UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
 
FORM 8-K
 
 
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): September 10, 2018
 
 
 
IMAGEWARE SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
 
 
 
 
 
 
Delaware
001-15757
33-0224167
(State or other jurisdiction
of incorporation)
(Commission File No.)
(IRS Employer
Identification No.)
 
 
 
 
10815 Rancho Bernardo Road, Suite 310, San Diego, California 92127
 
(Address of principal executive offices)
 
 
 
(858) 673-8600
 
(Registrant’s Telephone Number)
 
 
 
Not Applicable
 
(Former name or address, if changed since last report)
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
☐ 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
☐ 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐ 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐ 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2)  ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☐
 
 
 
 
 
 
Item 1.01 Entry into a Material Definitive Agreement
 
See Item 8.01 below.
 
Item 1.02 Termination of a Material Definitive Agreement
 
See Item 8.01 below.
 
Item 3.02 Unregistered Sales of Equity Securities
 
See Item 8.01 below.
 
Item 3.03 Material Modifications to Rights of Security Holders
 
See Item 8.01 below.
 
Item 5.03   Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
 
Creation of Series C Convertible Preferred Stock
 
On September 10, 2018, ImageWare Systems, Inc. (the “ Company ”) filed the Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock (“ Series C COD ”) with the Secretary of State for the State of Delaware – Division of Corporations, designating 1,000 shares of the Company’s preferred stock, par value $0.01 per share, as Series C Convertible Preferred Stock (“ Series C Preferred ”), each share with a stated value of $10,000 per share (the “ Stated Value ”). Shares of Series C Preferred  accrue dividends cumulatively and are payable quarterly at a rate of 8% per annum if paid in cash, or 10% per annum if paid by the issuance of shares of the Company’s common stock, par value $0.01 per share (“ Common Stock ”) (“ Dividend Shares ”).  Shares of Series C Preferred rank senior to the Company’s Common Stock and Series A Convertible Preferred Stock (the “ Series A Preferred ”), and junior to the Company’s Series B Convertible Redeemable Preferred Stock.
 
Each share of Series C Preferred has a liquidation preference equal to the greater of (i) the Stated Value plus all accrued and unpaid dividends, and (ii) such amount per share as would have been payable had each share been converted into Common Stock immediately prior to the occurrence of a Liquidation Event or Deemed Liquidation Event (as such terms are defined in the Series C COD) (the “ Liquidation Preference Amount ”). Each share of Series C Preferred is convertible into that number of shares of the Company’s Common Stock (“ Conversion Shares ”) equal to the Stated Value, divided by $1.00, which conversion rate is subject to adjustment in accordance with the terms of the Series C COD. Holders of Series C Preferred may elect to convert shares of Series C Preferred into Conversion Shares at any time. Holders of the Series C Preferred may also require the Company to redeem all or any portion of such holder’s shares of Series C Preferred at any time from and after the third anniversary of the issuance date or in the event of the consummation of a Change of Control (as such term is defined in the Series C COD). Subject to the terms and conditions set forth in the Series C COD, in the event the volume-weighted average price of the Company’s Common Stock is at least $3.00 per share (subject to adjustment in accordance with the terms of the Series C COD) for at least 20 consecutive trading days, the Company may convert all, but not less than all, issued and outstanding shares of Series C Preferred into Conversion Shares. In addition, in the event of a Change of Control, the Company will have the option to redeem all, but not less than all, issued and outstanding shares of Series C Preferred for 115% of the Liquidation Preference Amount per share. Holders of Series C Preferred will have the right to vote, on an as-converted basis, with the holders of the Company’s Common Stock on any matter presented to the Company’s stockholders for their action or consideration.
 
The foregoing description of the Series C Preferred is qualified, in its entirety, by the full text of the Series C COD, a copy of which is attached to this Current Report on Form 8-K as Exhibit 3.1, and is incorporated by reference herein.
 
