Attached files
Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.
The undersigned,
the Chief Executive Officer of ImageWare Systems, Inc., a Delaware
corporation (the “Company”), does hereby certify
that, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Company, as
amended, the following resolution creating a series of Series C
Convertible Preferred Stock, was duly adopted on September 9,
2018.
RESOLVED, that pursuant to the
authority expressly granted to and vested in the Board of Directors
of the Company by provisions of the Certificate of Incorporation of
the Company, as amended (the “Certificate of Incorporation”),
there hereby is created out of the Company’s shares of
Preferred Stock, par value $0.01 per share (the “Preferred Stock”), authorized
for issuance in Section 4(a) of the Company’s Certificate of
Incorporation, a series of Preferred Stock, to be named
“Series C Convertible Preferred Stock,” consisting of
One Thousand (1,000) shares, which series shall have the following
designations, powers, preferences and relative and other special
rights and the following qualifications, limitations and
restrictions:
1.
Designation and Rank.
(a)
The designation of such series of the Preferred Stock
shall be the Series C Convertible
Preferred Stock,
par value $0.01 per share (the “Series C Preferred”). The
maximum number of shares of Series C Preferred shall be One
Thousand (1,000) shares. The Series C Preferred shall rank senior
to the Company’s common stock, par value $0.01 per share (the
“Common
Stock”), Series A Convertible Preferred Stock (the
“Series A
Preferred”) and, except as provided in Section 1(b)
below, to all other classes and series of equity securities of the
Company which by their terms do not expressly provide that such
equity securities rank senior to or on parity with the Series C
Preferred (collectively, “Junior
Stock”).
(b)
The Series C
Preferred shall rank junior to the Company’s Series B
Convertible Redeemable Preferred Stock (“Series B Preferred”) solely with
respect to (i) dividend rights of the Series B Preferred on the
terms expressly provided in paragraph i of Section 4(d) of the
Certificate of Incorporation as in effect as of the Issuance Date
(as defined below) and (ii) distribution rights of the Series B
Preferred upon a liquidation, dissolution or winding up provided in
paragraph ii of Section 4(d) of the Certificate of Incorporation as
in effect as of the Issuance Date; provided, however, that nothing in the Series B
Preferred shall have any effect on the rights of the Series C
Preferred with respect to rights on redemption or conversion. The
date of original issuance of the Series C Preferred is referred to
herein as the “Issuance
Date”.
2.
Dividends.
(a) Payment of
Dividends.
(i) The holders of
record of shares of Series C Preferred shall be entitled to
receive, and the Company shall be required to declare and pay, out
of any assets at the time legally available therefor, cumulative
dividends at the Specified Rate per share per annum, commencing on
the Issuance Date and payable quarterly in arrears on each of March
31, June 30, September 30 and December 31 (each, a
“Dividend Payment
Date”), at the option of the Company in cash or
through the issuance of shares of Common Stock. Dividends on each
outstanding share of Series C Preferred will accrue whether or not
such dividends have been declared and whether or not there are
profits, surplus or other funds of the Company legally available
for the payment of dividends. In the event that the Company elects
(or is deemed to have elected) to pay dividends in shares of Common
Stock, the number of shares of Common Stock to be issued to each
applicable holder shall be determined by dividing the total
dividend then being
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paid to such
holder in shares of Common Stock by the Price Per Share (as defined
below) as of the applicable Dividend Payment Date, and rounding up
to the nearest whole share (the “Dividend Shares”). With
respect to any Dividend Payment Date, to the extent that dividends
on the shares of Series C Preferred are not declared and paid in
cash on any such Dividend Payment Date, the Company shall be deemed
to have elected to declare and pay dividends with respect to such
Dividend Payment Date through the issuance of Dividend Shares on
such Dividend Payment Date. If the Company shall elect to declare
and pay dividends hereunder in a form that consists of a
combination of cash and an issuance of Dividend Shares, each holder
of the Series C Preferred shall receive the same proportion of cash
and Dividend Shares. As used herein, “Price Per Share” means, with
respect to a share of Common Stock, the VWAP (as defined below) for
the five (5) Trading Days (as defined below) immediately preceding
the applicable Dividend Payment Date.
“Specified Rate” means (i)
in the event the Company elects to pay a dividend payable on any
Dividend Payment Date in cash, the cumulative dividend rate of
eight percent (8%) of the Stated Value (as defined in Section 4
hereof) per share per annum, and (ii) in the event the Company
elects, or is deemed to have elected, to pay a dividend payable on
any Dividend Payment Date in Dividend Shares, the cumulative
dividend rate of ten percent (10%) of the Stated Value per share
per annum.
“VWAP”
means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market (defined below), the daily
volume weighted average price of the Common Stock for such date on
the Trading Market on which the Common Stock is then listed or
quoted as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)),
(b) if the Common Stock is not then listed or quoted for trading on
any Trading Market and if prices for the Common Stock are then
reported on the OTC Bulletin Board or in the “Pink
Sheets” published
by OTC Markets Group, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the daily mean
between the closing bid and asked quotations per share of the
Common Stock so reported, or (c) in all other cases, the fair
market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by the Majority
Holders (as defined below) and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the
Company.
“Trading
Market” means any of the following markets or
exchanges on which the Common Stock is listed or quoted for trading
on the date in question: the NYSE MKT, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New
York Stock Exchange, the OTCQX or OTCQB (or any successors to any
of the foregoing).
“Trading
Day” means a day on which the principal Trading Market
is open for trading.
“Majority
Holders” means, as of any date of determination, the
holder or holders of more than fifty percent (50%) of the total
number of issued and outstanding shares of Series C Preferred as of
such date.
(ii) The Company will:
(a) prepare and file with the Securities and Exchange Commission
(the “SEC”),
within thirty (30) days after the Issuance Date, a Form S3
(or, if such form is not available to the Company, a Form S1)
to register under the Securities Act of 1933, as amended (the
“Securities
Act”), the resale, by the holders of shares of Series
C Preferred, of any Conversion Shares (as defined below) and
Dividend Shares issuable hereunder and not otherwise eligible for
resale under Rule 144 promulgated under the Securities Act
(“Rule 144”),
without volume or mannerofsale restrictions or current
public information requirements (the “Registration Statement”).
