
dividends on our common stock for the foreseeable future
.
We have never paid cash dividends on our common stock
and do not anticipate that any cash dividends will be paid on the common stock
for the foreseeable future. The payment of any cash dividend by us will be at
the discretion of our board of directors and will depend on, among other
things, our earnings, capital, regulatory requirements and financial condition.
Furthermore, the terms of our Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock directly limit our ability to
pay cash dividends on our common stock.
Securities analysts may not
continue to cover our common stock or may issue negative reports, and this may
have a negative impact on our common stocks market price
.
There is no guarantee that securities analysts will
continue to cover our common stock. If securities analysts do not cover our
common stock, the lack of research coverage may adversely affect our common
stocks market price. The trading market for our common stock relies in part on
the research and reports that industry or financial analysts publish about our
business or us. If one or more of the analysts who cover us downgrades our
stock, our stock price may decline rapidly. If one or more of these analysts
ceases coverage of our common stock, we could lose visibility in the market, which
in turn could cause our stock price to decline. In addition, rules mandated
by the Sarbanes-Oxley Act of 2002, and a global settlement reached between the
SEC, other regulatory analysts and a number of investment banks in April 2003,
may lead to a number of fundamental changes in how analysts are reviewed and
compensated. In particular, many investment banking firms will now be required
to contract with independent financial analysts for their stock research. It
may be difficult for companies with smaller market capitalizations, such as our
company, to attract independent financial analysts that will cover our common
stock, which could have a negative effect on our market price.
The large number of holders and
lack of concentration of ownership of our common stock may make it difficult
for us to reach a quorum or obtain an affirmative vote of our stockholders at
future stockholder meetings
.
Our stock is held in a large number of individual
accounts. As a result, it may be difficult for us to reach a quorum or obtain
an affirmative vote of a majority of our stockholders where either of those
thresholds are measured based on the total number of shares of our common stock
outstanding. Difficulty in obtaining a stockholder vote could impact our
ability to complete any financing or strategic transaction requiring
stockholder approval or effect basic corporate governance changes, such as an
increase in the authorized number of shares of our preferred stock and our
common stock.
13
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, business strategies,
operating efficiencies or synergies, competitive positions, growth
opportunities for existing patents, technologies, products, plans and
objectives of management, markets for stock of ImageWare and other matters. Statements
in this prospectus that are not historical facts are hereby identified as forward-looking
statements for the purpose of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A
of the Securities Act. Such forward-looking statements, including, without
limitation, those relating to the future business prospects, revenues and
income of ImageWare, wherever they occur, are necessarily estimates reflecting
the best judgment of our senior management on the date on which they were made,
or if no date is stated, as of the date of this prospectus. These
forward-looking statements are subject to risks, uncertainties and assumptions,
including those described in the section entitled Risk Factors, may affect
the operations, performance, development and results of our business. Because
the factors discussed in this prospectus could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements made
by us or on our behalf, you should not place undue reliance on any such
forward-looking statements. New factors emerge from time to time, and it is not
possible for us to predict which factors will arise. In addition, we cannot
assess the impact of each factor on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
You are advised to read carefully the section titled Risk
Factors beginning on page 4 of this prospectus.
We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or any other reason. All subsequent forward-looking statements
attributable to ImageWare or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to herein. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur. Except as
required under the federal securities laws and the rules and regulations
of the SEC, we do not have any intention or obligation to update publicly any
forward-looking statements after we distribute this prospectus, whether as a
result of new information, future events or otherwise.
14
USE OF
PROCEEDS
We will not receive any proceeds from the sale or
other disposition by the Selling Stockholder of the shares of our common stock
covered by this prospectus, or interests therein. The Selling Stockholder will
pay any underwriting discounts and commissions and expenses incurred by the
Selling Stockholder for brokerage, accounting, tax or legal services or any
other expenses incurred by the Selling Stockholder in disposing of these
shares. We will bear all other costs, fees and expenses incurred in effecting
the registration of the shares covered by this prospectus, including, without
limitation, all registration and filing fees, AMEX listing fees and fees and
expenses of our counsel and our accountants.
MANAGEMENT
Directors
The following
table sets forth information regarding our directors as of April 1, 2008:
Name
|
|
Age
|
|
Principal Occupation/Position
Held With the Company
|
Mr. S.
James Miller, Jr.
|
|
54
|
|
Chief Executive Officer
and Chairman of the Board of Directors
|
Mr. John
Callan
|
|
61
|
|
Director
|
Mr. David
Carey
|
|
63
|
|
Director
|
Mr. Guy
Steven Hamm
|
|
60
|
|
Director
|
Mr. John
Holleran
|
|
81
|
|
Director
|
Mr. David
Loesch
|
|
63
|
|
Director
|
On March 16, 2008, Mr. Patrick Downs, a member of our
board of directors, passed away. We have not yet filled the vacancy resulting from
Mr. Downs untimely passing.
S.
James Miller, Jr.
has served as our Chief Executive
Officer since 1990 and Chairman of the Board since 1996. He also served as our
President from 1990 until 2003. From 1980 to 1990, Mr. Miller was an
executive with Oak Industries, Inc., a manufacturer of components for the
telecommunications industry. While at Oak Industries, Mr. Miller served as
a director and as Senior Vice President, General Counsel, Corporate Secretary
and Chairman/President of Oak Industries Pacific Rim subsidiaries. He has a
J.D. from the University of San Diego School of Law and a B.A. from the
University of California, San Diego.
John
Callan
was appointed to the Board in September 2000.
Since February 2007, Mr. Callan has served as Vice President,
Strategy and Business Development at DHL Global Mail, Americas. From March 2006
to February 2007, Mr. Callan served DHL Global Mail as Vice President
- Domestic Product Management. From 2001 to 2006, Mr. Callan served as
Principal of Ursa Major Associates, LLC, the logistics strategy consulting firm
he co-founded. From 1997 to 2002, he was an independent business strategy
consultant in the imaging and logistics fields. From 1995 to 1997, Mr. Callan
served as Chief Operating Officer for Milestone Systems, a shipping systems
software company. From 1987 to 1995, he served as Director of Entertainment
Imaging at Polaroid Corporation. Mr. Callan is a graduate of the
University of North Carolina.
David
Carey
was appointed to the Board in February 2006. Mr. Carey
is a former Executive Director of the Central Intelligence Agency. Since April 2005,
Mr. Carey has served as Executive Director for Blackbird Technologies,
which provides state-of-the-art IT security expertise, where he assists the
company with business development and strategic planning. Prior to joining
Blackbird Technologies, Mr. Carey was Vice President, Information
Assurance for Oracle Corporation from September 2001 to April 2005.
In addition, Mr. Carey worked for the CIA for 32 years until 2001. During
his career at the CIA, Mr. Carey held several senior positions including
that of Executive Director, often referred to as the Chief Operating Officer,
or No. 3 person in the agency, from 1997 to 2001. Before assuming that
position, Mr. Carey was Director of the DCI Crime and Narcotics Center,
the Director of the Office of Near Eastern and South Asian Analysis, and Deputy
Director of the Office of Global Issues. Mr. Carey is a graduate of
Cornell University and the University of Delaware.
15
Guy Steven Hamm
was appointed to the Board in October 2004.
Mr. Hamm served Aspen Holding, a privately held insurance provider, as CFO
from December 2005 to February 2007. In 2002, Mr. Hamm retired
from PricewaterhouseCoopers, where he was a national partner-in-charge of
middle market. Mr. Hamm was instrumental in growing the Audit Business
Advisory Services (ABAS) Middle Market practice at PricewaterhouseCoopers,
where he was responsible for $300 million in revenue and more than 100
partners. Mr. Hamm is a graduate of San Diego State University.
John
Holleran
was
appointed to the Board in May 1996. Since 1974, Mr. Holleran has been
a management and investment consultant. Prior to consulting, Mr. Holleran
served as the Chief Financial Officer, Executive Vice President and Chief
Operating Officer of Southwest Gas Corporation. He served as Executive Vice
President of the Hawaii Corporation, a diversified holding company, and as
President and Chairman of Property Research Financial Corporation, a real
estate investment and syndication firm, from 1972 to 1974. Mr. Holleran
has also served as a director of Kilroy Industries, a national office building
and office park developer, as a director of Walker & Lee, a national
full service real estate firm, and as a director of NTN Communications, Inc.,
a company engaged in the interactive television business. Mr. Holleran is
a graduate of Woodbury University.
David
Loesch
was
appointed to the Board in September 2001 after 29 years of service as
a Special Agent with the Federal Bureau of Investigations (FBI). At the time
of his retirement from the FBI, Mr. Loesch was the Assistant Director in
Charge of the Criminal Justice Information Services Division of the FBI. Mr. Loesch
was awarded the Presidential Rank Award for Meritorious Executive in 1998 and
has served on the board of directors of the Special Agents Mutual Benefit
Association since 1996. He is also a member of the International Association of
Chiefs of Police and the Society of Former Special Agents of the FBI, Inc.
Mr. Loesch served in the United States Army as an Officer with the 101st
Airborne Division in Vietnam. He holds a Bachelors degree from Canisius
College and a Masters degree in Criminal Justice from George Washington
University. Mr. Loesch is currently a private consultant on public safety
and criminal justice solutions.
Executive
Officers
The following
table sets forth the names, ages and positions for our executive officers and
certain significant employees not discussed above as of April 1, 2008:
Name
|
|
Age
|
|
Principal
Position(s) Held With the Company
|
Mr. Wayne
Wetherell
|
|
55
|
|
Sr. Vice President,
Administration, Chief Financial Officer, Secretary and Treasurer
|
Mr. Charles
AuBuchon
|
|
64
|
|
Vice President,
Business Development
|
Mr. David
Harding
|
|
38
|
|
Vice President and
Chief Technical Officer
|
Wayne
Wetherell
has
served as our Senior Vice President, Administration and Chief Financial Officer
since May 2001 and additionally as our Secretary and Treasurer since October 2005.
From 1996 to May 2001, he served as Vice President of Finance and Chief
Financial Officer. From 1991 to 1996, Mr. Wetherell was the Vice President
and Chief Financial Officer of Bilstein Corporation of America, a manufacturer
and distributor of automotive parts. Mr. Wetherell holds a B.S. degree in
Management and an M.S. degree in Finance from San Diego State University.
16
Significant Employees
Chuck
AuBuchon
has
served as our Vice President, Business Development since January 2007.
From 2004 to 2007 he served as Vice President, Sales. From 2003 to 2004, he
served as Director of North American Sales. From 2000 to 2003, Mr. AuBuchon
was Vice President Sales & Marketing at Card Technology Corporation, a
manufacturer of Card Personalization Systems, where he was responsible for
distribution within the Americas, Asia Pacific and EMEA (Europe, Middle East
and Africa) regions. From 1992 to 2000, Mr. AuBuchon held various sales
management positions, including Vice President Sales and Marketing, for Gemplus
and Datacard. Mr. AuBuchon is a graduate of Pennsylvania State University.
David
Harding
has
served as our Vice President and Chief Technology Officer since January 2006.
Before joining us, Mr. Harding was the Chief Technology Officer at IC
Solutions, Inc., where he was responsible for all technology departments
including the development and management of software development, IT and
quality assurance as well as their respective hardware, software and human
resource budgets from 2001 to 2003. He was the Chief Technology Officer at
Thirsty.com from 1999 to 2000, the Chief Technology Officer at Fulcrum Point
Technologies, Inc., from 1996 to 1999, and consultant to Access360, which
is now part of IBM/Tivoli, from 1995 to 1996.
17
EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Overview of
Compensation Program and Philosophy
Our compensation program
is intended to support the achievement of our specific annual and long-term
operational and strategic goals by attracting and rewarding employees for
superior results. A key objective of the program is to align executives
interests with those of the stockholders by rewarding performance above
established goals, with the ultimate objective of improving stockholder value.
The Compensation
Committee of our Board of Directors has responsibility for establishing,
implementing and monitoring adherence to the Companys compensation philosophy.
The Compensation Committee seeks to ensure that the total compensation paid to
our executive officers is fair, reasonable and competitive.
The Compensation
Committee evaluates both performance and compensation in an effort to ensure
that we maintain our ability to attract and retain individuals of superior
ability and managerial talent in key positions and that compensation provided
to key employees remains competitive relative to the compensation paid to
similarly situated executives of our peer companies. To that end, the
Compensation Committee believes executive compensation packages we provide to
our executive officers should include both cash and stock-based compensation
that rewards individual and corporate performance as measured against
established goals.
Role of
Executive Officers in Compensation Decisions
The Compensation Committee
makes all compensation decisions for our executive officers. Regarding the
establishment of base salary levels payable throughout 2007 and cash and equity
incentives in respect of 2007 performance, our Chief Executive Officer, S. James
Miller, provided input and arranged for the Compensation Committee to have
access to our records and personnel for purposes of its deliberations. Our Sr.
Vice President Administration, Chief Financial Officer, Secretary and
Treasurer, Wayne G. Wetherell, also provided input to the Compensation
Committee to this end. With respect to compensation levels of executive
officers in 2008 with respect to 2007 performance, S. James Miller reviewed the
performance of each executive officer (other than his own, which was reviewed
by the Compensation Committee) and provided such input and observations to the
Compensation Committee. The conclusions reached and recommendations based on
these reviews, including with respect to salary adjustments for 2008 for 2007
performance, were presented to the Compensation Committee. The Compensation
Committee can exercise its discretion in modifying any recommended adjustments
or awards to executive officers.