Amendment to Certificate of Designations of Series A Convertible Preferred Stock
 
On September 10, 2018, the Company filed an Amendment to the Certificate of Designations, Preferences, and Rights of Series A Convertible Preferred Stock (“ Series A COD ”) (the “ Amendment ”) with the Secretary of State for the State of Delaware – Division of Corporations, to increase the number of shares of Series A Preferred authorized for issuance thereunder to 38,000 shares, in order to effect the Debt Exchange (as defined below).
 
The foregoing description of the Amendment is qualified, in its entirety, by the full text of the Amendment, a copy of which is attached to this Current Report on Form 8-K as Exhibit 3.2, and is incorporated by reference herein.
  
 
 
 
 
Item 8.01 Other Events
 
Series C Financing
 
On September 10, 2018, the Company entered into (i) a Securities Purchase Agreement with certain accredited investors (the “ Investors ”), pursuant to which the Company sold, on September 10, 2018 (the “ Closing Date ”), a total of 890 shares of Series C Preferred at a purchase price of $10,000 per share (the “ Series C Financing ”), and (ii) a Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement no later than 30 days after the Closing Date in order to register the Conversion Shares and the Dividend Shares. The forms of Securities Purchase Agreement and Registration Rights Agreement are attached hereto as Exhibits 10.1 and 10.2, respectively. The issuance of the shares of Series C Preferred pursuant to the Securities Purchase Agreement resulted in gross proceeds to the Company of $8.9 million. The Company expects to use these proceeds for general working capital purposes.
 
Northland Capital Markets (“ Northland ”) acted as the Company’s exclusive placement agent in connection with the Series C Financing, pursuant to the terms of a Placement Agency Agreement dated September 10, 2018. Under the terms of the Placement Agency Agreement, a copy of which is attached hereto as Exhibit 10.3, Northland was paid $712,000, or 8% of the gross proceeds received by the Company on the Closing Date as compensation for services rendered by Northland in connection with the Series C Financing. Northland Capital Markets is the trade name for certain capital markets and investment banking services of Northland Securities, Inc., member FINRA/SIPC.
 
The shares of Series C Preferred were offered and sold in a transaction exempt from registration under the Securities Act in reliance on Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder. Each Investor represented that it was an “accredited investor” as defined in Regulation D.
 
Debt Exchange
 
On September 10, 2018, the Company entered into agreements (the “ Exchange Agreements ”) with Neal Goldman and Charles Crocker, pursuant to which Messrs. Goldman and Crocker agreed to exchange approximately $6.3 million and $0.6 million, respectively, of outstanding debt (including accrued and unpaid interest) owed under the terms of their respective lines of credit for an aggregate of 6,896 shares of Series A Preferred (the “ Debt   Exchange ”). As a result of the Debt Exchange, all indebtedness, liabilities and other obligations arising under the respective lines of credit were cancelled and deemed satisfied in full. A form of Exchange Agreement is attached hereto as Exhibit 10.4.
 
A copy of the Company’s press release announcing the Series C Financing and Debt Exchange is attached to this Current Report on Form 8-K as Exhibit 99.1.
 
Declaration of Special Dividend
 
Concurrently with the Series C Financing, the Company’s Board of Directors declared a special dividend (the “ Special Dividend ”) for holders of the Series A Preferred (each a “ Holder ”), pursuant to which each Holder will receive a warrant (“ Warrant ”) to purchase 39.87 shares of Common Stock for every share of Series A Preferred held, which resulted in the issuance of Warrants to the Holders as a group to purchase an aggregate of 1,493,856 shares of Common Stock. Each Warrant has an exercise price of $0.01 per share, and is exercisable immediately upon issuance; provided, however , that a Warrant may only be exercised concurrently with the conversion of shares of Series A Preferred held by a Holder into shares of Common Stock. In addition, each Warrant held by a Holder shall expire on the earliest to occur of (i) the conversion of all Series A Preferred held by such Holder into Common Stock, (ii) the redemption by the Company of all outstanding shares of Series A Preferred held by such Holder, (iii) the Warrant no longer representing the right to purchase any shares of Common Stock, and (iv) the tenth anniversary of the date of issuance. A copy of the form of Warrant is attached hereto as Exhibit 3.3.
 