(b) use its best efforts to cause the Registration Statement to
become effective as soon as practicable after such filing. (c) use
its best efforts to cause the Registration Statement to remain
effective at all times thereafter until the earlier of (i) the date
as of which such holders of Series C Preferred may sell all of such
Conversion Shares and/or Dividend Shares without restriction
pursuant to Rule 144, without volume or mannerofsale
restrictions or current public information requirements, and (ii)
the date when all of the Conversion Shares and Dividend Shares
registered thereunder have been disposed of by such holders of
Series C Preferred. and (d) prepare and file with the SEC such
amendments and supplements to the Registration Statement (including
documents filed pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), and incorporated by reference into the
Registration Statement) and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective for the period specified in this sentence
above.
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(b) In the event of a
Voluntary Conversion (as defined in Section 5(a) below) or
Mandatory Conversion (as defined in Section 5(b) below), all
accrued but unpaid dividends on the Series C Preferred being
converted shall be payable, at the election of the Company, in cash
or shares of Common Stock within five (5) business days after the
Voluntary Conversion Date (as defined in Section 5(c)(i) below) or
Mandatory Conversion Date (as defined in Section 5(c)(ii) below),
as applicable.
(c)
Solong as any shares
of Series C Preferred are outstanding, the Company shall not, and
shall not permit any subsidiary of the Company or any other Person
(as defined below) directly or indirectly controlled by the Company
to, declare, pay or set apart for payment any dividend or make any
distribution (as defined below) on or with respect to the Common
Stock, the Series A Preferred or any other Junior Stock, except
that (i) the Company may pay dividends on the Series A Preferred at
the “Specified Rate” (as defined in the Certificate of
Designations, Preferences and Rights of Series A Convertible
Preferred Stock of Imageware Systems, Inc. (the “Series A Certificate”) as in
effect on the Issuance Date) on the terms expressly set forth in
Section 2 of the Series A Certificate as in effect on the Issuance
Date, and (ii) the Company may pay dividends on the Common Stock
solely in shares of Common Stock. “Person” means an individual,
partnership, corporation, unincorporated organization, joint stock
company, limited liability company, association, trust, joint
venture or any other entity, or a governmental agency or political
subdivision thereof.
(d)
In the event of a
Liquidation Event (as defined below) or a Deemed Liquidation Event
(as defined below), all accrued and unpaid dividends on the Series
C Preferred shall be payable in cash on the day immediately
preceding the date of payment of the Liquidation Preference Amount
payable to the holders of Series C Preferred, in accordance with
Section 4 below. In the event of the Company’s exercise of
its optional redemption right set forth in Section 7(b) below, all
accrued and unpaid dividends on the Series C Preferred shall be
payable in cash on the day immediately preceding the date of such
redemption.
(e)
For purposes
hereof, unless the context otherwise requires,
“distribution” shall mean the transfer of cash,
property, securities, indebtedness, obligations or any other thing
of value, whether by way of dividend or otherwise, on or with
respect to, or the purchase, redemption, retirement or other
acquisition of, shares of the Company (other than repurchases of
Common Stock held by employees or consultants of the Company upon
termination of their employment or services pursuant to agreements
providing for such repurchase or upon the cashless exercise of
options held by employees or consultants) for cash, property,
securities, indebtedness, obligations or any other thing of
value.
3.
Voting Rights.
On any matter
presented to the stockholders of the Company for their action or
consideration at any meeting of stockholders of the Company (or by
written consent of stockholders in lieu of meeting), each holder of
outstanding shares of Series C Preferred shall be entitled to cast
the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series C Preferred held by such
holder are convertible as of the record date for determining
stockholders entitled to vote on such matter, or if no record date
is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as provided by law or
by Sections 9 and 10 below, holders of Series C Preferred shall
vote together with the holders of Common Stock, and with the
holders of any other series of Preferred Stock the terms of which
so provide, as a single class.
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4.
Liquidation, Dissolution, WindingUp or
Distribution.
(a) In the event of
the liquidation, dissolution, winding up of the affairs of the
Company or any other event that causes the Company to make a
distribution (as such term is used in Section 2(e) above), whether
voluntary or involuntary (each, a “Liquidation Event”) or a Deemed
Liquidation Event, the holders of shares of the Series C Preferred
then outstanding shall be entitled to receive, out of the assets of
the Company available for distribution to its stockholders, before
any payment shall be made or any assets distributed to the holders
of the Common Stock or any other Junior Stock, an amount equal to
the greater of (i) $10,000 per share (such amount, subject to
appropriate adjustment in the event of any stock split, combination
or other similar recapitalization affecting the shares of Series C
Preferred, the “Stated
Value”) plus all accrued and unpaid dividends, and
(ii) such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 5
immediately prior to such Liquidation Event or Deemed Liquidation
Event (the amount payable pursuant to the foregoing is referred to
herein as the “Liquidation
Preference Amount”). If the assets of the Company are
not sufficient to pay in full the Liquidation Preference Amount
payable to the holders of outstanding shares of Series C Preferred
and any other series of Preferred Stock ranking on a parity with
the Series C Preferred as to distribution rights upon a Liquidation
Event or Deemed Liquidation Event (“Parity Stock”), then all of said
assets will be distributed among the holders of the Series C
Preferred and the holders of the Parity Stock, if any, ratably in
accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. The
payment with respect to each outstanding fractional share of Series
C Preferred shall be equal to a ratably proportionate amount of the
payment with respect to each whole outstanding share of Series C
Preferred. All payments for which this Section 4(a) provides shall
be in cash, property (valued at its fair market value as determined
reasonably and in good faith by the Board of Directors of the
Company) or a combination thereof. provided, that, in the case of a
payment consisting of a combination of cash and property, the
holders of the Series C Preferred and the holders of any Parity
Stock shall each receive the same proportion of cash and property;
and provided, further, that no cash shall be paid to
holders of Junior Stock unless each holder of the outstanding
shares of Series C Preferred has been paid in cash the full
Liquidation Preference Amount to which such holder is entitled, as
provided herein. After payment of the full Liquidation Preference
Amount to which each holder is entitled, such holders of shares of
Series C Preferred will not be entitled to any further
participation on account of such shares in any distribution of the
assets of the Company.