Setting
Executive Compensation
Based on the foregoing
objectives, the Compensation Committee has structured our annual and long-term
incentive-based cash and non-cash executive compensation in an effort to
motivate our executive officers to achieve the business goals set by us and
reward them for achieving such goals. In furtherance of these objectives, in
2005 the Compensation Committee engaged Compensia, an outside consulting firm,
to assess and evaluate its total compensation program for our executive
officers and provide the Compensation Committee with relevant market data and
recommendations to consider when developing compensation packages for the
executive officers. Compensia provided market data for peer-group companies
such as ActiveCard, Authentidate Holding Corp., CAM Solutions, Cogent,
Connetix, CSP, Identix, IPIX, Lasercard, Loudeye, Merge Technologies, Raining
Data, SAFLINK, Smith Micro Software, Vasco Data, Viewpoint and Viisage
Technology.
Management plays a
significant role with respect to the process of setting compensation for
executive officers, other than the Chairman and Chief Executive Officer, by:
·
providing performance evaluations;
·
developing and recommending targets for performance
and objectives; and
18
·
recommending salary levels, incentives
and equity awards.
Management provides the
Compensation Committee and the Board of Directors with material for each
Compensation Committee meeting and the Chairman and Chief Executive Officer, at
the Compensation Committees request to provide:
·
background relative to strategic objectives;
·
discussion relative to performance
evaluations of the executive officers; and
·
compensation recommendations as to
executive officers (other than himself).
In making compensation
decisions, the Compensation Committee compared each element of the executives
total compensation package with the research and recommendations of Compensia.
The Compensation
Committee believes that we compete with many companies for top executive-level
talent. Accordingly, the Compensation Committee strives to implement
compensation packages for our executive officers that are competitive with
total compensation paid to similarly situated executives. Variations to this
objective may occur as dictated by the experience level of the individual and
market factors. A significant percentage of total compensation for our
executive officers is allocated to incentives as a result of the philosophy
mentioned above. Nevertheless, strictly speaking, there is no pre-established
policy or target for the allocation between either cash and non-cash or
short-term and long-term incentive compensation. Income from such incentive
compensation is realized as a result of our performance the individuals
performance, depending on the type of award, compared to established goals.
2007 Executive
Compensation Components
For the fiscal year ended
December 31, 2007, the principal components of compensation for executive
officers were:
·
base salary; and
·
long-term equity incentive compensation
in the form of stock options and restricted stock.
Base Salary.
We provide our executive officers and other employees
with a base salary to compensate them for services rendered during the fiscal
year. Base salary ranges for executive officers are determined for each
executive based on his or her position and responsibility by using market data.
During its review of base
salaries for executive officers for 2007, the Compensation Committee primarily
considered:
·
market data provided by our outside
consultant and data published by independent third-party sources;
·
internal review of the executives
compensation, both individually and relative to other executive officers; and
·
individual performance and responsibility
of the executive.
Salary levels for named
executives not under employment contracts are considered annually as part of
our performance review process as well as upon a promotion or other material
change in job responsibility. Merit-based increases to salaries of executive
officers are determined upon assessment of the individuals performance and
responsibility.
Long-Term Equity Incentive Compensation.
Our long-term incentive compensation
program is designed to recognize the executives scope of responsibilities,
reward demonstrated performance and leadership, motivate future superior
performance, align the interests of the executives with our stockholders and
retain the executives through the term of the awards. When making equity-award
decisions, the Compensation Committee considers market data, the grant size,
the forms of long-term equity compensation available to it under existing plans
and the status of awards granted in previous years. The amount of equity
incentive compensation granted in 2007 was based
19
upon our strategic, operational and financial performance overall and
reflects the executives expected contributions to our future success. Existing
ownership levels are not a factor in award determination, as the Compensation
Committee does not want to discourage executives from holding significant
amounts of our stock.
Effective January 1,
2006, we adopted the requirements of Statement of Financial Accounting
Standards No. 123R,
Share-Based Payment
(SFAS 123R), which requires companies to estimate the fair value of
share-based payment option awards on the date of grant using an option-pricing
model. The value of the awards that are ultimately expected to vest are
recognized as compensation expense over the requisite service periods using the
straight-line method. When determining the appropriate form of incentive award
(for example whether stock options, restricted stock, restricted stock units,
or stock appreciation rights, each of which our Amended and Restated 1999 Stock
Award Plan (the 1999 Plan) permits, should be used) the Compensation
Committees goal is to weigh the cost of these grants with their potential
benefits as a compensation tool.
Retirement and Other Benefits.
All of our employees in the United States are eligible
to participate in the 401(k) Savings Plan (the Savings Plan). The
Savings Plan is a tax-qualified retirement savings plan pursuant to which all
U.S. based employees, including the named executive officers, are able to
contribute. The Savings Plan provides for annual contributions by us of 50% of
employee contributions not to exceed 8% of employee compensation. Participants
may contribute up to 100% of the annual contribution limitations
determined by the Internal Revenue Service. Employees are fully vested in their
share of our contributions after the completion of five years of service.
Tax and Accounting Implications.
As part of its role, the Compensation Committee
reviews and considers the deductibility of executive compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the Code), which provides that
we may not deduct compensation of more than $1,000,000 that is paid to certain
individuals. To qualify for deductibility under Section 162(m),
compensation in excess of $1,000,000 per year paid to the named executive
officers at the end of such fiscal year generally must be performance-based
compensation as determined under Section 162(m). The Compensation
Committee generally intends to comply with the requirements for full
deductibility of executive compensation under Section 162(m). However, the
Compensation Committee will balance the costs and burdens involved in such
compliance against the value to us and our stockholders of the tax benefits
that we would obtain as a result, and may in certain instances pay compensation
that is not fully deductible if, in its determination, such costs and burdens
outweigh such benefits.
20
Summary
Compensation Table
The following table sets
forth information regarding the compensation of our Chief Executive Officer,
our Chief Financial Officer, the person who was, at December 31, 2007, one
of our most highly compensated executive officers during 2007, and two of our
significant employees who were not serving as executive officers at December 31,
2007, collectively referred to as our named executive officers.
|
|
|
|
|
|
Stock
|
|
Option
|
|
All Other
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Awards
|
|
Awards(1)(2)
|
|
Compensation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. James Miller, Jr.
Chairman of the Board and Chief Executive Officer
|
|
2007
|
|
$
|
314,791
|
|
$
|
126,119
|
(3)
|
$
|
52,325
|
|
$
|
12,244
|
(4)
|
$
|
505,479
|
|
|
|
2006
|
|
299,230
|
|
167,540
|
(3)
|
168,648
|
(5)
|
12,015
|
(6)
|
647,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne G. Wetherell
Senior Vice President Administration, Chief Financial Officer, Secretary, and
Treasurer
|
|
2007
|
|
186,631
|
|
67,136
|
(7)
|
35,588
|
|
10,019
|
(8)
|
299,374
|
|
|
|
2006
|
|
177,022
|
|
75,702
|
(7)
|
91,079
|
(5)
|
|
|
343,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Willis (9)
Executive Vice President Sales
|
|
2007
|
|
225,000
|
|
|
|
58,585
|
|
|
|
283,585
|
|
|
|
2006
|
|
229,917
|
|
|
|
100,780
|
(5)
|
|
|
330,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles AuBuchon
Vice President Business Development
|
|
2007
|
|
155,581
|
|
|
|
62,439
|
|
|
|
218,020
|
|
|
|
2006
|
|
152,600
|
|
|
|
117,557
|
(5)
|
|
|
270,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harding
Vice President and Chief Technical Officer
|
|
2007
|
|
182,132
|
|
|
|
48,251
|
|
|
|
230,383
|
|
|
|
2006
|
|
138,107
|
|
|
|
36,052
|
(5)
|
|
|
174,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) All option
awards were granted under the 1999 Plan.
(2) The
amounts reflect the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007, in accordance with
the provisions of SFAS 123R and thus may include amounts from awards granted
prior to 2007. We have elected to use the Black-Scholes option-pricing model,
which incorporates various assumptions including volatility, expected life, and
interest rates. We are required to make various assumptions in the application
of the Black-Scholes option pricing model and have determined that the best
measure of expected volatility is based on the historical weekly volatility of
our common stock. Historical volatility factors utilized in our Black-Scholes
computations range from 82.1% to 98.5%. We have elected to estimate the
expected life of an award based upon the SEC approved simplified method noted
under the provisions of Staff Accounting Bulletin No. 107. Under this
formula, the expected term is equal to: ((weighted-average vesting term +
original contractual term)/2). The expected term used by us as computed by this
method ranges from 3.5 years to 6.1 years. The interest rate used is the risk
free interest rate and is based upon U.S. Treasury rates appropriate for the
expected term. Interest rates used in our Black-Scholes calculations range from
2.7% to 4.6%. Dividend yield is zero as we do not expect to declare any
dividends on our common shares in the foreseeable future. In addition to the
key assumptions used in the Black-Scholes model, the estimated
21
forfeiture rate at the
time of valuation is a critical assumption. We have estimated an annualized
forfeiture rate of 5.7% for corporate officers, 2.4% for members of the Board
of Directors and 25% for all other employees. We review the expected forfeiture
rate annually to determine if that percent is still reasonable based on
historical experience.
(3) Represents
the quarterly vesting of 124,162 restricted shares granted on March 30,
2004, and the vesting of 109,700 restricted shares granted on September 27,
2005 for Mr. Miller. The restricted shares granted in September 2005
vest one-third after one year with the remainder vesting ratably on a quarterly
basis over two years ending September 27, 2008.
(4) Consists
of $9,000 in 401(K) matching contributions, $1,244 in life insurance
premiums and $2,000 in club membership.
(5) The
amounts reflect the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2006, in accordance with
the provisions of SFAS 123R and thus may include amounts from awards
granted prior to 2006. Assumptions used in the calculation of these amounts are
included in Notes to the Consolidated Financial Statements for the fiscal year
ended December 31, 2006, included in our annual report on Form 10-K
filed with the SEC on April 17, 2007.
(6) Consists of $8,800 in 401(K) matching
contributions, $1,215 in life insurance premiums and $2,000 in club membership.
(7) Represents
the quarterly vesting of 80,281 restricted shares granted on March 30,
2004 and the vesting of 52,600 restricted shares granted on September 27,
2005. The restricted shares granted in September 2005 vest one-third after
one year with the remainder vesting ratably on a quarterly basis over two years
ending September 27, 2008.
(8) Consists
of $7,221 in 401(K) matching contributions, $798 in life insurance
premiums and $2,000 in club membership.
(9) Mr. Willis resigned from the Company on March
31, 2008.
2007
Grants of Plan-Based Awards
The following table sets
forth certain information with respect to each grant of an award made to a
named executive officer in 2007 under our plans.
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise or
|
|
Grant Date
|
|
|
|
|
|
Number of
|
|
Base
|
|
Fair Value
|
|
|
|
|
|
Securities
|
|
Price of
|
|
of Stock
|
|
|
|
Grant
|
|
Underlying
|
|
Option
|
|
and Option
|
|
Name
|
|
Date
|
|
Options(1)
|
|
Awards ($/Sh)(2)
|
|
Awards(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. James
Miller, Jr.
|
|
4/3/2007
|
|
18,000
|
|
$
|
2.49
|
|
$
|
37,296
|
|
|
|
|
|
|
|
|
|
|
|
Wayne Wetherell
|
|
4/3/2007
|
|
15,000
|
|
$
|
2.49
|
|
31,080
|
|
|
|
|
|
|
|
|
|
|
|
Charles AuBuchon
|
|
4/3/2007
|
|
10,000
|
|
$
|
2.49
|
|
20,720
|
|
|
|
|
|
|
|
|
|
|
|
William Willis (4)
|
|
4/3/2007
|
|
20,000
|
|
$
|
2.49
|
|
41,440
|
|
|
|
|
|
|
|
|
|
|
|
David Harding
|
|
4/3/2007
|
|
25,000
|
|
$
|
2.49
|
|
51,800
|
|
(1) The shares
subject to each option vest over a three year period, with 33 1/3% of the
shares subject to each option vesting on each anniversary at the grant date. The
options expire ten years from the date of grant.
22
(2) The exercise
price is the closing price of our common stock on the date of grant.
(3) The fair value
of our stock options is computed using the Black-Scholes valuation model.
(4) Mr.
Willis resigned from the Company on March 31, 2008.
Outstanding
Equity Awards at Fiscal Year-End
The following table sets
forth information regarding unexercised options, stock that has not vested and
equity incentive awards held by each of the named executive officers
outstanding as of December 31, 2007.
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
Market
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number of
|
|
Value of
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Shares or
|
|
Shares or
|
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Units of
|
|
Units of
|
|
|
|
Unearned
|
|
Unearned
|
|
Option
|
|
|
|
Stock That
|
|
Stock That
|
|
|
|
Options:
|
|
Options:
|
|
Exercise
|
|
Option
|
|
Have Not
|
|
Have Not
|
|
|
|
#
|
|
#
|
|
Price
|
|
Expiration
|
|
Vested
|
|
Vested
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
|
(#)
|
|
($)
|
|
S. James Miller, Jr.
|
|
75,000
|
|
|
|
$
|
3.00
|
|
9/12/2011
|
|
27,423
|
(8)
|
$
|
41,957
|
|
|
|
25,000
|
|
|
|
$
|
1.97
|
|
5/28/2013
|
|
|
|
|
|
|
|
100,000
|
|
|
|
$
|
2.40
|
|
10/28/2014
|
|
|
|
|
|
|
|
75,001
|
(1)
|
24,999
|
|
$
|
2.62
|
|
8/16/2015
|
|
|
|
|
|
|
|
82,277
|
(2)
|
27,423
|
|
$
|
2.36
|
|
9/27/2015
|
|
|
|
|
|
|
|
0
|
(3)
|
18,000
|
|
$
|
2.49
|
|
9/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne G.