The foregoing description of the Securities Purchase Agreement, Registrations Rights Agreement, Placement Agency Agreement, Exchange Agreement, and Warrant do not purport to be complete, and are qualified in their entirety by reference to the form of Securities Purchase Agreement, Registration Rights Agreement, Placement Agency Agreement, Exchange Agreement and Warrant attached hereto as Exhibits 10.1, 10.2, 10.3, 10.4 and 3.3, respectively, each of which are incorporated by reference herein.
 
Item 9.01 Financial Statements and Exhibits
 
See Exhibit Index.
 
 
 
 
 
 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
IMAGEWARE SYSTEMS, INC.
 
 
 
 
Date: September 13, 2018
 
By:
 /s/ Wayne Wetherell
 
 
 
Wayne Wetherell
 
 
 
Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT INDEX
 
 
 
 
Exhibit Number
 
Description
 
Certificate of Designations, Preferences, and Rights of Series C Convertible Preferred Stock of ImageWare Systems, Inc., dated September 10, 2018
 
Amendment to the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, dated September 10, 2018
 
Form of Warrant
 
Form of Securities Purchase Agreement
 
Form of Registration Rights Agreement
 
Placement Agent Agreement
 
Form of Exchange Agreement
 
Press release issued by ImageWare Systems, Inc., dated September 12, 2018
 
 
 
 
 
 
 
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 )            Th e 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 )            T he 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)            So long 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.
 
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(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.
 
 
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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.
 
 
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(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:
 
 
 
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(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.
 
 
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“ 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-
 
  Exhibit 3.2
AMENDMENT
TO THE
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF THE SERIES A CONVERTIBLE PREFERRED STOCK
OF
IMAGEWARE SYSTEMS, INC.,
A Delaware corporation
 
 
 
Pursuant to Section 228(a) of the
Delaware General Corporation Law
 
 
 
On behalf of ImageWare Systems, Inc., a Delaware corporation (the “ Company ”), in accordance with the provisions of the Delaware General Corporation Law (the “ DGCL ”), the Company’s Board of Directors (the “ Board ”)   and the holders of two-thirds (2/3rds) of the issued and outstanding shares of Company’s Series A Convertible Preferred Stock (the “ Series A Preferred ”) have duly approved and adopted the following resolution amending the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the “ Certificate of Designation ”):
 
RESOLVED , that, pursuant to the authority granted to and vested in the Board by the provisions of the Certificate of Incorporation of the Company, as amended (the “ Certificate of Incorporation ”):
 
1.           Sections 1(a) and 1(b) of the Certificate of Designation shall be deleted in their entirety and replaced with the following:
 
1.
Designation and Rank .
 
(a)   The designation of such series of the Preferred Stock shall be the Series A Convertible Preferred Stock, par value $0.01 per share (the “ Series A Preferred ”). The maximum number of shares of Series A Preferred shall be Thirty Eight Thousand (38,000) shares. The Series A Preferred shall rank senior to the Company’s common stock, par value $0.01 per share (the “ Common Stock ”), 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 rank junior to the Series A Preferred (“ Junior Stock ”).
 
(b)   The Series A Preferred shall be subordinate to and rank junior to the Company’s Series B Preferred Stock (“ Series B Preferred ”), Series C Convertible Preferred Stock (“ Series C Preferred ”), and all indebtedness of the Company now or hereafter outstanding. The date of original issuance of the Series A Preferred is referred to herein as the “ Issuance Date ”.
 
 
 
 
 

-1-
 
 
IN WITNESS WHEREOF , the undersigned have duly signed this Amendment to the Certificate of Designation as of this 10th day of September 2018.
 
  ImageWare Systems, Inc.
 
 /s/ S. James Miller, Jr.
  By:  S. James Miller, Jr.
  Title:   Chief Executive Officer and Director
 
 
 
-2-
 
  Exhibit 3.3
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
 
Dated: ________, 2018
 
Warrant Number: CSW-___
 
WARRANT TO PURCHASE
COMMON STOCK
OF
IMAGEWARE SYSTEMS, INC.
 