(b) Written notice of
any Liquidation Event or Deemed Liquidation Event, stating a
payment date and the place where the distributable amounts shall be
payable, shall, to the extent possible, be given by mail, postage
prepaid, no less than twenty (20) days prior to the payment date
stated therein, to the holders of record of the Series C Preferred
at their respective addresses as recorded on the books of the
Company.
(c) Nothing contained
in this Section 4 shall limit the right of the holder of any shares
of Series C Preferred to convert such shares of Series C Preferred
pursuant to and in accordance with Section 5
hereof.
5.
Conversion.
(a) Voluntary
Conversion. At any time on or after the Issuance Date, the holder
of any shares of Series C Preferred may, at such holder's option,
elect to convert (a “Voluntary Conversion”) all or
any portion of the shares of Series C Preferred held by such holder
into a number of fully paid and nonassessable shares of Common
Stock equal to the quotient of (i) the Stated Value of the shares
of Series C Preferred being converted, divided by (ii) the
Conversion Price (as defined in Section 5(d) below) in effect as of
the date the holder delivers to the Company its notice of election
to convert (the “Conversion
Shares”). In the event the Company issues a notice of
redemption pursuant to Section 7 hereof, the rights of the holders
of Series C Preferred to elect a Voluntary Conversion pursuant to
this Section 5(a) (“Conversion Rights”) shall
terminate at the close of business on the last full day preceding
the date fixed for redemption, unless the redemption price is not
paid on such redemption date, in which case the Conversion Rights
for all shares of Series C Preferred shall continue until the
redemption price is paid in full. In the event of such a
redemption, the Company shall provide to each holder of shares of
Series C Preferred notice of such redemption, which notice shall
(i) be given at least fifteen (15) days prior to the termination of
the Conversion Rights and (ii) state the amount per share of Series
C Preferred that will be paid or distributed on such
redemption.
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(b) Mandatory
Conversion. If (i) the Common Stock is registered pursuant to
Section 12(b) or (g) under the Exchange Act. (ii) there are
sufficient authorized but unissued shares of Common Stock (which
have not otherwise been reserved or committed for issuance) to
permit the issuance of all Conversion Shares issuable upon
conversion of all outstanding shares of Series C Preferred. (iii)
upon issuance, the Conversion Shares will be either (A) covered by
an effective registration statement under the Securities Act, which
is then available for the immediate resale of such Conversion
Shares by the recipients thereof, and the Board of Directors
reasonably believes that such effectiveness will continue
uninterrupted for the foreseeable future, or (B) freely tradable
without restriction pursuant to Rule 144 promulgated under the
Securities Act without volume or mannerofsale
restrictions or current public information requirements, as
determined by the counsel to the Company as set forth in a written
opinion letter to such effect, addressed and acceptable to the
Transfer Agent and the affected holders. and (iv) the VWAP of the
Common Stock is at least $3.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares) for a period of twenty (20) consecutive Trading Days ending
on the Trading Day immediately preceding the day on which the
Company delivers the Mandatory Conversion Notice (as defined
below), then the Company shall have the right, subject to the terms
and conditions of this Section 5, to convert (a “Mandatory Conversion”) all, but
not less than all, of the issued and outstanding shares of Series C
Preferred into Conversion Shares.
(c) Mechanics of
Conversion. Conversions of Series C Preferred shall be conducted in
the following manner:
(i) Voluntary
Conversion. To convert Series C Preferred into Conversion Shares on
any date (the “Voluntary
Conversion Date”), the holder thereof shall transmit
by facsimile or electronic mail (or otherwise deliver), for receipt
on or prior to 5:00 p.m., New York time on such date, a copy of a
fully executed notice of conversion in the form attached hereto as
Exhibit I (the “Conversion
Notice”), to the Company. As soon as practicable
following such Voluntary Conversion Date, the holder shall
surrender to a common carrier for delivery to the Company the
original certificates representing the shares of Series C Preferred
being converted (or an indemnification undertaking with respect to
such shares in the case of their loss, theft or destruction) (the
“Preferred Stock
Certificates”) and the originally executed Conversion
Notice.
(ii)
Mandatory
Conversion. In the event the Company elects to convert outstanding
shares of Series C Preferred into Conversion Shares pursuant to
Section 5(b) above, the Company shall give written notice (the
“Mandatory Conversion
Notice”) to all holders of the Series C Preferred of
its intention to require the conversion of all of the shares of
Series C Preferred. The Mandatory Conversion Notice shall set forth
the number of Series C Preferred being converted (which shall be
all, and not less than all, issued and outstanding shares of Series
C Preferred), the date on which such conversion shall be effective
(the “Mandatory Conversion
Date”), and shall be given to the holders of the
Series C Preferred not less than fifteen (15) days prior to the
Mandatory Conversion Date. The Mandatory Conversion Notice shall be
delivered to each holder at its address as it appears on the stock
transfer books of the Company. In order to receive the Conversion
Shares into which the Series C Preferred is convertible pursuant to
Section 5(b), each holder of the Series C Preferred shall surrender
to the Company at the place designated in the Mandatory Conversion
Notice the Preferred Stock Certificates(s) representing the shares
of Series C Preferred owned by such holder. Upon the Mandatory
Conversion Date, such converted Series C Preferred shall no longer
be deemed to be outstanding, and all rights of the holder with
respect to such shares shall immediately terminate, except the
right to receive (x) the shares of Common Stock into which the
shares of Series C Preferred are convertible pursuant to Section
5(b), (y) all accrued and unpaid dividends on such shares of Series
C Preferred pursuant to Section 2(b), and (z) any cash in lieu of a
fractional share of Common Stock pursuant to Section
2(j).