Wetherell
|
|
25,000
|
|
|
|
$
|
3.00
|
|
9/12/2011
|
|
13,149
|
(8)
|
$
|
20,118
|
|
|
|
10,000
|
|
|
|
$
|
1.97
|
|
5/28/2013
|
|
|
|
|
|
|
|
50,000
|
|
|
|
$
|
2.40
|
|
10/28/2014
|
|
|
|
|
|
|
|
45,000
|
(1)
|
15,000
|
|
$
|
2.62
|
|
8/16/2015
|
|
|
|
|
|
|
|
39,451
|
(2)
|
13,149
|
|
$
|
2.36
|
|
9/27/2015
|
|
|
|
|
|
|
|
0
|
(3)
|
15,000
|
|
$
|
2.36
|
|
9/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Willis
(4)
|
|
67,500
|
|
|
|
$
|
2.65
|
|
10/1/2013
|
|
|
|
|
|
|
|
50,000
|
|
|
|
$
|
2.30
|
|
10/15/2014
|
|
|
|
|
|
|
|
45,000
|
(1)
|
15,000
|
|
$
|
2.62
|
|
8/16/2015
|
|
|
|
|
|
|
|
35,000
|
(5)
|
25,000
|
|
$
|
1.99
|
|
1/13/2016
|
|
|
|
|
|
|
|
0
|
(3)
|
20,000
|
|
$
|
2.36
|
|
9/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles AuBuchon
|
|
10,000
|
|
|
|
$
|
3.00
|
|
12/31/2013
|
|
|
|
|
|
|
|
40,000
|
|
|
|
$
|
2.30
|
|
10/15/2014
|
|
|
|
|
|
|
|
20,000
|
(6)
|
10,000
|
|
$
|
3.19
|
|
4/1/2015
|
|
|
|
|
|
|
|
45,000
|
(1)
|
15,000
|
|
$
|
2.62
|
|
8/16/2015
|
|
|
|
|
|
|
|
35,000
|
(5)
|
25,000
|
|
$
|
1.99
|
|
1/13/2016
|
|
|
|
|
|
|
|
0
|
(3)
|
10,000
|
|
$
|
2.36
|
|
9/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harding
|
|
58,375
|
(7)
|
41,625
|
|
$
|
1.65
|
|
1/31/2016
|
|
|
|
|
|
|
|
0
|
(3)
|
25,000
|
|
$
|
2.36
|
|
9/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
These options vest over three years with
one third vesting 8/16/2006 and the remainder vesting in equal quarterly
installments thereafter.
23
(2)
These options vest over three years with
one third vesting 9/27/2006 and the remainder vesting in equal quarterly
installments thereafter.
(3)
These options vest over three years with
one third vesting 4/2/2008 and the remainder vesting in equal quarterly
installments thereafter.
(4)
Mr. Willis resigned from the Company on
March 31, 2008.
(5)
These options vest over three years with
one third vesting 1/13/2007 and the remainder vesting in equal quarterly
installments thereafter.
(6)
These options vest over three years with
one third vesting on each of 4/1/2006, 4/1/2007 and 4/1/2008.
(7)
These options vest over three years with
one third vesting 1/31/2007 and the remainder vesting in equal quarterly
installments thereafter.
(8)
These stock grants vest over three years
with one third vesting 9/27/2006 and the remainder vesting in equal quarterly
installments thereafter.
Options
Exercises and Stock Vested
The following table sets forth information regarding exercises of stock
options and vesting of stock for each of the named executive officers during
2007.
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Shares
|
|
Value
|
|
|
|
Acquired on
|
|
Realized
|
|
Name
|
|
Vesting
|
|
on Vesting
|
|
|
|
|
|
|
|
S. James
Miller, Jr.(1)
|
|
46,909
|
|
$
|
126,119
|
|
|
|
|
|
|
|
Wayne G.
Wetherell(2)
|
|
24,223
|
|
67,136
|
|
|
|
|
|
|
|
|
(1) Represents
the quarterly vesting of 124,162 restricted shares granted on March 30,
2004 and the vesting of 109,700 restricted shares granted on September 27,
2005. The restricted shares granted in September 2005 vest one-third after
one year with the remainder vesting ratably on a quarterly basis over two years
ending September 27, 2008.
(2) Represents
the quarterly vesting of 80,281 restricted shares granted on March 30,
2004 and the vesting of 52,600 restricted shares granted on September 27,
2005. The restricted shares granted in September 2005 vest one-third after one
year with the remainder vesting ratably on a quarterly basis over two years
ending September 27, 2008.
24
Employment Contracts
Employment
Agreement with S. James Miller, Jr.
On October 1, 2005, we entered into an
employment agreement with Mr. Miller pursuant to which Mr. Miller
will serve as President and Chief Executive Officer. This agreement is for a
three-year term ending September 30, 2008. This agreement provides for
annual base compensation in the amount of $291,048, which amount will be
increased based on cost-of-living increases. Under this agreement, we will
reimburse Mr. Miller for reasonable expenses incurred in connection with
our business. Under the terms of the agreement, Mr. Miller will be
entitled to the following severance benefits if we terminate his employment
without cause or in the event of an involuntary termination: (i) a lump
sum cash payment equal to twenty-four months base salary; (ii) continuation
of Mr. Millers fringe benefits and medical insurance for a period of
three years; and (iii) immediate vesting of 50% of Mr. Millers
outstanding stock options and restricted stock awards. In the event that Mr. Millers
employment is terminated within six months prior to or thirteen months
following a change of control (defined below), Mr. Miller is entitled to
the severance benefits described above, except that 100% of Mr. Millers
outstanding stock options and restricted stock awards will immediately vest.
Employment
Agreement with Wayne Wetherell.
On October 1, 2005, we entered into an amended
employment agreement with Mr. Wetherell pursuant to which Mr. Wetherell
will serve as our Chief Financial Officer. This agreement is for a three-year
term ending September 30, 2008. This agreement provides for annual base
compensation in the amount of $174,100, which amount will be increased based on
cost-of-living increases and may also be increased based on performance
reviews. Under this agreement, we will reimburse Mr. Wetherell for
reasonable expenses incurred in connection with our business. Under the terms
of the agreement, Mr. Wetherell will be entitled to the following
severance benefits if we terminate his employment without cause or in the event
of an involuntary termination: (i) a lump sum cash payment equal to twelve
months; (ii) continuation of Mr. Wetherells fringe benefits and
medical insurance for a period of three years; (iii) immediate vesting of
50% of Mr. Wetherells outstanding stock options and restricted stock
awards. In the event that Mr. Wetherells employment is terminated within
six months prior to or thirteen months following a change of control (defined
below), Mr. Wetherell is entitled to the severance benefits described
above, except that 100% of Mr. Wetherells outstanding stock options and
restricted stock awards will immediately vest.
Change
of Control and Severance Benefits Agreement with Charles AuBuchon.
On October 31, 2005, we entered into
a Change of Control and Severance Benefits Agreement with Mr. Charles
AuBuchon, our Vice President of Sales. This agreement has a three-year
term, commencing on October 31, 2005. Subject to the conditions and other
limitations set forth therein, Mr. AuBuchon will be entitled to the
following severance benefits if we terminate his employment without cause prior
to the closing of any change of control transaction: (i) a lump sum cash
payment equal to six months of base salary; and (ii) continuation of Mr. AuBuchons
health insurance benefits until the earlier of six (6) months
following the date of termination, the date on which he is no longer entitled
to continuation coverage pursuant to COBRA or the date that he obtains
comparable health insurance coverage. In the event that Mr. AuBuchons
employment is terminated within the twelve months following a change of
control, he is entitled to the severance benefits described above, plus his stock
options will immediately vest and become exercisable. Mr. AuBuchons
eligibility to receive severance payments or other benefits upon his
termination is conditioned upon him executing a general release of liability.
Change
of Control and Severance Benefits Agreement with David Harding.
On May 21, 2007, we entered into a
Change of Control and Severance Benefits Agreement with Mr. David Harding,
our Vice President and Chief Technical Officer. This agreement has a
three-year term, commencing on May 21, 2007. Subject to the conditions and
other limitations set forth therein, Mr. Harding will be entitled to the
following severance benefits if we terminate his employment without cause prior
to the closing of any change of control transaction: (i) a lump sum cash
payment equal to six months of base salary; and (ii) continuation of Mr. Hardings
health insurance benefits until the earlier of six (6) months
following the date of termination, the date on which he is no longer entitled
to continuation coverage pursuant to COBRA or the date that he obtains
comparable health insurance coverage. In the event that Mr. Hardings
employment is terminated within the twelve months following a change of
control, he is
25
entitled to the severance
benefits described above, plus his stock options will immediately vest and
become exercisable. Mr. Hardings eligibility to receive severance
payments or other benefits upon his termination is conditioned upon him
executing a general release of liability.
For purposes of each of
the above-referenced agreements, termination for cause generally means the
executives commission of an act of fraud or similar conduct which is intended
to result in substantial personal enrichment of the executive, conviction or
plea of
nolo contendere
to a
felony, gross negligence or breach of fiduciary duty that results in material
injury to us, material breach of the executives proprietary information
agreement that is materially injurious to us, willful and material failure to
perform his duties as an officer or employee of ours or material breach of his
employment agreement and the failure to cure such breach in a specified period
of time or a violation of a material policy of ours that is materially injurious
to us. A change in control as used in these agreements generally means the
occurrence of any of the following events: (i) the acquisition by any
person or group of 50% or more of our outstanding voting stock, (ii) the
consummation of a merger, consolidation, reorganization, or similar transaction
other than a transaction: (1) in which substantially all of the holders of
our voting stock hold or receive directly or indirectly 50% or more of the
voting stock of the resulting entity or a parent company thereof, in
substantially the same proportions as their ownership of the Company
immediately prior to the transaction; or (2) in which the holders of our
capital stock immediately before such transaction will, immediately after such
transaction, hold as a group on a fully diluted basis the ability to elect at
least a majority of the directors of the surviving corporation (or a parent
company); (iii) there is consummated a sale, lease, exclusive license, or
other disposition of all or substantially all of the consolidated assets of us
and our Subsidiaries, other than a sale, lease, license, or other disposition
of all or substantially all of the consolidated assets of us and our
Subsidiaries to an entity, 50% or more of the combined voting power of the voting
securities of which are owned by our stockholders in substantially the same
proportions as their ownership of the Company immediately prior to such sale,
lease, license, or other disposition; or (iv) individuals who, on the
date the applicable agreement was adopted by the Board, are Directors (the Incumbent
Board) cease for any reason to constitute at least a majority of the
Directors;
provided
,
however
, that if the appointment or election
(or nomination for election) of any new Director was approved or recommended by
a majority vote of the members of the Incumbent Board then still in office,
such new member shall, for purposes of the applicable agreement, be considered
as a member of the Incumbent Board.
Potential Payments Upon
Termination or Change in Control
The following tables
summarize the potential payments to certain of our named executive officers
upon a termination of employment or a change in control. The amounts shown in
the tables are only estimates and apply the assumption that employment
terminated on December 31, 2007. The calculations of payments related to
equity reflect the closing price of our common stock on December 31, 2007
on the AMEX. The amounts set forth below do not include accrued obligations
such as salary and other amounts payable with respect to days previously
worked, accrued vacation time and other accrued amounts that were fully earned
and vested as of December 31, 2007, and would be payable in connection
with the executives employment.
S. James Miller, Jr.
The following table describes the
potential payments upon termination or a change in control for Mr. Miller,
our Chief Executive Officer.
|
|
|
|
Involuntary
|
|
|
|
Executive Benefits and Payments
|
|
Voluntary
|
|
Not for Cause
|
|
Change in
|
|
Upon Termination(1)
|
|
Termination
|
|
Termination
|
|
Control
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
$
|
623,976
|
(2)
|
$
|
623,976
|
(2)
|
Equity
|
|
$
|
|
|
$
|
20,979
|
(3)(4)
|
$
|
41,957
|
(3)(4)
|
Fringe
Benefits
|
|
$
|
|
|
$
|
66,469
|
(5)
|
$
|
66,469
|
(5)
|
(1)
For purposes of this analysis, we assumed
Mr. Millers compensation is based on his current base salary of $311,988.
26
(2)
Mr. Millers cash severance benefit
under an involuntary, good reason termination or a termination due to a change
in control is equal to two times annual compensation.
(3)
Mr. Millers equity severance
benefit under an involuntary or good reason termination is the immediate
vesting of 50% of Mr. Millers outstanding stock options and restricted
stock awards. In the event that Mr. Millers employment is terminated
within six months prior to or thirteen months following a change in control, Mr. Miller
is entitled to the immediate vesting of 100% of Mr. Millers outstanding
stock options and restricted stock awards.
(4)
This amount was calculated from the
unexercised unexercisable stock options and unvested stock awards held by Mr. Miller
on December 31, 2007. The stock option award amount was calculated by
multiplying the number of securities underlying the unexercised unexercisable
options by the difference between the option price and the price per share of
common stock on the date of termination. The unvested stock award amount was
calculated by multiplying the number of unvested shares of stock by the price
per share on the date of termination.
(5)
Mr. Millers fringe benefits consist of medical
and life insurance for a period of three years.
Wayne G. Wetherell.
The following table describes the potential payments
upon termination or a change in control for Mr. Wetherell, our Sr. Vice President
Administration, Chief Financial Officer, Secretary and Treasurer.
|
|
|
|
Involuntary
|
|
|
|
Executive Benefits and Payments
|
|
Voluntary
|
|
Not for Cause
|
|
Change in
|
|
Upon Termination(1)
|
|
Termination
|
|
Termination
|
|
Control
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
$
|
186,660
|
(2)
|
$
|
186,660
|
(2)
|
Equity
|
|
$
|
|
|
10,059
|
(3)(4)
|
20,118
|
(3)(4)
|
Fringe
Benefits
|
|
$
|
|
|
$
|
70,517
|
(5)
|
$
|
70,517
|
(5)
|
(1)
For purposes of this analysis, we assumed Mr. Wetherells
compensation is based on his current base salary of $186,660.