This certifies that ___________________________ , or its permitted assigns (each a “ Holder ”), for value received, is entitled to purchase, at an exercise price equal to $0.01 per share (the “ Exercise Price ”) from IMAGEWARE SYSTEMS, INC., a Delaware corporation (the “ Company ”), up to _______________________ (_____) shares of fully paid and nonassessable shares of the Company’s Common Stock, par value $0.01 per share (“ Common Stock ”). This Warrant is being issued as a special dividend to the holders of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share (“ Series A Preferred ”), of record as of [_____], 2018.
 
This Warrant shall be exercisable from time to time, commencing on the date hereof (the “ Issuance Date ”) and ending on the Expiration Date (as defined below), upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with (i) the Notice of Exercise attached hereto duly completed and executed and (ii) payment of the aggregate Exercise Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. Any such exercise of this Warrant shall be subject to all of the terms, conditions and limitations set forth herein.
 
1.            Exercise of Warrant . This Warrant may only be exercised by the Holder concurrently with the conversion of shares of Series A Preferred held by the Holder into shares of Common Stock (whether such conversion is voluntary or mandatory), such exercise to be made for [___] shares of Common Stock for each share of Series A Preferred that is converted by the Holder (such number of shares of Common Stock per share of Series A Preferred, as adjusted pursuant to Section 4 hereof, the “ Conversion Rate ”). Except as set forth in the immediately preceding sentence, the Holder shall not be entitled to exercise this Warrant at other any time or under any other circumstances. If the Holder fails to exercise this Warrant concurrently with the conversion of any shares of Series A Preferred held by the Holder into shares of Common Stock, then the number of shares of Common Stock issuable upon exercise of this Warrant shall be reduced by a number of shares of Common Stock equal to the product of the Conversion Rate and the number of shares of Series A Preferred so converted, such reduction to occur concurrently with such conversion of such shares of Series A Preferred without any further action on the part of, or notice to, any person or entity. The Holder shall not receive any payment, distribution or any other amount in respect of any such reduction of the number of shares of Common Stock issuable upon exercise of this Warrant contemplated by the immediately preceding sentence. Shares of Common Stock issuable upon conversion of the Holder’s shares of Series A Preferred are referred to herein as “ Conversion Shares .” For the avoidance of doubt, the Holder may not elect to exercise this Warrant except in connection with the Holder’s simultaneous conversion of Series A Preferred into Conversion Shares.
 
1.1            Method of Exercise . The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the Form of Subscription attached hereto duly completed and executed) at the principal office of the Company, and by the payment to the Company of an amount of consideration therefor equal to the Exercise Price in effect on the date of such exercise multiplied by the number of shares of Common Stock with respect to which this Warrant is then being exercised, payable at such Holder’s election by certified or official bank check or by wire transfer to an account designated by the Company. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the shares of Common Stock purchasable hereunder (subject to any reduction in the number of shares of Common Stock purchasable hereunder contemplated in the immediately preceding paragraph).
 
 
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2.            Term of Warrant . This Warrant shall expire upon the earliest to occur of (i) the conversion of all Series A Preferred held by the Holder into Conversion Shares, (ii) the redemption by the Company of all shares of Series A Preferred held by the Holder, (iii) this Warrant no longer representing the right to purchase any shares of Common Stock (including as a result of a reduction of the number of shares of Common Stock issuable upon exercise of this Warrant contemplated in Section 1 or Section 2.1), and (iv) [______], 2028 (the “ Expiration Date ”). Upon expiration of this Warrant, all of the Holder’s rights hereunder shall terminate.
 