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(iii)
Company's
Response. Upon receipt by the Company of a copy of the fully
executed Conversion Notice or upon giving a Mandatory Conversion
Notice, the Company or its designated transfer agent (the
“Transfer
Agent”), as applicable, shall within five (5) business
days following the date of receipt by the Company of a copy of the
fully executed Conversion Notice or the Mandatory Conversion Date,
as the case may be, issue and deliver to the Depository Trust
Company (“DTC”) account on each applicable
holder's behalf via the Deposit Withdrawal Agent Commission System
(“DWAC”) as
specified in the Conversion Notice or, in the case of a Mandatory
Conversion, as otherwise provided to the Company or the Transfer
Agent by (or on behalf of) a holder, registered in the name of each
such holder or its designee, for the number of Conversion Shares to
which such holder shall be entitled. Notwithstanding the foregoing
to the contrary, the Company or its Transfer Agent shall only be
required to issue and deliver the Conversion Shares to DTC on a
holder's behalf via DWAC if (i) the Conversion Shares may be issued
without restrictive legends and (ii) the Company and the Transfer
Agent are participating in DTC through the DWAC system. If any of
the conditions set forth in clauses (i) and (ii) above are not
satisfied, the Company shall deliver physical certificates to each
such holder or its designee. In the case of a Voluntary Conversion,
if the number of shares of Series C Preferred represented by the
Preferred Stock Certificate(s) submitted for conversion is greater
than the number of shares of Series C Preferred being converted,
then the Company shall, as soon as practicable and in no event
later than five (5) business days after receipt of the Preferred
Stock Certificate(s) and at the Company's expense, issue and
deliver to the applicable holder a new Preferred Stock Certificate
representing the number of shares of Series C Preferred not
converted. For purposes of this Section 5(c)(iii), the term
“Conversion Shares” shall include any shares of Common
Stock which the Company elects to issue, pursuant to Section 2(b),
as payment of accrued and unpaid dividends on shares of Series C
Preferred being converted.
(iv)
Dispute
Resolution. In the case of a dispute as to the arithmetic
calculation of the number of Conversion Shares to be issued upon
conversion, the Company shall cause its Transfer Agent to promptly
issue to the holder the number of Conversion Shares that is not
disputed and shall submit the arithmetic calculations to the holder
via electronic mail or facsimile as soon as possible, but in no
event later than two (2) business days after receipt of such
holder's Conversion Notice. If such holder and the Company are
unable to agree upon the arithmetic calculation of the number of
Conversion Shares to be issued within two (2) business days of such
disputed arithmetic calculation being submitted to the holder, then
the Company shall, within two (2) business days, submit via
electronic mail or facsimile the disputed arithmetic calculation of
the number of Conversion Shares to be issued to the Company's
independent, outside accountant (the “Accountant”). The Company shall
cause the Accountant to perform the calculations and notify the
Company and the holder of the results no later than five (5)
business days from the time it receives the disputed calculations.
The Accountant's calculation shall be binding upon all parties
absent manifest error. The reasonable expenses of such Accountant
in making such determination shall be paid by the Company. The
period of time in which the Company is required to effect
conversions under this Certificate of Designations shall be tolled
with respect to the subject conversion pending resolution of any
dispute by the Company made in good faith and in accordance with
this Section 5(c)(iv).
(v) Record Holder. The
person or persons entitled to receive Conversion Shares shall be
treated for all purposes as the record holder or holders of such
Conversion Shares as of the close of business on the Voluntary
Conversion Date or Mandatory Conversion Date, as
applicable.
(d)
Conversion Price.
(i) The term
“Conversion
Price” shall mean $1.00 per share, subject to
adjustment under Section 5(e) hereof.
(ii) Notwithstanding
the foregoing to the contrary, if during any period (a
“BlackOut
Period”), a holder of Series C Preferred is unable to
trade any Conversion Shares immediately because the Company has
informed such holder that an existing prospectus cannot be used at
that time in the sale or transfer of such Conversion Shares
(provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within
the control of the holder of Series C Preferred) such holder of
Series C Preferred shall have the option but not the obligation on
any Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, within ten (10) Trading Days following the expiration
of the BlackOut Period of using the Conversion Price
applicable on such Voluntary Conversion Date or Mandatory
Conversion Date, as applicable, or any Conversion Price selected by
such holder of Series C Preferred that would have been applicable
had such Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, been at any earlier time during the BlackOut
Period.
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(e)
Adjustments
of Conversion Price.
(i) Adjustments for
Stock Splits and Combinations. If the Company shall at any time or
from time to time after the Issuance Date, effect a stock split of
its outstanding Common Stock, the Conversion Price shall be
proportionately decreased. If the Company shall at any time or from
time to time after the Issuance Date, combine its outstanding
shares of Common Stock, the Conversion Price shall be
proportionately increased. Any adjustments under this Section
5(e)(i) shall be effective at the close of business on the date the
stock split or combination becomes effective.
(ii) Adjustments for
Certain Dividends and Distributions. If the Company shall at any
time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the Conversion
Price shall be decreased as of the time of such issuance or, in the
event such record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Price
then in effect by a fraction:
(1) the numerator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date. and
(2) the denominator of
which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or
the close of business on such record date, plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution. provided,
however, that no such
adjustment shall be made if the holders of Series C Preferred
simultaneously receive a dividend or other distribution of shares
of Common Stock in a number equal to the number of shares of Common
Stock as they would have received if all outstanding shares of
Series C Preferred had been converted into Conversion Shares on the
date of such event.
(iii) Adjustment for
Other Dividends and Distributions. If, subject to Section 2(c), the
Company shall at any time or from time to time after the Issuance
Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in securities, cash, indebtedness, or other
property (other than a dividend or distribution of shares of Common
Stock referred to in Section 5(e)(ii)), then, and in each event, on
the same date on which holders of Common Stock receive such
dividend or other distribution, the holders of Series C Preferred
shall receive the number or amount of securities, cash,
indebtedness, or other property which they would have received had
their Series C Preferred been converted into Conversion Shares
immediately prior to such event.