(2)
Mr. Wetherells cash severance benefit under an
involuntary, good reason termination or a termination due to a change in
control is equal to the amount of his annual compensation.
(3)
Mr. Wetherells equity severance benefit under an
involuntary or good reason termination is the immediate vesting of 50% of Mr. Wetherells
outstanding stock options and restricted stock awards. In the event that Mr. Wetherells
employment is terminated within six months prior to or thirteen months
following a change in control, Mr. Wetherell is entitled to the immediate
vesting of 100% of Mr. Wetherells outstanding stock options and
restricted stock awards.
(4)
This amount was calculated from the unexercised
unexercisable stock options and unvested stock awards held by Mr. Wetherell
on December 31, 2007. The stock option award amount was calculated by
multiplying the number of securities underlying the unexercised unexercisable
options by the difference between the option price and the price per share of
common stock on the date of termination. The unvested stock award amount was
calculated by multiplying the number of unvested shares of stock by the price
per share on the date of termination.
(5)
Mr. Wetherells fringe benefits consist of
medical and life insurance for a period of three years.
27
Charles AuBuchon.
The following table describes the potential payments
upon termination or a change in control for Mr. AuBuchon, our Vice
President Business Development.
|
|
|
|
Involuntary
|
|
|
|
Executive Benefits and Payments
|
|
Voluntary
|
|
Not for Cause
|
|
Change in
|
|
Upon Termination(1)
|
|
Termination
|
|
Termination
|
|
Control
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
$
|
77,500
|
(2)
|
$
|
77,500
|
(2)
|
Equity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Fringe
Benefits
|
|
$
|
|
|
$
|
13,868
|
(3)
|
$
|
13,868
|
(3)
|
(1)
For purposes of this analysis, we assumed
Mr. AuBuchons compensation is based on his current base salary of
$155,000.
(2)
Mr. AuBuchons cash severance
benefit under an involuntary, good reason termination or a termination due to a
change in control is equal to six months of annual compensation.
(3)
Mr. AuBuchons fringe benefits
consist of medical and life insurance for a period of six months.
David Harding.
The following table describes the potential payments
upon termination or a change in control for Mr. Harding, our Vice
President and Chief Technical Officer.
|
|
|
|
Involuntary
|
|
|
|
Executive Benefits and Payments
|
|
Voluntary
|
|
Not for Cause
|
|
Change in
|
|
Upon Termination(1)
|
|
Termination
|
|
Termination
|
|
Control
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
$
|
92,500
|
(2)
|
$
|
92,500
|
(2)
|
Equity
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Fringe
Benefits
|
|
$
|
|
|
$
|
6,495
|
(3)
|
$
|
6
|
(3)
|
(1)
For purposes of this analysis, we assumed
Mr. Hardings compensation is based on his current base salary of
$185,000.
(2)
Mr. Hardings cash severance benefit
under an involuntary, good reason termination or a termination due to a change
in control is equal to six months of annual compensation.
(3)
Mr. Hardings fringe benefits
consist of medical and life insurance for a period of six months.
28
DIRECTOR
COMPENSATION
Each of our non-employee directors receives a monthly retainer of
$2,000 for serving on the Board. Board members who also serve on the Audit
Committee receive additional monthly compensation of $458.33 for the Chairman
and $208.33 for the remaining members of the Audit Committee. The members of
the Board of Directors are also eligible for reimbursement for their expenses
incurred in attending Board meetings in accordance with our policies. For the
fiscal year ended December 31, 2007, the total amounts paid to
non-employee directors as compensation (excluding reimbursable expenses) was
$153,500.
Each of our non-employee directors are also eligible to receive stock
option grants under the 1999 Plan. Options granted under the 1999 Plan are
intended by us not to qualify as incentive stock options under the Code.
The term of options
granted under the 1999 Plan is 10 years. In the event of a merger of us
with or into another corporation or a consolidation, acquisition of assets or
other change-in-control transaction involving us, an equivalent option will be
substituted by the successor corporation, provided, however, that we may cancel
outstanding options upon consummation of the transaction by giving at least
thirty (30) days notice.
During the last fiscal
year, we granted 30,000 options under the 1999 Plan to our non-employee
directors. The fair market value of the common stock underlying such options on
the date of grant is based on the closing sales price reported on AMEX for the
date of each such grant, as detailed in the following table:
Name (1)
|
|
Option
Awards
(number of
shares)
|
|
Exercise Price
Per Share
|
|
Fair Market Value
on Option Grant
Date (2)
|
|
|
|
|
|
|
|
|
|
John Callan
|
|
5,000
|
|
$
|
2.49
|
|
$
|
2.49
|
|
|
|
|
|
|
|
|
|
Patrick Downs (3)
|
|
5,000
|
|
2.49
|
|
2.49
|
|
|
|
|
|
|
|
|
|
John Holleran
|
|
5,000
|
|
2.49
|
|
2.49
|
|
|
|
|
|
|
|
|
|
David Loesch
|
|
5,000
|
|
2.49
|
|
2.49
|
|
|
|
|
|
|
|
|
|
Guy Steven Hamm
|
|
5,000
|
|
2.49
|
|
2.49
|
|
|
|
|
|
|
|
|
|
David Carey
|
|
5,000
|
|
2.49
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
(1)
As
of December 31, 2007, no options had been exercised by non-employee
directors under any plans maintained by us.
(2)
The
fair market value of the common stock underlying such options on the date of
grant is based on the closing sales price reported on AMEX for the date of each
such grant.
(3)
Mr. Downs passed away on March
16, 2008.
29
The following table sets
forth the compensation of our directors for the 2007 fiscal year.
Name and Principal Position
|
|
Fees
Earned or
Paid in
Cash
|
|
Option
Awards(1)(2)(3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
John Callan
|
|
$
|
24,000
|
|
$
|
8,114
|
|
$
|
32,114
|
|
|
|
|
|
|
|
|
|
Patrick Downs
|
|
24,000
|
|
9,620
|
|
33,620
|
|
|
|
|
|
|
|
|
|
John Holleran
|
|
26,500
|
|
8,114
|
|
34,614
|
|
|
|
|
|
|
|
|
|
David Loesch
|
|
26,500
|
|
9,670
|
|
36,170
|
|
|
|
|
|
|
|
|
|
Guy Steven Hamm
|
|
28,500
|
|
5,828
|
|
34,328
|
|
|
|
|
|
|
|
|
|
David Carey
|
|
24,000
|
|
7,589
|
|
31,589
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The
grant date per share fair value of options issued to Messrs. Callan,
Downs, Holleran, Loesch, Hamm and Carey in 2007 was $2.07.
(2)
The
amounts reflect the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007, in accordance with
the provisions of SFAS 123R and thus may include amounts from awards
granted prior to 2007. We have elected to use the Black-Scholes option-pricing
model, which incorporates various assumptions including volatility, expected
life, and interest rates. We are required to make various assumptions in the
application of the Black-Scholes option pricing model and have determined that
the best measure of expected volatility is based on the historical weekly
volatility of our common stock. Historical volatility factors utilized in our
Black-Scholes computations range from 82.1% to 98.5%. We have elected to
estimate the expected life of an award based upon the SEC approved simplified
method noted under the provisions of Staff Accounting Bulletin No. 107.
Under this formula, the expected term is equal to: ((weighted-average vesting
term + original contractual term)/2). The expected term used by us as computed
by this method ranges from 3.5 years to 6.1 years. The interest rate used is
the risk free interest rate and is based upon U.S. Treasury rates appropriate
for the expected term. Interest rates used in our Black-Scholes calculations
range from 2.7% to 4.6%. Dividend yield is zero as we do not expect to declare
any dividends on our common shares in the foreseeable future. In addition to
the key assumptions used in the Black-Scholes model, the estimated forfeiture
rate at the time of valuation is a critical assumption. We have estimated an
annualized forfeiture rate of 5.7% for corporate officers, 2.4% for members of
the Board of Directors and 25% for all other employees. We review the expected
forfeiture rate annually to determine if that percent is still reasonable based
on historical experience.
(3)
The aggregate number of stock option awards outstanding at the end of
fiscal 2007 for each director were as follows: John Callan (37,535); Patrick
Downs (41,261); John Holleran (35,261); David Loesch (42,000); Guy Steven Hamm
(22,000); and David Carey (15,000).
30
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets
forth additional information as of December 31, 2007, with respect to the
shares of common stock that may be issued upon the exercise of options and
other rights under our existing equity compensation plans and arrangements. The
information includes the number of shares covered by, and the weighted average
exercise price of, outstanding options and other rights and the number of
shares remaining available for future grants, excluding the shares to be issued
upon exercise of outstanding options and other rights.
Equity
Compensation Plan Information
Plan category
|
|
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
|
|
Weighted-
average exercise price of
outstanding options, warrants and
rights
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders:
|
|
|
|
|
|
|
|
1994 Employee
Stock Option Plan
|
|
24,250
|
|
$
|
2.15
|
|
|
|
1999 Stock Award
Plan amended and restated as of June 7, 2005
|
|
1,378,495
|
|
$
|
2.19
|
|
1,035,208
|
|
Equity
compensation plans not approved by security holders:
|
|
|
|
|
|
|
|
2001 Equity
Incentive Plan
|
|
345,654
|
|
$
|
2.89
|
|
|
|
Total
|
|
1,748,399
|
|
$
|
2.33
|
|
1,035,208
|
|
Description
of Equity Compensation Plans Not Approved by Security Holders.
2001 Equity
Incentive Plan.
On September 12,
2001, our Board of Directors adopted the 2001 Equity Incentive Plan (the 2001
Plan). Under the terms of the 2001 Plan, we may issue stock awards to our
employees, directors and consultants, and such stock awards may be given
for non-statutory stock options (options not intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code), stock
bonuses, and rights to acquire restricted stock. The number of options issued
and outstanding and the number of options remaining available for future
issuance are shown in the table above.
The 2001 Plan is
administered by the Board of Directors or a Committee of the Board as provided
in the 2001 Plan. Options granted under the 2001 Plan shall not be less than
85% of the market value of our common stock on the date of the grant, and, in
some cases, may not be less than 110% of such fair market value. The term
of options granted
31
under the 2001 Plan as
well as their vesting are determined by the Board and to date, options have
been granted with a ten-year term and vesting over a three-year period. While
the Board may suspend or terminate the 2001 Plan at any time, if not
terminated earlier, it will terminate on the day before its tenth anniversary
of the date of adoption. The Board has determined not to issue any future
awards under the 2001 Plan.
RELATED
PARTY TRANSACTIONS
Transactions with Related Persons
On November 14,
2006, we entered into a Securities Purchase Agreement with certain accredited
investors (the Series C Investors) pursuant to which we issued an
aggregate of 2,300 shares of our Series C 8% Convertible Preferred Stock
(the Series C Preferred Stock) and issued to the Series C Investors
warrants to purchase up to an aggregate of 115,000 shares of the Companys
common stock, for aggregate gross proceeds of $2,300,000 (the Series C
Financing).
On March 9, 2007, we
entered into a Securities Purchase Agreement with certain accredited investors
(the Series D Investors) pursuant to which we issued an aggregate of
1,500 shares of our Series D 8% Convertible Preferred Stock (the Series D
Preferred Stock) and issued to the Series D Investors warrants to
purchase up to an aggregate of 59,207 shares of our common stock, for aggregate
gross proceeds of $1,500,000 (the Series D Financing).
On September 25,
2007, we entered into a Securities Purchase Agreement with certain accredited
investors (the Investors) pursuant to which we sold to the Investors an
aggregate of 2,016,666 shares of our common stock, and issued to the Investors
warrants (the Warrants) to purchase up to an aggregate of 1,008,333 shares of
our common stock, for aggregate gross proceeds of approximately $3,000,000 (the
September 2007 Private Placement).
On March 12, 2008,
we agreed to reduce the price of the Warrants, which initially had an exercise
price of $1.67 per share, to an exercise price of $1.00 per share, in
consideration for their immediate exercise (the Warrant Repricing) by the
Investors who participated in the Warrant Repricing (the Participating
Investors). In addition, we also issued
to the Participating Investors new warrants to purchase up to an aggregate of
270,833 shares of our common stock. We
received aggregate gross proceeds of $541,666 from the Warrant Repricing.
Gruber & McBaine
Capital Management, LLC and its affiliates, which include Lagunitas Partners,
LP and Gruber & McBaine International, beneficially own more than 10%
of our issued and outstanding common stock. J. Patterson McBaine, together with
Jon D. Gruber, exercises voting and investment control over the shares held by
Gruber & McBaine Capital Management, LLC, Lagunitas Partners, LP, and
Gruber & McBaine International.
Gruber & McBaine
International purchased 400 shares of Series C Preferred Stock and
warrants to purchase 20,000 shares of common stock in the Series C
Financing; 135 shares of Series D Preferred Stock and warrants to purchase
5,328 shares of common stock in the Series D Financing; and 60,000 shares
of common stock and warrants to purchase 30,000 shares of common stock in the September 2007
Private Placement.
Lagunitas Partners LP
purchased 1,200 shares of Series C Preferred Stock and warrants to
purchase 60,000 shares of common stock in the Series C Financing; 440
shares of Series D Preferred Stock and warrants to purchase 17,368 shares
of common stock in the Series D Financing; and 240,000 shares of common
stock and warrants to purchase 120,000 shares of common stock in the September 2007
Private Placement.