2.1            Effect of Redemption by the Company of Series A Preferred . In the event the Company exercises its right to redeem any shares of Series A Preferred held by the Holder pursuant to Section 7 of the Certificate of Designations, Preferences and Rights of Series A Preferred (the “ Certificate of Designations ”), then the number of shares of Common Stock issuable upon exercise of this Warrant shall be reduced by a number of shares of Common Stock equal to the product of the Conversion Rate and the number of shares of Series A Preferred so redeemed, such reduction to occur concurrently with such redemption of such shares of Series A Preferred without any further action on the part of, or notice to, any person or entity. The Holder shall not receive any payment, distribution or any other amount in respect of any such reduction of the number of shares of Common Stock issuable upon exercise of this Warrant contemplated by the immediately preceding sentence.
 
3.            Shares to be Fully Paid; Reservation of Shares . The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued shares of Common Stock.
 
4.            Adjustment of Conversion Rate and Number of Shares . The Conversion Rate and the number of shares of Common Stock purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4.
 
4.1            Subdivision or Combination of Stock . In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, then each of the Conversion Rate and the number of shares of Common Stock purchasable upon the exercise of this Warrant, each in effect immediately prior to such subdivision, shall be proportionately increased. In case the Company shall combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then each of the Conversion Rate and the number of shares of Common Stock purchasable upon the exercise of this Warrant, each in effect immediately prior to such subdivision, shall be proportionately decreased.
 
4.2            Reclassification . If any reclassification of the capital stock of the Company shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reclassification, lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reclassification described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Conversion Rate and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.
 
 
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4.3            Notice of Adjustment . Upon any adjustment of the Conversion Rate or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be signed by the Company’s chief financial officer and shall state the Conversion Rate resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
 
4.4            Other Notices . If at any time:
 
(1)            the Company shall declare any cash dividend upon its Common Stock;
 
(2)            there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or
 
(3)            the Company elects to redeem all or a portion of the Series A Preferred in accordance with Section 7 of the Certificate of Designations (a “ Redemption ”);
 
then, in any one or more of said cases, the Company shall give, either by electronic mail or by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least twenty (20) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, (b) in the case of a dissolution, liquidation or winding-up, at least ten (10) days prior written notice of the date when the same shall take place or (c) in the case of a Redemption, at least ten (10) days prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, the date on which the holders of Common Stock shall be entitled thereto. Any notice given in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such dissolution, liquidation, winding-up, or conversion, as the case may be. Any notice given in accordance with the foregoing clause (c) shall also specify the date on which such Redemption shall take place, the number of shares of Series A Preferred to be redeemed, and the corresponding number of Warrants to be terminated at the time of such Redemption.
 
5.            No Voting or Dividend Rights . Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised.
 
 
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6.            Transfer of Warrants . If the Holder shall sell, assign or otherwise transfer any shares of Series A Preferred held by the Holder, then a portion of this Warrant representing the right to purchase a number of shares of Common Stock equal to the product of the Conversion Rate and the number of shares of Series A Preferred so sold, assigned or transferred shall be transferred to the purchaser, assignee or transferee of such shares of Series A Preferred Stock. Any such transfer of this Warrant (or the applicable portion hereof) described in the immediately preceding sentence shall occur concurrently with the sale, assignment or other transfer of the applicable shares of Series A Preferred, without any further action on the part of, or notice to, any person or entity. Except for an assignment of this Warrant (or any portion hereof) contemplated by this Section 6, this Warrant shall not be assigned, pledged, sold, encumbered, transferred or otherwise disposed of by the Holder, either voluntarily or by operation of law, and any such attempted assignment, pledge, sale, encumbrance, transfer or other disposition of this Warrant, other than in accordance with the terms set forth in this Section 6, shall be null and void, and of no effect.
 
7.            Lost Warrants . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of this Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.
 
8.            Modification and Waiver . Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder hereof. Any amendment or waiver affected in accordance with this Section 8 shall be binding upon the Company and the Holder.
 
9.            Notices . All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally, delivered via electronic mail or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time.
 