(iv)
Adjustments for
Reclassification, Exchange or Substitution. If the Conversion
Shares issuable upon conversion of the Series C Preferred at any
time or from time to time after the Issuance Date shall be changed
to the same or different number of shares of any class or classes
of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 5(e)(i) and
(ii), an Organic Change (as defined below) provided for in Section
5(e)(v) or a Liquidation Event or Deemed Liquidation Event), then,
and in each event, an appropriate revision to the Conversion Price
shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of
Series C Preferred shall have the right thereafter to convert such
share of Series C Preferred into the kind and amount of shares of
stock and other securities receivable upon such reclassification,
exchange, substitution or other change, by holders of the number of
Conversion Shares into which such share of Series C Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
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(v)
Adjustments for
Organic Changes. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization, merger or
consolidation of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided
for in Sections 5(e)(i) and (ii), or a reclassification, exchange,
substitution or change of shares provided for in Section 5(e)(iv),
or a Liquidation Event or Deemed Liquidation Event), and the
Company is not the surviving, acquiring or resulting entity in any
such merger, consolidation or other reorganization (any such
merger, consolidation or other reorganization, a
“Organic
Change”), then lawful and adequate provision shall be
made so that each share of Series C Preferred outstanding
immediately prior to the consummation or effectiveness of such
Organic Change shall be converted into, or exchanged for, a
security of the surviving, acquiring or resulting entity of such
Organic Change having preferences, rights, and privileges that are
equivalent to such share of Series C Preferred (any such security,
a “New
Security”), except that in lieu of being able to
convert into shares of Common Stock or shares of common stock of
the surviving, acquiring or resulting entity of such Organic
Change, the holders of such New Securities shall thereafter be
entitled to receive upon conversion of such New Securities the
shares of capital stock, securities, cash, assets or other property
to which a holder of the number of shares of Common Stock into
which a share of Series C Preferred would have been convertible
immediately prior to such Organic Change would have been entitled
to receive upon the consummation or effectiveness of such Organic
Change. In any such case, appropriate provisions shall be made with
respect to the rights of the holders of such New Security to the
end that the provisions of this Section 5 (including, without
limitation, provisions for adjustment of the Conversion Price)
shall thereafter be applicable, as nearly as may be, with respect
to any shares of capital stock, securities, cash, assets or other
property to be deliverable thereafter upon the conversion of such
New Security.
(f) No Impairment. The
Company shall not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith,
assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the
holders of the Series C Preferred against impairment. In the event
a holder shall elect to convert any shares of Series C Preferred as
provided herein, the Company cannot refuse conversion based on any
claim that such holder or any one associated or affiliated with
such holder has been engaged in any violation of law, unless (i) an
order from the Securities and Exchange Commission prohibiting such
conversion or (ii) an injunction from a court, on notice,
restraining and/or enjoining conversion of all or of said shares of
Series C Preferred shall have been issued and the Company posts a
surety bond for the benefit of such holder in an amount equal to
100% of the Liquidation Preference Amount of the Series C Preferred
such holder has elected to convert, which bond shall remain in
effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such holder
in the event it obtains judgment.
(g) Certificates as to
Adjustments. Upon occurrence of each adjustment or readjustment of
the Conversion Price or number of Conversion Shares issuable upon
conversion of the Series C Preferred pursuant to this Section 5,
the Company at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to
each holder of such Series C Preferred a certificate setting forth
such adjustment and readjustment, showing in detail the facts upon
which such adjustment or readjustment is based. The Company shall,
upon written request of any holder of Series C Preferred at any
time, furnish or cause to be furnished to such holder a like
certificate setting forth such adjustments and readjustments, the
Conversion Price in effect at the time, and the number of
Conversion Shares and the amount, if any, of other shares of
capital stock, securities, cash, assets or other property which at
the time would be received upon the conversion of a share of Series
C Preferred.
(h) Issue Taxes. The
Company shall pay any and all issue, stock transfer, documentary
stamp and other taxes, excluding federal, state or local income
taxes, that may be payable in respect of any issue or delivery of
the Series C Preferred, Conversion Shares, Dividend Shares or
shares of Common Stock or other securities issued on account of
Series C Preferred pursuant hereto or certificates representing
such shares or securities. provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer of
Conversion Shares requested by any holder to a person other than
such holder, but only to the extent such transfer taxes exceed the
transfer taxes that would have been payable had the Conversion
Shares been delivered to such holder.
-8-
(i) Notices. All
notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, by electronic mail,
by facsimile or three (3) business days following being mailed by
certified or registered mail, postage prepaid, returnreceipt
requested, addressed to the holder of record at its address
appearing on the books of the Company. The Company will give
written notice to each holder of Series C Preferred at least thirty
(30) days prior to the date on which the Company closes its books
or takes a record (i) with respect to any dividend or distribution
upon the Common Stock, (ii) with respect to any pro rata
subscription offer to holders of Common Stock or (iii) for
determining rights to vote with respect to any Organic Change,
Liquidation Event or Change of Control and in no event shall such
notice be provided to such holder prior to such information being
made known to the public. The Company will also give written notice
to each holder of Series C Preferred at least twenty (20) days
prior to the date on which any Organic Change, Liquidation Event or
Change of Control will take place and in no event shall such notice
be provided to such holder prior to such information being made
known to the public.
(j) Fractional Shares.
No fractional shares of Common Stock shall be issued upon
conversion of the Series C Preferred. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by
the average of the closing sales price of the Common Stock, as
reported on the applicable Trading Market for the five (5)
consecutive Trading Days immediately preceding the Voluntary
Conversion Date or Mandatory Conversion Date, as
applicable.