J. Patterson McBaine
purchased 400 shares of Series C Preferred Stock and warrants to purchase
20,000 shares of common stock in the Series C Financing; 100 shares of Series D
Preferred Stock and warrants to purchase 3,947 shares of common stock in the Series D
Financing; and 50,000 shares of common stock and warrants to purchase 25,000
shares of common stock in the September 2007 Private Placement.
In addition to the
employment agreements with Messrs. Miller and Wetherell and the Change of
Control and Severance Benefits Agreements with Messrs. AuBuchon and
Harding, we have entered into indemnity agreements with certain officers and
directors that provide, among other things, that we will indemnify such officer
or director, under the circumstances and to the extent provided for therein,
for expenses, damages, judgments, fines and settlements he or she may be
required to pay in actions or proceedings which he or she is or may be made a
party by reason of his or her position as a director, officer or other agent of
ours, and otherwise to the fullest extent permitted under Delaware law and our
Bylaws.
32
Review, Approval or Ratification of Transactions with Related
Persons
As
provided in the charter of our Audit Committee, it is our policy that we will
not enter into any transactions required to be disclosed under Item 404 of the
SECs Regulation S-K unless the Audit Committee or another independent body of
our Board of Directors first reviews and approves the transactions.
In addition, pursuant to
our Code of Ethical Conduct and Business Practices, all employees, officers and
directors of ours and our subsidiaries are prohibited from engaging in any
relationship or financial interest that is an actual or potential conflict of
interest with us without approval. Employees, officers and directors are
required to provide written disclosure to the Chief Executive Officer as soon
as they have any knowledge of a transaction or proposed transaction with an
outside individual, business or other organization that would create a conflict
of interest or the appearance of one.
DIRECTOR INDEPENDENCE
Our Board of Directors
has the responsibility for establishing corporate policies and for our overall
performance, although it is not involved in day-to-day operations. As required
under the listing standards of AMEX, a majority of the members of a listed
companys board of directors must qualify as independent, as affirmatively
determined by the Board. Consistent with these considerations, after review of
all relevant transactions or relationships between each director, or any of his
family members, and ImageWare, our senior management and our independent
auditors, our Board of Directors has affirmatively determined that all of our
directors are independent directors within the meaning of the applicable AMEX
listing standards, except for Mr. Miller,
our Chairman of the Board and Chief Executive Officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Compensation
Committee of our Board of Directors consisted of Messrs. Callan, Downs and
Holleran during the fiscal year ended December 31, 2007. No member of the
Compensation Committee was at any time during or prior to the fiscal year ended
December 31, 2007, an officer or employee of ImageWare. No interlocking
relationship existed between Mr. Callan, Mr. Downs or Mr. Holleran
and any member of any other companys board of directors, board of trustees or
Compensation Committee during that period.
LEGAL PROCEEDINGS
We are periodically engaged in litigation in the
ordinary course of business and do not believe that any of such litigation is
material to our ongoing operations.
MARKET
PRICE INFORMATION
Market Information.
Our common stock trades under the symbol IW on AMEX.
The following table sets forth the high and low sales
prices per share for our common stock as reported by AMEX for each quarter in
2006 and 2007:
2006 Fiscal Quarters
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
2.540
|
|
$
|
1.350
|
|
Second Quarter
|
|
$
|
2.560
|
|
$
|
1.580
|
|
Third Quarter
|
|
$
|
2.300
|
|
$
|
1.110
|
|
Fourth Quarter
|
|
$
|
2.250
|
|
$
|
1.200
|
|
2007 Fiscal Quarters
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
2.810
|
|
$
|
1.450
|
|
Second Quarter
|
|
$
|
2.740
|
|
$
|
1.450
|
|
Third Quarter
|
|
$
|
2.210
|
|
$
|
1.400
|
|
Fourth Quarter
|
|
$
|
2.000
|
|
$
|
1.400
|
|
33
There is no public trading market for our preferred
stock.
Holders.
As of April 9, 2008,
the last reported sale price on AMEX for our common stock was $1.12 per share.
As of March 25, 2008, there were approximately 1,600 holders of record of
our common stock.
Dividends.
We have never declared or
paid dividends on our common stock and do not anticipate paying any cash
dividends on our shares of common stock in the foreseeable future. We are
obligated to pay cumulative cash dividends on shares of Series B Preferred
Stock from legally available funds at the annual rate of $0.2125 per share,
payable in two semi-annual installments of $0.10625 each, which cumulative
dividends must be paid prior to payment of any dividend on our common stock.
The holders of our Series C Preferred Stock are entitled to receive
cumulative dividends, at the option of the Company, payable (i) in common
stock upon conversion of the Series C Preferred Stock, or (ii) in
cash after the payment of cash dividends to the holders of our Series B
Preferred Stock at the rate of 8% per annum (as a percentage of stated value
per share). Our Series D Preferred Stock accrues cumulative dividends at
the rate of 8.0% of the stated value per share per annum. At the option of the
Company, the dividend payment may be made in the form of cash, after the
payment of cash dividends to the holders of Series B and Series C
Preferred Stock, or common stock issuable upon conversion of the Series D
Preferred Stock. As of December 31, 2007, we had cumulative undeclared
dividends on the Series B Preferred Stock of approximately $9,000. As of December 31,
2007, we had cumulative undeclared dividends on the Series C Preferred
Stock of approximately $234,000. As of December 31, 2007, we had
cumulative undeclared dividends on the Series D Preferred Stock of
approximately $98,000.
Repurchases.
We did not repurchase any shares of our common stock
during fiscal 2007.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign
Currency Exchange Risk
Market risk is the potential loss arising from adverse
changes in market rates and prices, such as interest rates and foreign currency
exchange rates. Changes in foreign currency exchange rates have an impact on
our results of operations. Our exposure to adverse movements in foreign
currency exchange rates is primarily related to our subsidiaries operating
expense, primarily in Canada and Germany, denominated in the respective local
currency. We currently do not enter into forward exchange contracts to hedge
exposures denominated in foreign currencies and do not use derivative financial
instruments for trading or speculative purposes. The effect of an immediate 10%
change in foreign currency exchange rates should not have a material effect on
our future operating results or cash flows; however, a long term change in
foreign currency rates would likely result in increased technical support and
engineering expenses. The vast majority of our sales are transacted in U.S.
dollars.
THE
SELLING STOCKHOLDER
The shares of
common stock covered by this prospectus consist of 677,940 shares of our common
stock that we issued to the Selling Stockholder under the terms of the Amended Purchase
Agreement.
In connection with
the Asset Purchase, we entered into the Rights Agreement with the Selling
Stockholder pursuant to which we agreed to file with the SEC a registration
statement on Form S-1, of which this prospectus forms a part,
34
with respect to the resale or other disposition of the
shares of common stock offered by this prospectus or interests therein from
time to time, in privately negotiated transactions or otherwise. We have also
agreed to keep the registration statement effective for the period of time
required under the Rights Agreement.
The table below
presents information regarding the Selling Stockholder and the shares of our
common stock that it may offer and sell under this prospectus. Percentages of
beneficial ownership are based upon 18,332,788 shares of common stock issued
and outstanding as of March 31, 2008, which includes the outstanding shares of
common stock offered by this prospectus.
We considered the following factors and made the following
assumptions regarding the table:
·
beneficial ownership is
determined under Section 13(d) of the Exchange Act and generally
includes voting or investment power with respect to securities and including
any securities that grant the Selling Stockholder the right to acquire common
stock within 60 days of March 31, 2008;
·
unless otherwise indicated
below, to our knowledge, the Selling Stockholder has sole voting and investment
power with respect to its shares of our common stock; and
·
the Selling Stockholder may
sell all of the securities offered by this prospectus under certain
circumstances.
Notwithstanding
these assumptions, the Selling Stockholder may sell less than all of the shares
listed on the table, in accordance with the terms of the Amended Purchase
Agreement and the Rights Agreement. In addition, the Selling Stockholder may
have sold or transferred, in transactions exempt from the registration
requirements of the Securities Act, some or all of the shares since the date on
which the information in the table below is presented. The shares listed below
may be sold pursuant to this prospectus or in privately negotiated
transactions. Accordingly, we cannot estimate the number of shares of common
stock that the Selling Stockholder will sell under this prospectus. Information
about the Selling Stockholder may change over time. Under the terms of the Amended
Purchase Agreement, we are not required to issue Additional Shares to the
Selling Stockholder unless certain milestones are achieved in accordance with
the Amended Purchase Agreement. Therefore,
such Additional Shares are not reflected in the number of shares beneficially
owned by the Selling Stockholder after the offering.
Other than the
transactions contemplated by the Amended Purchase Agreement and Rights
Agreement, the Selling Stockholder has not had a material relationship with the
Company or any of its affiliates within the past three years.
35
NAME
OF THE
|
|
NUMBER OF
SHARES
BENEFICIALLY
OWNED
BEFORE
|
|
SHARES OF
COMMON STOCK
BEING REGISTERED
|
|
SHARES BENEFICIALLY OWNED
AFTER THE COMPLETION OF THE
OFFERING
|
|
SELLING STOCKHOLDER
|
|
THE OFFERING
|
|
FOR SALE HEREBY
|
|
NUMBER (1)
|
|
PERCENT
|
|
|
|
|
|
|
|
|
|
|
|
Sol Logic, Inc. (2)
|
|
677,940
|
|
677,940
|
|
0
|
|
0
|
%
|
(1)
We do not know when or in what amounts the Selling Stockholder may
offer shares for sale. The Selling Stockholder might not sell any or all of the
shares offered by this prospectus. Because the Selling Stockholder may offer
all or some of the shares pursuant to this offering and because there are
currently no agreements, arrangements or understandings with respect to the
sale of any of the shares, we cannot estimate the number of the shares that
will be held by the Selling Stockholder after completion of the offering.
However, for purposes of this table, we have assumed that, after completion of
the offering, none of the shares covered by this prospectus will be held by the
Selling Stockholder.
(2)
Comprised of 677,940 shares of common stock. Wink Jones, interim
chief executive officer of Sol Logic, Inc., has sole voting and investment
control over these shares.
36
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March
31, 2008, with respect to the beneficial ownership of shares of our common
stock and Series B Preferred Stock by (i) each person known by us to
be the beneficial owner of more than five percent of our common stock or Series B
Preferred Stock, (ii) each director, (iii) each named executive officer
and (iv) all directors and executive officers as a group
.
|
|
Beneficial Ownership(1)
|
|
|
|
Series B Preferred Stock
|
|
Common Stock
|
|
Name and Address of Beneficial Owner
|
|
Number of
Shares
|
|
Percent of
Class (2)
|
|
Number of
Shares
|
|
Percent of
Class (3)
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
S. James Miller, Jr.(4)
|
|
0
|
|
*
|
|
694,442
|
|
3.7
|
%
|
John Callan(5)
|
|
0
|
|
*
|
|
70,967
|
|
*
|
|
David Carey(6)
|
|
0
|
|
*
|
|
13,340
|
|
*
|
|
G. Steve Hamm(7)
|
|
0
|
|
*
|
|
17,424
|
|
*
|
|
John Holleran(8)
|
|
0
|
|
*
|
|
29,355
|
|
*
|
|
David Loesch(9)
|
|
0
|
|
*
|
|
43,679
|
|
*
|
|
Wayne Wetherell(10)
|
|
0
|
|
*
|
|
325,180
|
|
1.8
|
|
William Willis(11)
|
|
0
|
|
*
|
|
224,172
|
|
1.2
|
|
Charles AuBuchon(12)
|
|
0
|
|
*
|
|
203,336
|
|
1.1
|
|
David Harding (13)
|
|
0
|
|
*
|
|
83,425
|
|
*
|
|
Total Shares Held By Directors and Executive
Officers
|
|
0
|
|
*
|
|
1,705,320
|
|
8.7
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
Gruber & McBaine Capital Management LLC 50
Osgood Place San Francisco, CA(14)
|
|
0
|
|
*
|
|
4,249,916
|
|
22.4
|
|
Harvey and Helen Kohn (15)
|
|
0
|
|
*
|
|
1,025,808
|
|
5.5
|
|
Wesley Hampton
|
|
16,000
|
|
6.7
|
%
|
3,033
|
|
*
|
|
Howard Harrison(16)
|
|
20,000
|
|
8.4
|
|
4,197
|
|
*
|
|
Darrelyn Carpenter(17)
|
|
28,500
|
|
11.9
|
|
59,270
|
|
*
|
|
*
Less than
one percent.
(1)
This
table is based our records and Schedules 13D and 13G filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject to community property laws
where applicable, we believe that each of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated as
beneficially owned. Unless otherwise indicated, the address for each listed
stockholder is c/o ImageWare Systems, Inc., 10883 Thornmint Road, San
Diego, CA 92127.
(2)
The
percentages set forth below are based on 239,400 shares of Series B
Preferred Stock outstanding as of March 31, 2008. The holders of Series B Preferred Stock
will have one vote for each share of common stock into which their shares of
Series B Preferred Stock
were convertible, with any fractional shares (determined on an aggregate
conversion basis for each such holder) being rounded to the nearest whole
share. As of March 31, 2008, each share of Series B Preferred Stock was
convertible into approximately 0.1979 shares of our common stock.
(3)
The percentages set forth below are based on 18,332,788 shares of
common stock outstanding as of March 31, 2008.
(4)
Mr. Miller serves as the Chairman of our Board of Directors and
our Chief Executive Officer. Includes 84,680 shares held jointly with spouse
and by sons and 389,085 options exercisable within 60 days of March 31, 2008 .
(5)
Includes 30,967 options exercisable within 60 days of March 31, 2008.
(6)
Includes 8,340 options exercisable within 60 days of March 31, 2008.