10.            Titles and Subtitles; Governing Law; Venue . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. This Warrant is to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the Company and the Holder. All disputes and controversies arising out of or in connection with this Warrant shall be resolved exclusively by the state and federal courts located in San Diego in the State of California, and each of the Company and the Holder hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie exclusively with such courts.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
 

-4-
 
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized as of the date first above written.
 
ImageWare Systems, Inc.
 
 
By:                                                                   
        S. James Miller
        Chief Executive Officer
 
 
 
[Signature Page To Warrant]
 
 

-5-
 
FORM OF SUBSCRIPTION
 
(To be signed only upon exercise of Warrant)
 
To: IMAGEWARE SYSTEMS, INC.
 
The undersigned, the holder of a right to purchase shares of Common Stock of ImageWare Systems, Inc. (the “ Company ”) pursuant to that certain Warrant to Purchase Common Stock of ImageWare Systems, Inc. number _____ (the “ Warrant ”), dated as of ____________ hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________________ (_________) shares of Common Stock of the Company and herewith makes payment of ________________________ Dollars ($__________) therefor in cash.
 
The undersigned represents that it is acquiring such securities for its own account for investment and not with a view to or for sale in connection with any distribution thereof.
 
DATED: ________________
 
____________________________
 
 
By :                                                     
Name :                                                 
Its :                                                       
 
 

-6-
 
 
ACKNOWLEDGMENT
 
 
To: HOLDER
 
 
The undersigned hereby acknowledges that as of the date hereof, __________________ (___________) shares of Common Stock remain subject to the right of purchase in favor of _____________ pursuant to that certain Warrant to Purchase Common Stock of ImageWare Systems, Inc., number ___ dated as of ____________.
 
DATED: ________________
 
ImageWare Systems, Inc.
 
By:                                                         
 
Name: 
 
Its:                                                       
 
 
 
 

-7-
 
Warrant Receipt
 
The undersigned, ___________________, does hereby acknowledge receipt of Warrant number _____ dated, ________________, representing _____________ (________) shares of the Common Stock Warrants of ImageWare Systems, Inc.
 
IN WITNESS WHEREOF, the undersigned has executed this Receipt as of the date set forth below.
 
 
 
Type:                                            
Common Stock Warrants
 
Warrant Number:  
______
 
Number of Shares:
 
Name:
 
Date:                      
 
 
 
 
-8-
 
Exhibit 10.1
IMAGEWARE SYSTEMS, INC.
 
SECURITIES PURCHASE AGREEMENT
 
 
This SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of September 10, 2018, is made by and among ImageWare Systems, Inc., a corporation organized under the laws of the State of Delaware (the “ Company ”), and each of the purchasers (individually, a “ Purchaser ” and collectively the “ Purchasers ”) set forth on the signature pages hereto (each, a “ Signature Page ” and collectively the “ Signature Pages ”).
 
RECITALS
 
WHEREAS, the Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“ Regulation D ”), as promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (including the rules and regulations promulgated thereunder, the “ Securities Act ”);
 
WHEREAS, upon satisfaction of certain conditions, the Purchasers, severally and not jointly, desire to purchase, and the Company desires to issue and sell to the Purchasers, upon the terms and subject to the conditions set forth in this Agreement, an aggregate of One Thousand, (1,000) shares of the Company’s Series C Convertible Preferred Stock, par value $0.01 per share (the “ Preferred Stock ”), for $10,000 per share, which Preferred Stock shall have the rights, preferences and privileges set forth in the Company’s Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (the “ Certificate of Designation ”) filed with the Secretary of State for the State of Delaware on September 10, 2018, in the form of Exhibit A attached hereto;
 
WHEREAS, the shares of common stock of the Company, par value $0.01 per share (the “ Common Stock ”), issuable upon conversion of the Preferred Stock are referred to herein as the “ Conversion Shares ”. The Preferred Stock and the Conversion Shares are collectively referred to herein as the “ Securities ” and each of them may individually be referred to herein as a “ Security ”, and the shares of Common Stock issued or issuable to the holders of Preferred Stock as dividends in accordance with the terms and conditions set forth in the Certificate of Designation are referred to herein as “ Dividend Shares ”;
 