(k) Reservation of
Common Stock. The Company shall, so long as any shares of Series C
Preferred are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series C Preferred and paying
dividends on the Series C Preferred (assuming the Company elects to
pay all dividends in shares of Common Stock), such number of shares
of Common Stock as shall from time to time be sufficient to effect
the conversion of all of the Series C Preferred then outstanding
and payment of dividends hereunder (assuming the Company elects to
pay all dividends in shares of Common Stock). provided that the number of shares of
Common Stock so reserved shall at no time be less than 100% of the
number of shares of Common Stock for which the shares of Series C
Preferred are at any time convertible. The initial number of shares
of Common Stock reserved as Conversion Shares and each increase in
the number of shares so reserved shall be allocated pro rata among
the holders of the Series C Preferred based on the number of shares
of Series C Preferred held by each holder of record at the time of
issuance of the Series C Preferred or increase in the number of
reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's shares of Series C
Preferred, each transferee shall be allocated a pro rata portion of
the number of reserved shares of Common Stock reserved for such
transferor. Any shares of Common Stock reserved and which remain
allocated to any Person which does not hold any shares of Series C
Preferred shall be allocated to the remaining holders of Series C
Preferred, pro rata based on the number of shares of Series C
Preferred then held by such holder. If at any time the number of
authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then-outstanding shares
of Series C Preferred and payment of dividends on the Series C
Preferred (assuming the Company elects to pay all dividends in
shares of Common Stock), the Company shall take such corporate
action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(l) Retirement of
Series C Preferred. Conversion of shares of Series C Preferred
shall be deemed to have been effected on the Voluntary Conversion
Date or Mandatory Conversion Date, as applicable. In the case of a
Voluntary Conversion, upon conversion of only a portion of the
number of shares of Series C Preferred represented by a certificate
surrendered for conversion, the Company shall issue and deliver to
such holder, at the expense of the Company, a new certificate
covering the number of shares of Series C Preferred representing
the unconverted portion of the certificate so surrendered as
required by Section 5(c)(i).
(m)
Regulatory Compliance. If any shares of Common Stock to be reserved
as Conversion Shares or Dividend Shares require registration or
listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Company shall, at its sole cost and
expense, in good faith and as expeditiously as possible, endeavor
to secure such registration, listing or approval, as the case may
be.
(n) Validity of
Shares. All Series C Preferred, Conversion Shares, Dividend Shares
and shares of Common Stock or other securities issued on account of
Series C Preferred pursuant hereto or certificates representing
such shares or securities will, upon issuance by the Company, be
validly issued, fully paid and nonassessable and free from all
taxes, liens or charges with respect thereto.
-9-
6 . No
Preemptive Rights. Except as provided in Section 5 hereof, no
holder of the Series C Preferred shall be entitled to rights to
subscribe for, purchase or receive any part of any new or
additional shares of any class, whether now or hereinafter
authorized, or of bonds or debentures, or other evidences of
indebtedness convertible into or exchangeable for shares of any
class, but all such new or additional shares of any class, or any
bond, debentures or other evidences of indebtedness convertible
into or exchangeable for shares, may be issued and disposed of by
the Board of Directors on such terms (subject to Section 9 hereof)
and for such consideration (to the extent permitted by law), and to
such person or persons as the Board of Directors in their absolute
discretion may deem advisable.
7 .
Redemption.
(a) Redemption at Option of Holders. At any time
and from time to time from and after the third (3rd) anniversary of
the Issuance Date, or in the event of the consummation of a Change
of Control (as defined in Section 7(c) below), if any shares of
Series C Preferred are outstanding, then each holder of Series C
Preferred shall have the right (the “Holder Redemption
Right”), at such
holder’s option, to require the Company to redeem all or any
portion of such holder’s shares of Series C Preferred at the
Liquidation Preference Amount per share of Series C Preferred, plus
an amount equal to all accrued but unpaid dividends, if any, on the
Holder Redemption Date (as defined below) (such price, the
“Holder Redemption
Price”), which
Holder Redemption Price shall be paid in
cash.
(b) Redemption Option
Upon Change of Control. In addition to any other rights of the
Company or the holders of Series C Preferred contained herein,
simultaneous with the occurrence of a Change of Control, the
Company, at its option, shall have the right to redeem all, but not
less than all, of the outstanding Series C Preferred in cash at a
price per share of Series C Preferred equal to 115% of the
Liquidation Preference Amount plus all accrued and unpaid
dividends, if any, as of the date of delivery of the Notice of
Redemption at Option of Company Upon Change of Control (as defined
below) (the “Change of
Control Redemption Price”). Notwithstanding the
foregoing to the contrary, the Company may effect a redemption
pursuant to this Section 7(b) only if the Company is in material
compliance with the terms and conditions of this Certificate of
Designations.
(c) “Change of
Control”. “Change of
Control” shall mean any of the following occurring
after the Issuance Date:
(i)
a sale, conveyance
or disposition of all or substantially all of the assets of the
Company and any direct and/or indirect subsidiaries of the Company,
taken as a whole (including by or through the sale, conveyance or
other disposition of the capital stock of, or reorganization,
merger, share exchange, consolidation or other business combination
involving, any direct and/or indirect subsidiary or subsidiaries of
the Company, if substantially all of the assets of the Company and
any direct and/or indirect subsidiaries of the Company, taken as a
whole, are held by such subsidiary or
subsidiaries);
(ii)
a reorganization,
merger, share exchange, consolidation or other business combination
of the Company with or into any other entity in which transaction
the Persons who hold more than fifty percent (50%) of the total
voting power of the voting securities of the Company (or, if the
Company is not the acquiring, resulting or surviving entity in such
transaction, such acquiring, resulting or surviving entity)
immediately after such transaction are not Persons who, immediately
prior to such transaction, held more than fifty percent (50%) of
the total voting power of the voting securities of the Company;
or
(iii)
an
acquisition (in one transaction or a series of related
transactions) of voting securities of the Company representing in
the aggregate more than fifty percent (50%) of the total voting
power of the voting securities of the Company (after giving effect
to such acquisition) by any Person or “group” (as such
term is used in Section 13(d)(3) of the Exchange Act) of Persons;
provided, however, that any transaction pursuant to
which Neal Goldman, on his own and not part of a group, acquires
more than fifty percent (50%) of the total voting power of the
voting securities of the Company (after giving effect to such
acquisition) shall not constitute a “Change of Control”
hereunder.
Any Change of
Control shall be deemed a Liquidation Event hereunder (a
“Deemed Liquidation
Event”), unless such treatment is waived in writing by
the Majority Holders, and in the event of any such Deemed
Liquidation Event, each holder of Series C Preferred shall receive
payment of the Liquidation Preference Amount in accordance with
Section 4.