(7)
Includes 17,424 options exercisable within 60 days of March 31, 2008.
(8)
Includes 28,693 options exercisable within 60 days of March 31, 2008.
(9)
Includes 34,679 options exercisable within 60 days of March 31, 2008.
37
(10)
Includes 188,834 options exercisable within
60 days of March 31, 2008.
(11)
Includes 224,172 options exercisable within 60 days of March 31, 2008.
(12)
Includes 183,336 options exercisable within 60 days of March 31, 2008.
(13)
Includes 83,425 options exercisable within 60 days of March 31, 2008 .
(14)
Based on certain of our records and Schedule 13G filed with the
SEC on January 29, 2008. Includes 610,164 shares issuable upon exercise of
warrants.
(15)
Based on Schedule 13G filed with the SEC on June 12, 2007.
Includes 385,748 shares issuable upon exercise of warrants.
(16)
The number of shares of common stock beneficially owned includes 406
shares held directly and 3,791 shares of common stock issuable upon conversion
of Series B Preferred Stock.
(17)
The number of shares of common stock beneficially owned includes 51,027
shares held directly, 5,402 shares of common stock issuable upon conversion of
Series B Preferred Stock, and 2,841 shares of common stock held by other
individuals for which Mr. Carpenter is either custodian or trustee and
exercises voting power.
38
PLAN
OF DISTRIBUTION
We are registering the sale of shares of our common
stock on behalf of the Selling Stockholder. The Selling Stockholder and any of
its donees, pledgees, transferees or other successors-in-interest may, from
time to time, sell any or all of their shares of our common stock on AMEX or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. The Selling Stockholder may use any one or more of the following
methods when selling shares:
·
ordinary brokerage transactions and transactions
in which the broker-dealer solicits purchasers;
·
block trades in which the broker-dealer will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and
resale by the broker-dealer for its account;
·
an exchange distribution in accordance with the rules of
the applicable exchange;
·
privately negotiated transactions;
·
settlement of short sales entered into after the
effective date of the registration statement of which this prospectus is a
part;
·
broker-dealers may agree with the Selling
Stockholder to sell a specified number of such shares at a stipulated price per
share;
·
through the writing or settlement of options or
other hedging transactions, whether through an options exchange or otherwise;
·
a combination of any such methods of sale; or
·
any other method permitted pursuant to applicable
law.
The Selling Stockholder may also sell shares under Rule 144
under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholder may
arrange for other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the Selling Stockholder (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated, but, except as set forth in a supplement to this
prospectus, in the case of an agency transaction not in excess of a customary
brokerage commission in compliance with NASDR Rule 2440; and in the case
of a principal transaction a markup or markdown in compliance with NASDR
IM-2440.
In connection with the sale of the common stock or
interests therein, the Selling Stockholder may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage
in short sales of the common stock in the course of hedging the positions they
assume. The Selling Stockholder may also sell shares of the common stock short
and deliver these securities to close out their short positions entered into
after the effective date of the registration statement of which this prospectus
is a part, or loan or pledge the common stock to broker-dealers that in turn
may sell these securities. The Selling Stockholder may also enter into option
or other transactions with broker-dealers or other financial institutions or
the creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The Selling Stockholder and any broker-dealers or
agents that are involved in selling the shares may be deemed to be underwriters
within the meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
39
The Company is required to pay certain fees and
expenses incurred by the Company incident to the registration of the shares. The
Company has agreed to indemnify the Selling Stockholder, its directors and
officers and each person who controls the Selling Stockholder (within the
meaning of Section 15 of the Securities Act) against certain claims,
losses, damages and liabilities, including liabilities under the Securities
Act.
Because the Selling Stockholder may be deemed to be an
underwriter within the meaning of the Securities Act, it will be subject to
the prospectus delivery requirements of the Securities Act including Rule 172
thereunder. There is no underwriter or coordinating broker acting in connection
with the proposed sale of the resale shares by the Selling Stockholder.
We agreed to keep this prospectus effective until the
earlier of (i) such time as all of the shares have been sold, transferred
or otherwise disposed of by the Selling Stockholder; or (ii) December 19,
2008. The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.
Under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the resale shares may
not simultaneously engage in market making activities with respect to the
common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the Selling
Stockholder will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of the common stock by the
Selling Stockholder or any other person. We will make copies of this prospectus
available to the Selling Stockholder for the purpose of satisfying the
prospectus delivery requirements of the Securities Act.
40
EXPERTS
Stonefield
Josephson, Inc., independent registered public accounting firm, has
audited our financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2007, as set forth in its report (which
contains an explanatory paragraph describing conditions that raise substantial
doubt about our ability to continue as a going concern as described in Note 1
to the consolidated financial statements), which is incorporated by reference
in this prospectus and elsewhere in the registration statement of which this
prospectus forms a part. Our financial statements are incorporated by reference
in reliance on Stonefield Josephson, Inc.s report, given on their
authority as experts in accounting and auditing.
LEGAL
MATTERS
The validity of our common stock offered hereby
will be passed upon for us by Paul, Hastings, Janofsky & Walker LLP,
San Diego, California.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of a registration statement on Form S-1 that we filed
with the SEC. Certain information in the registration statement has been
omitted from this prospectus in accordance with the rules and regulations
of the SEC.
We
electronically file annual, quarterly and special reports, proxy and
information statements and other information with the SEC. The public may read
and copy any materials we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov. Our website address is www.iwsinc.com. Information
contained in, or accessible through, our website is not a part of this
prospectus.
41
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The
SEC allows us to incorporate by reference the information we file with them.
This means that we can disclose important information to you by referring to
other documents filed with the SEC that contain that information.
The
following documents filed with the SEC are incorporated by reference into this
prospectus:
(a) Annual Report on Form 10-K for
the year ended December 31, 2007 filed with the SEC on April 15,
2008;
(b)
Current Reports on Form 8-K filed with the SEC on March 6, 2008,
March 12, 2008, March 18, 2008, April 1, 2008, April 3, 2008 and
April 4, 2008; and
(c)
Description of our common stock contained in our Registration Statement
on Form 8-A filed on March 21, 2000 (File No. 001-15757),
pursuant to Section 12(b) of the Exchange Act, including any
amendment or report filed for the purpose of updating such description.
You
may obtain a copy of any of the above-referenced documents, at no cost, from
our website at www.iwsinc.com, or by writing or telephoning us at the following
address:
Corporate Secretary
ImageWare Systems, Inc.
10883 Thornmint Road
San Diego, California 92127
(858) 673-8600
You should rely only on the information provided
or incorporated by reference in this registration statement or any related
prospectus. We have not authorized anyone to provide you with different
information. You should not assume that the information in this registration
statement or any related prospectus, including any information incorporated
herein by reference, is accurate as of any date other than the date on the
front of the applicable document, or such earlier date as is expressly stated
or otherwise apparent with respect to such incorporated information in the
applicable document, regardless of the time of delivery of this prospectus or
any sale of our common stock. Our business, financial condition, results of
operations and prospects may have changed since any such date.
42
Part II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13
.
Other
Expenses of Issuance and Distribution
The
following table lists the costs and expenses payable by the Registrant in
connection with the sale of the common stock covered by this prospectus other
than any sales commissions or discounts, which expenses will be paid by Sol
Logic, Inc., the selling stockholder (Sol Logic). All amounts shown are
estimates except for the SEC registration fee.
SEC registration fee
|
|
$
|
29.97
|
|
Legal fees and expenses
|
|
81,300
|
|
Accounting fees and expenses
|
|
5,000
|
|
Printing expenses
|
|
20,000
|
|
Miscellaneous fees and expenses
|
|
5,000
|
|
Total
|
|
$
|
111,329.97
|
|
Item 14
.
Indemnification
of Directors and Officers
The Registrant is
incorporated under the laws of the State of Delaware. Section 145 of the
Delaware General Corporation Law provides that a Delaware corporation may
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such person as an officer, director, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the corporations
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who are, or are threatened to be made, a
party to any threatened, pending or completed action or suit by or in the right
of the corporation by reason of the fact that such person was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit provided such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporations best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses that such officer or director has actually and reasonably incurred.
The Registrants amended and restated certificate of incorporation and amended
and restated bylaws provide for the indemnification of the Registrants
directors and officers to the fullest extent permitted under the Delaware
General Corporation Law.
The Registrants amended
and restated bylaws provide that expenses incurred by any officer or director
in defending any such action, suit or proceeding in advance of its final
disposition shall be paid by the Registrant, provided, however, that if
required by the Delaware General Corporation Law, such expenses shall be
advanced only upon delivery to the Registrant of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled to
be indemnified by the Registrant.
II-1
Section 174 of the
Delaware General Corporation Law provides, among other things, that a director
who willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption may be held liable for such actions. A
director who was either absent when the unlawful actions were approved, or
dissented at the time, may avoid liability by causing his or her dissent to
such actions to be entered in the books containing minutes of the meetings of
the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
As permitted by the
Delaware General Corporation Law, the Registrant has entered into indemnity
agreements with each of its directors and executive officers that require the
Registrant to indemnify such persons against any and all expenses including
attorneys, witness or other professional fees and related disbursements and
other out-of-pocket costs incurred by such director or officer in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under the indemnity agreements, Delaware
General Corporation Law or otherwise, and amounts paid in settlement by or on
behalf of such director or officer, but will not include any judgments, fines
or penalties actually levied against such director or officer for such
individuals violations of law. Proceedings that are covered by the indemnity
agreements include any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation, inquiry,
administrative hearing or any other actual, threatened or completed proceeding
(including an action by or in the Registrants right), and whether civil,
criminal, administrative or investigative in nature to which such director or
officer is, was or at any time will be involved as a party, or is threatened to
be made a party, by reason of the fact: (i) that such director or officer
is or was a director or officer; or (ii) that such director or officer is
or was serving at the Registrants request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, whether or not serving in such capacity at
the time any liability or expense is incurred for which indemnification,
reimbursement, or advancement of expenses may be provided under the indemnity
agreements.
Such additional indemnity
is not available, however, with respect to: (i) a final judgment rendered
against such director or officer for an accounting, disgorgement or repayment
of profits made from the purchase or sale by such individual of securities of
the Registrant against such individual or in connection with a settlement by or
on behalf of such individual to the extent it is acknowledged by him or her and
the Registrant that such amount paid in settlement resulted from the individuals
conduct from which the individual received monetary personal profit, pursuant
to the provisions of Section 16(b) of the Exchange Act or other
provisions of any federal, state or local statute or rules and regulations
thereunder; (ii) a final judgment that such director or officers conduct
was in bad faith, knowingly fraudulent or deliberately dishonest or constituted
willful misconduct (but only to the extent of such specific determination); (iii) on
account of conduct that is established by a final judgment as constituting a
breach of such director or officers duty of loyalty to the Registrant or
resulting in any personal profit or advantage to which such individual is not
legally entitled; (iv) claims for which payment is actually made to such
director or officer under a valid and collectible insurance policy or under a
valid and enforceable indemnity clause, bylaw or agreement, except in respect
of any excess beyond payment under such insurance, clause, bylaw or agreement;
or (v) remuneration paid to such director or officer, if it is determined
by final judgment that such remuneration was in violation of law (and, in this
respect, both the Registrant and such individual have been advised that the
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication). Nor do the indemnity agreements provide
for additional indemnity with respect to proceedings or claims initiated or
brought by such director or officer against the Registrant or its directors,
officers, employees or other agents, except with respect to: (a) indemnification
required by applicable law; (b) proceedings authorized by the Registrants
board of directors; (c) indemnification provided by the Registrant in its
sole discretion pursuant to its powers under the Delaware General Corporation
Law; or (d) proceedings brought to enforce a right to indemnification
under the indemnity agreements. The indemnity agreements do not obligate the
Registrant to pay for any amounts paid in settlement of a proceeding effected
without the Registrants written consent. The indemnification agreements also
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
The Registrant has an
insurance policy covering its officers and directors with respect to certain
liabilities, including liabilities arising under the Securities Act or
otherwise.
II-2
Item 15. Recent Sales of Unregistered
Securities
Since January 2005,
we have issued the following securities that were not registered under the
Securities Act:
(1) In April 1, 2005, the Registrant sold
and issued to Argus Solutions Ltd., a New South Wales, Australia corporation
and accredited investor, an aggregate of 71,225 shares of the Registrants
common stock for aggregate gross proceeds of approximately $250,000. This
transaction was exempt from registration under Section 4(2) of the
Securities Act.
(2) On July 22, 2005, the Registrant sold
and issued to accredited investors 1,203,489 shares of the Registrants common
stock, and warrants to purchase up to an aggregate of 457,356 shares of the
Registrants common stock, for aggregate gross proceeds of approximately $3.1
million. Additionally, the Registrant issued the finder in the transaction a
warrant to purchase up to an aggregate of 90,262 shares of the Registrants
common stock. These transactions were exempt from registration under Section 4(2) of
the Securities Act.
(3) On July 28,
2005, the Registrant sold and issued to accredited investors 193,798 shares of
the Registrants common stock, and warrants to purchase up to an aggregate of
73,642 shares of the Registrants common stock, for aggregate gross proceeds of
approximately $500,000. Additionally, the Registrant issued the finder in the
transaction a warrant to purchase up to an aggregate of 14,534 shares of the
Registrants common stock. These transactions were exempt from registration
under Section 4(2) of the Securities Act.
(4) On March 17,
2006, the Registrant consummated a loan in the aggregate amount of $1,550,000
(the Loan) from multiple lenders (the Lenders) in consideration for the
issuance of secured promissory notes (the Notes) to the Lenders. In
connection with the Loan, the Registrant issued the Lenders warrants to
purchase up to an aggregate of 387,500 shares of the Registrants common stock.