WHEREAS , in connection with the execution of this Agreement, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws; and
 
WHEREAS , in connection with the execution of this Agreement, the Company has entered into an Escrow Agreement, dated as of August 29, 2018 (an executed copy of which is attached hereto as Exhibit C , the “ Escrow Agreement ”), with Northland Securities, Inc., a Minnesota corporation, and Midwest Bank, a Minnesota banking corporation (the “ Escrow Agent ”), pursuant to which the Escrow Agent will act as Escrow Agent with respect to the transactions contemplated by this Agreement. This Agreement, the Certificate of Designation, the Registration Rights Agreement and the Escrow Agreement are collectively referred to herein as the “ Transaction Documents .”
 
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows:
 
 
 
-1-
 
 
1.   PURCHASE AND SALE OF SECURITIES .
 
(a)   Purchase and Sale of Securities . Subject to the terms and conditions hereof, at the Closing (as defined in Section 1(b) below), the Company shall issue and sell to each Purchaser, and each Purchaser, severally and not jointly, shall purchase from the Company, such number of shares of Preferred Stock as is set forth on such Purchaser’s Signature Page, for a purchase price (as to each Purchaser, the “ Purchase Price ”) equal to $10,000 per share of Preferred Stock.
 
(b)   The Closing . Closing of the transactions contemplated hereby (the “ Closing ”) shall occur on the date on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto in connection with the Closing, and all conditions precedent to (i) the Purchasers’ obligation to deliver the Purchase Price of the Preferred Stock to the Escrow Agent, as set forth in Section 7, and (ii) the Company’s obligations to deliver the Preferred Stock set forth in Section 6, in each case, have been satisfied or waived. The day on which the Closing occurs shall be the “ Closing Date ”.
 
2.   PURCHASER’S REPRESENTATIONS AND WARRANTIES .
 
Each Purchaser, severally, but not jointly, represents and warrants to the Company as follows:
 
(a)   Purchase for Own Account, Etc. Such Purchaser is purchasing the Securities for such Purchaser’s own account for investment purposes only and not with a view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Such Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and is capable of evaluating the merits and risks of its investment in the Company. Such Purchaser understands that it must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering the resale of any such Securities other than as contemplated by the Registration Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary, by making the representations herein, such Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption from the registration requirements under the Securities Act.
 
(b)   Accredited Investor Status . Such Purchaser is an “Accredited Investor”, as that term is defined in Rule 501(a) of Regulation D.
 
(c)   Reliance on Exemptions . Such Purchaser understands that the Securities are being offered and sold to such Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws, and that the Company is relying upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities.
 
(d)   Information . All materials relating to the business, finances and operations of the Company (including the Company’s most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q) and materials relating to the offer and sale of the Securities which have been specifically requested by such Purchaser or its counsel have been made available to such Purchaser and its counsel, if any. Neither such inquiries nor any other investigation conducted by such Purchaser or its counsel or any of such Purchaser’s representatives shall modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in Section 3 below. Such Purchaser understands that its investment in the Securities involves a high degree of risk, including the risk of loss of its entire investment in the Securities.
 
 
 
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(e)   Governmental Review . Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
 
(f)   Transfer or Resale . Such Purchaser understands that (i) except as provided in the Registration Rights Agreement, the sale or resale of the Securities have not been and are not being registered under the Securities Act or any state securities laws, and the Securities may not be transferred unless (A) the transfer is made pursuant to and as set forth in an effective registration statement under the Securities Act covering the Securities; or (B) such Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or (C) sold under and in compliance with Rule 144 promulgated under the Securities Act (including any successor rule, “ Rule 144 ”); or (D) sold or transferred to an affiliate of such Purchaser that agrees to sell or otherwise transfer the Securities only in accordance with the provisions of this Section 2(f) and that is an Accredited Investor; and (ii) neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or any state securities laws (other than pursuant to the terms of the Registration Rights Agreement). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement, provided such pledge is consistent with applicable laws, rules and regulations.
 