-10-
(d) Mechanics of
Redemption at Option of Company Upon Change of Control. At any time
within ten (10) days prior to the consummation of a Change of
Control, the Company may elect to redeem, effective immediately
prior to the consummation of such Change of Control, all (but not
less than all) of the Series C Preferred then outstanding by
delivering written notice thereof via facsimile and overnight
courier (“Notice of
Redemption at Option of Company Upon Change of
Control”) to each holder of Series C Preferred, which
Notice of Redemption at Option of Company Upon Change of Control
shall indicate (i) the number of shares of Series C Preferred that
the Company is electing to redeem from such holder (which shall not
be less than all of the shares of Series C Preferred owned by such
holder) and (ii) the Change of Control Redemption Price, as
calculated pursuant to Section 7(b) above. The Change of Control
Redemption Price shall be paid in cash in accordance with Section
7(b) of this Certificate of Designations. On or prior to the Change
of Control, the holders of Series C Preferred shall surrender to
the Company the certificate or certificates representing such
shares, in the manner and at the place designated in the Notice of
Redemption at Option of Company Upon Change of Control. The Company
shall deliver the Change of Control Redemption Price immediately
prior to or simultaneously with the consummation of the Change of
Control. provided that a
holder's Preferred Stock Certificates shall have been so delivered
to the Company (or an indemnification undertaking with respect to
such Preferred Stock Certificates in the event of their loss, theft
or destruction). From and after the Change of Control transaction,
unless there shall have been a default in payment of the Change of
Control Redemption Price, all rights of the holders of Series C
Preferred as a holder of such Series C Preferred (except the right
to receive the Change of Control Redemption Price without interest
upon surrender of their certificate or certificates) shall cease
with respect to shares of Series C Preferred, and such shares shall
not thereafter be transferred on the books of the Company or be
deemed to be outstanding for any purpose whatsoever.
Notwithstanding the foregoing to the contrary, nothing contained
herein shall limit a holder’s ability to convert its shares
of Series C Preferred following the receipt of the Notice of
Redemption at Option of Company Upon Change of Control and prior to
the consummation of the Change of Control
transaction.
(e) Mechanics of
Redemption at Option of Holders Upon Change of Control. From and after the third (3rd)
anniversary of the Issuance Date or at any time within ten (10)
days prior to, or at any time after, the consummation of a Change
of Control, any holder of Series C Preferred may elect to exercise
its Holder Redemption Right by delivering a written notice (a
“Holder Redemption
Notice”) to the Company of such election. The date
upon which such Holder Redemption Notice is delivered to the
Company is the “Holder
Redemption Notice Date”. The Company shall, on the
date proposed in the Holder Redemption Notice for the redemption of
the Series C Preferred (which date shall not be less than ten (10)
days after the Holder Redemption Notice Date, except that if a
Holder Redemption Notice is delivered in connection with and prior
to the consummation of a Change of Control, then such date shall be
the date on which such Change of Control is consummated) (the
“Holder Redemption
Date”), redeem each outstanding share of Series C
Preferred set forth in the Holder Redemption Notice at the Holder
Redemption Price. The Holder Redemption Price for each share of
Series C Preferred owned by a holder who has exercised its Holder
Redemption Right shall be paid to such holder by delivering a check
or by wire transfer of immediately available funds to such holder
at the address or in accordance with the wire transfer instructions
(as applicable) of such holder as set forth in the Holder
Redemption Notice.
8 . Inability
to Fully Convert.
(a) Holder's Option if
Company Cannot Fully Convert. In addition to any other right that a
holder of Series C Preferred might have, if, upon the Company's
receipt of a Conversion Notice, the Company cannot issue Conversion
Shares issuable pursuant to such Conversion Notice because the
Company (x) notwithstanding Section 5(k), does not have a
sufficient number of shares of Common Stock authorized and
available or (y) is otherwise prohibited by applicable law or by
the rules or regulations of any stock exchange, interdealer
quotation system or other selfregulatory organization with
jurisdiction over the Company or its securities from issuing all of
the Conversion Shares to be issued to a holder of Series C
Preferred pursuant to a Conversion Notice, then the Company shall
issue as many Conversion Shares as it is able to issue in
accordance with such holder's Conversion Notice and pursuant to
Section 5(c)(iii) above and, with respect to the unconverted Series
C Preferred, the holder, solely at such holder's option, can elect,
within five (5) business days after receipt of an Inability to
Fully Convert Notice (as defined below) from the Company thereof
to:
-11-
(i) if the Company's
inability to fully convert Series C Preferred is pursuant to
Section 8(a)(y) above, require the Company to issue restricted
shares of Common Stock in accordance with such holder's Conversion
Notice and pursuant to Section 5(c)(iii) above.
or
(ii)
void its Conversion Notice with respect to all or a portion of the
Conversion Shares covered by such Conversion Notice and retain or
have returned, as the case may be, the shares of Series C Preferred
that were to be converted pursuant to such holder's Conversion
Notice (provided that a holder's voiding its Conversion Notice
shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such
notice).
(b)
Mechanics
of Fulfilling Holder's Election. The Company shall promptly send
via electronic mail or facsimile to a holder of Series C Preferred,
upon receipt of electronic mail or facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as
described in Section 8(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the
“Inability to Fully Convert
Notice”). Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy
such holder's Conversion Notice, and (ii) the number of shares of
Series C Preferred which cannot be converted. Such holder shall
notify the Company of its election pursuant to Section 8(a) above
by delivering written notice via electronic mail or facsimile to
the Company (“Notice in
Response to Inability to
Convert”).
(c)
ProRata
Conversion. In the event the Company receives a Conversion Notice
from more than one holder of Series C Preferred on the same day and
the Company can convert some, but not all, of the Series C
Preferred pursuant to this Section 8, the Company shall convert
from each holder of Series C Preferred electing to have Series C
Preferred converted at such time an amount equal to such holder's
prorata amount (based on the number of shares of Series C
Preferred held each such holder who desires to convert such shares
on such date relative to the total number of shares of Series C
Preferred held by all such holders who desire to convert such
shares on such date) of all shares of Series C Preferred being
converted at such time.