This transaction was exempt from registration under Section 4(2) of
the Securities Act.
(5) On November 14,
2006, the Registrant sold and issued to accredited investors (the Series C
Investors) an aggregate of 2,300 shares of the Registrants Series C 8%
Convertible Preferred Stock (the Series C Financing) and issued to the Series C
Investors warrants to purchase up to an aggregate of 115,000 shares of the
Registrants common stock, for aggregate gross proceeds of $2,300,000. In
connection with the transaction, the Registrant issued the placement agent and
its affiliates warrants to purchase up to an aggregate of 40,000 shares of the
Registrants common stock. These transactions were exempt from registration
under Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
Additionally, the consummation
of the Series C Financing caused all amounts outstanding under the Notes
to become immediately due and payable in full. In consideration for the Lenders
written waiver of the acceleration of the Notes in connection with the Series C
Financing the Registrant issued the Lenders warrants to purchase up to an
aggregate of 200,250 shares of the Registrants common stock. This transaction
was also exempt from registration under Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder.
(6) On March 9,
2007, the Registrant sold and issued to accredited investors (the Series D
Investors) an aggregate of 1,500 shares of the Registrants Series D 8%
Convertible Preferred Stock and issued to the Series D Investors warrants
to purchase up to an aggregate of 59,207 shares of the Registrants common
stock, for aggregate gross proceeds of $1,500,000. This transaction was exempt
from registration under Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
(7) On September 25, 2007, the Registrant
sold and issued to accredited investors (the Investors) an aggregate of
2,016,666 shares of the Registrants common stock, and issued to the Investors
warrants (the Warrants) to purchase up to an aggregate of 1,008,333 shares of
the Registrants common stock, for aggregate gross proceeds of approximately
$3,000,000. Additionally, the Registrant issued the placement agent in the
transaction a warrant to purchase up to an aggregate of 151,249 shares of the Registrants
common stock. This transaction was exempt from registration under Section 4(2) of
the Securities Act and Rule 506 promulgated thereunder.
II-3
(8) On December 19,
2007, the Registrant sold and issued to an accredited investor, Sol Logic, 677,940
shares of restricted common stock of the Registrant (the Initial Shares), and,
in the event certain milestones are achieved, the Registrant will issue to Sol
Logic the number of shares of restricted common stock (the Additional Shares),
equal to the quotient obtained by dividing $1,921,924 by the greater of (A) $1.10
and (B) the volume weighted average closing price of the Registrants
common stock over the 20 trading-day period immediately prior to the date the
Additional Shares are issued, as reported on the American Stock Exchange or the
Over-the-Counter Bulletin Board. The Initial Shares were issued to Sol Logic in
consideration for certain assets of Sol Logic, including customer contracts,
software licenses and intellectual property. This transaction was exempt from
registration under Section 4(2) of the Securities Act.
(9) On March
12, 2008, the Registrant reduced the price of the Warrants, which initially had
an exercise price of $1.67 per share, to an exercise price of $1.00 per share,
in consideration for their immediate exercise (the Warrant Repricing) by the
Investors who participated in the Warrant Repricing (the Participating
Investors). In addition, the Registrant
also issued to the Participating Investors new warrants to purchase up to an
aggregate of 270,833 shares of the Registrants common stock. The Registrant received aggregate gross
proceeds of $541,666 from the Warrant Repricing. This transaction was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.
Item 16. Exhibits and Financial
Statement Schedules
(a)
Exhibits
Exhibit
Number
|
|
Description
|
2.1
|
|
Stock Purchase
Agreement, dated March 1, 2005, between the Registrant and Argus
Solutions Ltd. (incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K, filed March 9, 2005).
|
2.2
|
|
Agreement and
Plan of Merger, dated October 27, 2005 (incorporated by reference to
Annex A to the Registrants Definitive Proxy Statement on Schedule 14A, filed
November 15, 2005).
|
3.1
|
|
Certificate of
Incorporation (incorporated by reference to Annex B to the Registrants
Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
|
3.2
|
|
Bylaws
(incorporated by reference to Annex C to the Registrants Definitive Proxy
Statement on Schedule 14A, filed November 15, 2005).
|
3.3
|
|
Certificate of
Designations of Preferences, Rights and Limitations of Series C 8%
Convertible Preferred Stock dated November 2, 2006, as amended
(incorporated by reference to Exhibit 3.1 to the Registrants Current
Report on Form 8-K, filed November 20, 2006).
|
3.4
|
|
Certificate of Designations of Preferences, Rights
and Limitations of Series D 8% Convertible Preferred Stock dated
March 8, 2007 (incorporated by reference to Exhibit 3.1 to the
Registrant
s
Current
Report on Form 8-K, filed March 15, 2007).
|
4.1
|
|
Warrant to
Purchase Common Stock in favor of Imperial Bank, dated January 15, 1998
(incorporated by reference to Exhibit 10.42 to the Registrants
Registration Statement on Form SB-2 (No. 333-93131), filed
December 20, 1999, as amended).
|
4.2
|
|
Registration
Rights Agreement, dated May 22, 2002, by and between the Registrant and
Perseus 2000 L.L.C. (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed May 24, 2002).
|
4.3
|
|
Warrant to
Purchase Common Stock, dated June 13, 2003, issued by the Registrant to
L.F. Global Holdings, LLC (incorporated by reference to Exhibit 10.5 to
the Registrants Current Report on Form 8-K, filed June 20, 2003).
|
4.4
|
|
Form of
Warrant dated November 24, 2003 (incorporated by reference to
Exhibit 99.2 to the Registrants Current Report on Form 8-K, filed
February 9, 2004).
|
4.5
|
|
Form of
Registration Rights Agreement dated November 24, 2003 (incorporated by
reference to Exhibit 99.3 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
4.6
|
|
Form of
Registration Rights Agreement dated March 13, 2003 (incorporated by
reference to Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-QSB, filed May 15, 2003).
|
4.7
|
|
Form of
Warrant dated January 29, 2004 (incorporated by reference to
Exhibit 99.5 to the Registrants Current Report on Form 8-K, filed
February 9, 2004).
|
4.8
|
|
Form of
Registration Rights Agreement dated January 29, 2004 (incorporated by
reference to Exhibit 99.8 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
4.9
|
|
Form of
Warrant dated July 22, 2005 and dated July 28, 2005 (incorporated
by reference to Exhibit A to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed July 26, 2005).
|
4.10
|
|
Form of
Warrant dated March 17, 2006 (incorporated by reference to
Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q,
filed May 22, 2006).
|
II-4
4.11
|
|
Registration
Rights Agreement, dated November 14, 2006 by and among the Registrant
and certain investors (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed November 20, 2006).
|
4.12
|
|
Form of
Warrant to Purchase Common Stock dated November 14, 2006 (incorporated
by reference to Exhibit 10.3 to the Registrants Current Report on
Form 8-K, filed November 20, 2006).
|
4.13
|
|
Registration Rights Agreement, dated March 9,
2007, by and among the Registrant and certain accredited investors
(incorporated by reference to Exhibit 10.2 to the Registrant
s
Current Report on Form 8-K, filed
March 15, 2007).
|
4.14
|
|
Form of Warrant to Purchase Common Stock
dated March 9, 2007 (incorporated by reference to Exhibit 10.3 to
the Registrant
s
Current
Report on Form 8-K, filed March 15, 2007).
|
4.15
|
|
Registration Rights Agreement, dated
September 25, 2007, by and among the Registrant and certain accredited
investors
(incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K, filed September 26, 2007).
|
4.16
|
|
Form of Warrant to Purchase Common Stock
dated September 25, 2007
(incorporated by reference to
Exhibit 10.3 to the
Registrants
Current Report on Form 8-K, filed September 26, 2007).
|
4.17
|
|
Registration Rights Agreement, dated
December 19, 2007, by and among the Registrant, Sol Logic, and Wink
Jones, as the representative of Sol Logic (incorporated by reference to
Exhibit 4.1 to the Registrant
s
Current Report on Form 8-K, filed December 21, 2007).
|
4.18
|
|
Form of Warrant
to Purchase Common Stock dated March 12, 2008 (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed March 18,
2008).
|
4.19
|
|
Amendment No.1
to Registration Rights Agreement, dated March 28, 2008, by and among the
Registrant, Sol Logic, and Wink Jones, as the representative of Sol Logic
(incorporated by reference to Exhibit 4.1 to the Registrants Current Report
on Form 8-K, filed April 1, 2008).
|
5.1
|
|
Opinion of Paul,
Hastings, Janofsky & Walker LLP
|
10.1
|
|
Employment
Agreement, dated September 27, 2005, between the Registrant and S. James
Miller (incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed September 30, 2005).
|
10.2
|
|
Employment
Agreement, dated September 27, 2005, between the Registrant and Wayne G.
Wetherell (incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K, filed September 30, 2005).
|
10.3
|
|
Change of
Control and Severance Benefits Agreement, dated October 31, 2005,
between Registrant and Charles Aubuchon (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
November 3, 2005).
|
10.4
|
|
Offer of Employment Letter Agreement, dated
December 19, 2007, between the Registrant
and Frank Mitchell (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed
December 21, 2007).
|
10.5
|
|
Form of
Indemnification Agreement entered into by the Registrant with its directors
and executive officers (incorporated by reference to Exhibit 10.4 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.6
|
|
1994 Employee
Stock Option Plan (incorporated by reference to Exhibit 10.6 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.7
|
|
1994 Nonqualified
Stock Option Plan (incorporated by reference to Exhibit 10.7 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.8
|
|
Amended and
Restated 1999 Stock Plan Award (incorporated by reference to Appendix B of
the Registrants Definitive Proxy Statement on Schedule 14A, filed
November 21, 2007).
|
10.9
|
|
Form of
Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed July 14, 2005).
|
10.10
|
|
2001 Equity
Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-QSB, filed November 14,
2001).
|
10.11
|
|
Form of
Restricted Stock Bonus Agreement (incorporated by reference to
Exhibit 99.3 to the Registrants Registration Statement on
Form S-8, filed November 27, 2001).
|
10.12
|
|
Form of
Stock Option Agreement (incorporated by reference to Exhibit 99.2 to the
Registrants Registration Statement on Form S-8, filed November 27,
2001).
|
10.13
|
|
Note and Warrant
Purchase Agreement, dated May 22, 2002, by and between the Registrant
and Perseus (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed May 24, 2002).
|
10.14
|
|
Form of
Securities Purchase Agreement dated November 14, 2003 (incorporated by
reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
II-5
10.15
|
|
Form of
Securities Purchase Agreement dated January 29, 2004 (incorporated by
reference to Exhibit 99.4 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
10.16
|
|
Offer of
Restricted Stock in Exchange for Certain Stock Options Previously Granted
Offer Made to James Miller (incorporated by reference to Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-QSB, filed August 16,
2004).
|
10.17
|
|
Offer of
Restricted Stock in Exchange for Certain Stock Options Previously Granted
Offer Made to Wayne Wetherell, dated March 30, 2004 (incorporated by
reference to Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-QSB, filed August 16, 2004).
|
10.18
|
|
Form of
Securities Purchase Agreement dated July 22, 2005 and July 28, 2005
(incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed July 26, 2005).
|
10.19
|
|
Security
Agreement, dated March 17, 2006, executed by the Registrant in favor of
Little Bear Investments, LLC (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K, filed March 23,
2006).
|
10.20
|
|
Form of
Secured Promissory Note dated March 17, 2006 (incorporated by reference
to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q,
filed May 22, 2006).
|
10.21
|
|
Securities
Purchase Agreement, dated November 14, 2006 by and among the Registrant
and certain accredited investors (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
November 20, 2006).
|
10.22
|
|
Securities Purchase Agreement, dated March 9,
2007, by and among the Registrant
and certain accredited investors (incorporated by reference to
Exhibit 10.1 to the Registrant Current Report on Form 8-K, filed March 15, 2007).
|
10.23
|
|
Securities Purchase Agreement, dated
September 25, 2007, by and among the Registrant
and certain accredited investors (incorporated
by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
September 26, 2007).
|
10.24
|
|
Asset Purchase Agreement and Plan of
Reorganization, by and among Sol Logic, Frank Mitchell, as shareholder of Sol
Logic, and Wink Jones, as the representative of Sol Logic (incorporated by
reference to Exhibit 10.1 to the Registrant
s
Current Report on Form 8-K, filed
December 21, 2007).
|
10.25
|
|
Amendment No.1
to Asset Purchase Agreement and Plan of Reorganization, by and between the
Registrant and Wink Jones, as the representative of Sol Logic (incorporated
by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K,
filed April 1, 2008).
|
10.26
|
|
Product Line
Purchase Agreement, dated November 30, 2006, by and between the
Registrant and PhotoLynx, Inc. (incorporated by reference to
Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed
December 26, 2006).
|
10.27
|
|
Standard
Commercial Lease, dated September 26, 2003, by and between Thornmint I
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-QSB, filed November 14,
2003).
|
10.28
|
|
Amendment to
Office Lease, dated June 12, 2006, by and between Thornmint I and the
Registrant (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q, filed August 14, 2006).
|
10.29
|
|
Office Lease,
dated September 7, 2006, by and between Union Bank of California as
Trustee for Quest Group Trust VII and the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q, filed November 20, 2006).
|
10.30
|
|
Office Space
Lease between I.W. Systems Canada Registrant and Dundeal Canada (GP) Inc. dated
June 1, 2006 (incorporated by reference to Exhibit 10.40 to the
Registrants Annual Report on Form 10-K, filed April 17, 2007).
|
21.1
|
|
Subsidiaries of
the Registrant (incorporated by reference to Exhibit 21.1 to the Registrants
Registration Statement on Form S-1, filed January 18, 2008).
|
23.1
|
|
Consent of
Stonefield Josephson, Inc., Independent Registered Public Accounting
Firm
|
24.1
|
|
Power of
Attorney (included in the signature page hereto)
|
II-6
Item 17. Undertakings
(a)
The undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any
prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the Securities Act);
(ii) To reflect in
the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration statement.
(iii) To include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness; provided, however, that no statement made in the
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
(b) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, the registrant has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, State of California, on April 15, 2008.
|
IMAGEWARE
SYSTEMS, INC.
|
|
|
|
By:
|
/s/ Wayne Wetherell
|
|
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Wayne
Wetherell
|
|
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Chief Financial Officer
|
Pursuant to the requirements
of the Securities Act of 1933, as amended, this Pre-Effective Amendment No.1 to
registration statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE
|
|
TITLE(S)
|
|
DATE
|
|
|
|
|
|
*
|
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Chief Executive
Officer and Chairman of the
|
|
April 15, 2008
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S. James
Miller, Jr.
|
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Board
(Principal Executive Officer)
|
|
|
|
|
|
|
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/s/ Wayne Wetherell
|
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Senior Vice
President, Administration and Chief
|
|
April 15, 2008
|
Wayne Wetherell
|
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Financial
Officer
(Principal Financial and
|
|
|
|
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Accounting Officer)
|
|
|
|
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|
|
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*
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Director
|
|
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John Callan
|
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|
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April 15, 2008
|
|
|
|
|
|
*
|
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Director
|
|
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David Carey
|
|
|
|
April 15, 2008
|
|
|
|
|
|
*
|
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Director
|
|
|
G. Steve Hamm
|
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|
April 15, 2008
|
|
|
|
|
|
*
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Director
|
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John L. Holleran
|
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April 15, 2008
|
|
|
|
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*
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Director
|
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David Loesch
|
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April 15, 2008
|
|
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|
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*By:
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/s/ Wayne Wetherell
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April 15, 2008
|
Wayne
Wetherell
Attorney-in-fact
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II-8
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
2.1
|
|
Stock Purchase
Agreement, dated March 1, 2005, between the Registrant and Argus
Solutions Ltd. (incorporated by reference to Exhibit 2.1 to the
Registrants Current Report on Form 8-K, filed March 9, 2005).
|
2.2
|
|
Agreement and
Plan of Merger, dated October 27, 2005 (incorporated by reference to
Annex A to the Registrants Definitive Proxy Statement on Schedule 14A, filed
November 15, 2005).
|
3.1
|
|
Certificate of
Incorporation (incorporated by reference to Annex B to the Registrants
Definitive Proxy Statement on Schedule 14A, filed November 15, 2005).
|
3.2
|
|
Bylaws
(incorporated by reference to Annex C to the Registrants Definitive Proxy
Statement on Schedule 14A, filed November 15, 2005).
|
3.3
|
|
Certificate of Designations
of Preferences, Rights and Limitations of Series C 8% Convertible
Preferred Stock dated November 2, 2006, as amended (incorporated by
reference to Exhibit 3.1 to the Registrants Current Report on
Form 8-K, filed November 20, 2006).
|
3.4
|
|
Certificate of Designations of Preferences, Rights
and Limitations of Series D 8% Convertible Preferred Stock dated
March 8, 2007 (incorporated by reference to Exhibit 3.1 to the
Registrant
s
Current
Report on Form 8-K, filed March 15, 2007).
|
4.1
|
|
Warrant to Purchase
Common Stock in favor of Imperial Bank, dated January 15, 1998
(incorporated by reference to Exhibit 10.42 to the Registrants
Registration Statement on Form SB-2 (No. 333-93131), filed
December 20, 1999, as amended).
|
4.2
|
|
Registration
Rights Agreement, dated May 22, 2002, by and between the Registrant and
Perseus 2000 L.L.C. (incorporated by reference to Exhibit 10.3 to the
Registrants Current Report on Form 8-K, filed May 24, 2002).
|
4.3
|
|
Warrant to
Purchase Common Stock, dated June 13, 2003, issued by the Registrant to
L.F. Global Holdings, LLC (incorporated by reference to Exhibit 10.5 to
the Registrants Current Report on Form 8-K, filed June 20, 2003).
|
4.4
|
|
Form of
Warrant dated November 24, 2003 (incorporated by reference to
Exhibit 99.2 to the Registrants Current Report on Form 8-K, filed
February 9, 2004).
|
4.5
|
|
Form of
Registration Rights Agreement dated November 24, 2003 (incorporated by
reference to Exhibit 99.3 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
4.6
|
|
Form of
Registration Rights Agreement dated March 13, 2003 (incorporated by
reference to Exhibit 10.2 to the Registrants Quarterly Report on
Form 10-QSB, filed May 15, 2003).
|
4.7
|
|
Form of
Warrant dated January 29, 2004 (incorporated by reference to
Exhibit 99.5 to the Registrants Current Report on Form 8-K, filed
February 9, 2004).
|
4.8
|
|
Form of
Registration Rights Agreement dated January 29, 2004 (incorporated by
reference to Exhibit 99.8 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
4.9
|
|
Form of
Warrant dated July 22, 2005 and dated July 28, 2005 (incorporated
by reference to Exhibit A to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed July 26, 2005).
|
4.10
|
|
Form of
Warrant dated March 17, 2006 (incorporated by reference to
Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q,
filed May 22, 2006).
|
4.11
|
|
Registration
Rights Agreement, dated November 14, 2006 by and among the Registrant
and certain investors (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed November 20, 2006).
|
4.12
|
|
Form of
Warrant to Purchase Common Stock dated November 14, 2006 (incorporated
by reference to Exhibit 10.3 to the Registrants Current Report on
Form 8-K, filed November 20, 2006).
|
4.13
|
|
Registration Rights Agreement, dated March 9,
2007, by and among the Registrant and certain accredited investors
(incorporated by reference to Exhibit 10.2 to the Registrant
s
Current Report on Form 8-K, filed
March 15, 2007).
|
4.14
|
|
Form of Warrant to Purchase Common Stock
dated March 9, 2007 (incorporated by reference to Exhibit 10.3 to
the Registrant
s
Current
Report on Form 8-K, filed March 15, 2007).
|
4.15
|
|
Registration Rights Agreement, dated
September 25, 2007, by and among the Registrant and certain accredited
investors
(incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on
Form 8-K, filed September 26, 2007).
|
4.16
|
|
Form of Warrant to Purchase Common Stock
dated September 25, 2007
(incorporated by reference to
Exhibit 10.3 to the
Registrants
Current Report on Form 8-K, filed September 26, 2007).
|
4.17
|
|
Registration Rights Agreement, dated
December 19, 2007, by and among the Registrant, Sol Logic, and Wink
Jones, as the representative of Sol Logic (incorporated by reference to
Exhibit 4.1 to the Registrant
s
Current Report on Form 8-K, filed December 21, 2007).
|
4.18
|
|
Form of Warrant to Purchase Common Stock
dated March 12, 2008 (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed March 18, 2008).
|
4.19
|
|
Amendment No.1 to Registration Rights
Agreement, dated March 28, 2008, by and among the Registrant, Sol Logic, and
Wink Jones, as the representative of Sol Logic (incorporated by reference to
Exhibit 4.1 to the Registrants Current Report on Form 8-K, filed April 1,
2008).
|
5.1
|
|
Opinion of Paul,
Hastings, Janofsky & Walker LLP
|
10.1
|
|
Employment
Agreement, dated September 27, 2005, between the Registrant and S. James
Miller (incorporated by reference to Exhibit 10.1 to the Registrants
Current Report on Form 8-K, filed September 30, 2005).
|
10.2
|
|
Employment
Agreement, dated September 27, 2005, between the Registrant and Wayne G.
Wetherell (incorporated by reference to Exhibit 10.2 to the Registrants
Current Report on Form 8-K, filed September 30, 2005).
|
10.3
|
|
Change of
Control and Severance Benefits Agreement, dated October 31, 2005,
between Registrant and Charles Aubuchon (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
November 3, 2005).
|
10.4
|
|
Offer of Employment Letter Agreement, dated
December 19, 2007, between the Registrant
and Frank Mitchell (incorporated by
reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K, filed
December 21, 2007).
|
10.5
|
|
Form of
Indemnification Agreement entered into by the Registrant with its directors
and executive officers (incorporated by reference to Exhibit 10.4 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.6
|
|
1994 Employee
Stock Option Plan (incorporated by reference to Exhibit 10.6 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.7
|
|
1994 Nonqualified
Stock Option Plan (incorporated by reference to Exhibit 10.7 to the
Registrants Registration Statement on Form SB-2 (No. 333-93131),
filed December 20, 1999, as amended).
|
10.8
|
|
Amended and
Restated 1999 Stock Plan Award (incorporated by reference to Appendix B of
the Registrants Definitive Proxy Statement on Schedule 14A, filed
November 21, 2007).
|
10.9
|
|
Form of
Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the
Registrants Current Report on Form 8-K, filed July 14, 2005).
|
10.10
|
|
2001 Equity
Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Registrants Quarterly Report on Form 10-QSB, filed November 14,
2001).
|
10.11
|
|
Form of
Restricted Stock Bonus Agreement (incorporated by reference to
Exhibit 99.3 to the Registrants Registration Statement on
Form S-8, filed November 27, 2001).
|
10.12
|
|
Form of
Stock Option Agreement (incorporated by reference to Exhibit 99.2 to the
Registrants Registration Statement on Form S-8, filed November 27,
2001).
|
10.13
|
|
Note and Warrant
Purchase Agreement, dated May 22, 2002, by and between the Registrant
and Perseus (incorporated by reference to Exhibit 10.1 to the
Registrants Current Report on Form 8-K, filed May 24, 2002).
|
10.14
|
|
Form of
Securities Purchase Agreement dated November 14, 2003 (incorporated by
reference to Exhibit 99.1 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
10.15
|
|
Form of
Securities Purchase Agreement dated January 29, 2004 (incorporated by
reference to Exhibit 99.4 to the Registrants Current Report on
Form 8-K, filed February 9, 2004).
|
10.16
|
|
Offer of
Restricted Stock in Exchange for Certain Stock Options Previously Granted
Offer Made to James Miller (incorporated by reference to Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-QSB, filed August 16,
2004).
|
10.17
|
|
Offer of
Restricted Stock in Exchange for Certain Stock Options Previously Granted
Offer Made to Wayne Wetherell, dated March 30, 2004 (incorporated by
reference to Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-QSB, filed August 16, 2004).
|
10.18
|
|
Form of
Securities Purchase Agreement dated July 22, 2005 and July 28, 2005
(incorporated by reference to Exhibit 10.1 to the Registrants Current
Report on Form 8-K, filed July 26, 2005).
|
10.19
|
|
Security
Agreement, dated March 17, 2006, executed by the Registrant in favor of
Little Bear Investments, LLC (incorporated by reference to Exhibit 10.1
to the Registrants Current Report on Form 8-K, filed March 23,
2006).
|
10.20
|
|
Form of
Secured Promissory Note dated March 17, 2006 (incorporated by reference
to Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q,
filed May 22, 2006).
|
10.21
|
|
Securities
Purchase Agreement, dated November 14, 2006 by and among the Registrant
and certain accredited investors (incorporated by reference to
Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
November 20, 2006).
|
10.22
|
|
Securities Purchase Agreement, dated March 9,
2007, by and among the Registrant
and certain accredited investors (incorporated by reference to
Exhibit 10.1 to the Registrant Current Report on Form 8-K, filed March 15, 2007).
|
10.23
|
|
Securities Purchase Agreement, dated
September 25, 2007, by and among the Registrant
and certain accredited investors (incorporated
by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed
September 26, 2007).
|
10.24
|
|
Asset Purchase Agreement and Plan of
Reorganization, by and among Sol Logic, Frank Mitchell, as shareholder of Sol
Logic, and Wink Jones, as the representative of Sol Logic (incorporated by
reference to Exhibit 10.1 to the Registrant
s
Current Report on Form 8-K, filed
December 21, 2007).
|
10.25
|
|
Amendment No.1 to Asset Purchase Agreement
and Plan of Reorganization, by and between the Registrant and Wink Jones, as
the representative of Sol Logic (incorporated by reference to Exhibit 10.1 to
the Registrants Current Report on Form 8-K, filed April 1, 2008).
|
10.26
|
|
Product Line
Purchase Agreement, dated November 30, 2006, by and between the
Registrant and PhotoLynx, Inc. (incorporated by reference to
Exhibit 10.3 to the Registrants Current Report on Form 8-K, filed
December 26, 2006).
|
10.27
|
|
Standard
Commercial Lease, dated September 26, 2003, by and between Thornmint I
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-QSB, filed November 14,
2003).
|
10.28
|
|
Amendment to
Office Lease, dated June 12, 2006, by and between Thornmint I and the
Registrant (incorporated by reference to Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q, filed August 14, 2006).
|
10.29
|
|
Office Lease,
dated September 7, 2006, by and between Union Bank of California as
Trustee for Quest Group Trust VII and the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q, filed November 20, 2006).
|
10.30
|
|
Office Space
Lease between I.W. Systems Canada Registrant and Dundeal Canada (GP) Inc.
dated June 1, 2006 (incorporated by reference to Exhibit 10.40 to
the Registrants Annual Report on Form 10-K, filed April 17, 2007).
|
21.1
|
|
Subsidiaries of
the Registrant (incorporated by reference to Exhibit 21.1 to the Registrants
Registration Statement on Form S-1, filed January 18, 2008).
|
23.1
|
|
Consent of
Stonefield Josephson, Inc., Independent Registered Public Accounting
Firm
|
24.1
|
|
Power of
Attorney (included in the signature page hereto)
|
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