9 .
Protective Provisions. Notwithstanding anything herein to the
contrary, the Company shall not, without obtaining the approval (by
vote or written consent) of the Majority
Holders:
(a)
create, or
authorize the creation of, any class or series of shares of capital
stock or other securities, or issue, or authorize the issuance of,
any class or series of shares of capital stock or other securities
that ranks senior to or on a parity with the Series C Preferred in
any respect;
(b) amend, supplement
or otherwise modify any class or series of shares of capital stock
or other securities so that such shares or securities, after giving
effect to such amendment, supplement or modification, rank senior
to or on a parity with the Series C Preferred in any
respect;
(c) issue, or
authorize the issuance of, any additional shares of Series B
Preferred, or amend, supplement or otherwise modify any of the
powers, designations, preferences, privileges, rights, terms or
conditions of the Series B Preferred;
(d) permit any
subsidiary of the Company to issue any shares of capital stock or
other securities, other than issuances of shares of capital stock
or other securities to the Company or to a wholly-owned subsidiary
of the Company;
(e) sell, lease or
otherwise dispose of intellectual property rights owned by or
licensed to the Company or any subsidiary of the Company;
and
(f) create, or
authorize the creation of, or incur, or authorize the incurrence
of, any Indebtedness, other than Permitted Indebtedness, or permit
any subsidiary of the Company to take any such
action.
-12-
“Indebtedness”
means (x) any liabilities for borrowed money or amounts owed in
excess of $500,000 in the aggregate for all such liabilities and
amounts (other than trade accounts payable incurred in the ordinary
course of business) and (y) all guaranties, endorsements and other
contingent obligations in respect of indebtedness of others,
whether or not the same are or should be reflected in the Company's
consolidated balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
“Permitted
Indebtedness” means all indebtedness of the Company
outstanding on the Issuance Date and set forth on the
“Disclosure Schedule” to the Securities Purchase
Agreement, dated as of the Issuance Date, by and among the Company
and the initial purchasers of the Series C
Preferred.
10 . Vote to
Change the Terms of or Issue Preferred Stock. The affirmative vote
at a meeting duly called for such purpose, or the written consent
without a meeting, of the Majority Holders shall be required for
any amendment, supplement, modification or other change
(including any amendment,
supplement, modification, alteration, repeal or other change
that is made pursuant to or in
connection with a merger, consolidation or other business
combination of or involving the Company) to (i) the
Company's Certificate of Incorporation which would amend, alter,
change or repeal, or otherwise adversely affect, any of the powers,
designations, preferences, privileges and rights of the Series C
Preferred or (ii) this Certificate of Designations (including any
amendment, supplement, modification or other change that results in
the authorization, creation or designation of additional shares of
Series C Preferred).
11. Lost or Stolen
Certificates. Upon receipt by the Company of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing the shares of Series C
Preferred, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the holder to the Company (in form
and substance satisfactory to the Company) and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred
Stock Certificate(s) of like tenor and date. provided, however, the
Company shall not be obligated to reissue Preferred Stock
Certificates if the holder contemporaneously requests the Company
to convert such shares of Series C Preferred into Common Stock and
complies with its obligations to issue Conversion Shares set forth
herein.
12. Remedies,
Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available
under this Certificate of Designations, at law or in equity
(including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual
damages for any failure by the Company to comply with the terms of
this Certificate of Designations. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the
holder thereof and shall not, except as expressly provided herein,
be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the
holders of the Series C Preferred and that the remedy at law for
any such breach may be inadequate. The Company therefore agrees
that, in the event of any such breach, the holders of the Series C
Preferred shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach or the Series C
Preferred holders' reasonable perception of a threatened breach by
the Company of the provisions of this Certificate of Designations,
without the necessity of showing economic loss and without any bond
or other security being required.
13. Specific Shall Not
Limit General. Construction. No specific provision contained in
this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company
and all initial purchasers of the Series C Preferred and shall not
be construed against any person as the drafter
hereof.
14. Failure or
Indulgence Not Waiver. No failure or delay on the part of a holder
of Series C Preferred in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any
other right, power or privilege.
-13-
IN WITNESS
WHEREOF, the undersigned has executed and subscribed this
Certificate of Designations and does affirm the foregoing as true
this 10th day of September, 2018.
IMAGEWARE SYSTEMS,
INC.
By: /s/ S. James
Miller, Jr.
S. James Miller,
Jr. Chief Executive Officer
-14-
EXHIBIT
I
IMAGEWARE SYSTEMS,
INC. CONVERSION NOTICE
Reference is made
to the Certificate of Designations, Preferences and Rights of the
Series C Convertible Preferred Stock (“Series C Preferred”) of
ImageWare Systems, Inc. (the “Certificate of Designations”).
In accordance with and pursuant to the Certificate of Designations,
the undersigned hereby elects to convert the number of shares of
Series C Preferred, par value $0.01 per share (the
“Preferred
Shares”), of ImageWare Systems, Inc., a Delaware
corporation (the “Company”), indicated below into
shares of Common Stock, par value $0.01 per share (the
“Common
Stock”), of the Company, by tendering the stock
certificate(s) representing the share(s) of Series C Preferred
specified below as of the date specified below.
Date of
Conversion:
Number of shares
of Series C Preferred to be converted:
Stock certificate
no(s). of Series C Preferred to be converted:
Please confirm the
following information: Conversion Price:
Number of shares
of Common Stock to be issued:
Number of shares
of Common Stock beneficially owned or deemed beneficially owned by
the Holder on the Date of Conversion:
Please issue the
Common Stock into which the shares of Series C Preferred are being
converted and, if applicable, any check drawn on an account of the
Company in the following name and to the following
address:
Issue
to:
Facsimile
Number:
Name of
bank/broker due to receive the underlying Common
Stock:
Bank/broker's
fourdigit “DTC” participant number (obtained from
the receiving bank/broker): Authorization:
By:
Title:
Dated:
-15-