(g)   [ Reserved ].
 
(h)   Authorization; Enforcement . This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of such Purchaser and are valid and binding agreements of such Purchaser enforceable against such Purchaser in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.
 
(i)   Residency . Such Purchaser is a resident of the jurisdiction set forth under such Purchaser’s name on the Signature Page hereto executed by such Purchaser.
 
3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
 
Except as set forth on the Disclosure Schedule attached to this Agreement (the “ Disclosure Schedule ”), the Company represents and warrants to each Purchaser as follows:
 
(a)   Organization and Qualification; Subsidiaries . The Company and each of its subsidiaries (collectively, the “ Subsidiaries ”) is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction in which it is incorporated or organized, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have, or would reasonably be expected to result in, a Material Adverse Effect. For purposes of this Agreement, “ Material Adverse Effect ” means any material adverse effect on (i) the Securities or the Dividend Shares, (ii) the ability of the Company to perform its obligations under this Agreement or the other Transaction Documents or (iii) the business, operations, properties, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Other than the Subsidiaries set forth on the Disclosure Schedule, the Company has no subsidiaries.
 
 
 
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(b)   Authorization; Enforcement . (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents, to issue and sell the Preferred Stock in accordance with the terms hereof, to issue the Conversion Shares upon conversion of the Preferred Stock in accordance with the terms thereof and to issue the Dividend Shares in accordance with the Certificate of Designation and the Company’s Certificate of Incorporation as in effect on the date hereof (“ Certificate of Incorporation ”); (ii) the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock and the issuance and reservation for issuance of the Conversion Shares and the Dividend Shares) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, any committee of the Board of Directors or any of the stockholders of the Company is required, and (iii) this Agreement constitutes, and, upon execution and delivery by the Company of the other Transaction Documents, such Transaction Documents will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. Neither the execution, delivery or performance by the Company of its obligations under this Agreement or the other Transaction Documents, nor the consummation by it of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Preferred Stock, or the issuance or reservation for issuance of the Conversion Shares and the Dividend Shares) requires any consent or authorization of the Company’s stockholders.
 
(c)   Capitalization . The capitalization of the Company as of the date hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company’s stock option plans, all securities exercisable or exchangeable for, or convertible into, any shares of capital stock of the Company (“ Convertible Securities ”), the number of shares issuable and reserved for issuance pursuant to Convertible Securities, any shares of capital stock and the number of shares reserved for issuance upon conversion of the Preferred Stock, is set forth in Section 3(c) of the Disclosure Schedule. All of such outstanding shares of capital stock have been, or upon issuance in accordance with the terms of any such Convertible Securities will be, validly issued, fully paid and non-assessable. No shares of capital stock of the Company (including the Conversion Shares and the Dividend Shares) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances. Except as set forth in Section 3(c) of the Disclosure Schedule, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, nor are any such issuances or arrangements contemplated, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreement); (iii) there are no outstanding securities or instruments of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem any security of the Company; and (iv) the Company does not have any shareholder rights plan, “poison pill” or other anti-takeover plans or similar arrangements. Section 3(c) of the Disclosure Schedule sets forth all of the securities or instruments issued by the Company or any of its Subsidiaries that contain anti-dilution or similar provisions that will be triggered by, and all of the resulting adjustments that will be made to such securities and instruments as a result of, the issuance of the Securities and the Dividend Shares in accordance with the terms of this Agreement or the Certificate of Designation. The Company has no knowledge of any voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among any of the security holders of the Company relating to the securities of the Company held by them. The Company can furnish, upon request, true and correct copies of the Company’s Certificate of Incorporation, the Company’s Bylaws as in effect on the date hereof (the “ Bylaws ”), and all other instruments and agreements governing any Convertible Securities. The Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of its Subsidiaries as owned by the Company or any such Subsidiary.
 
 
 
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(d)   Issuance of Securities . The Preferred Stock is duly authorized and, upon issuance in accordance with the terms of this Agreement and the Certificate of Designation, (i) will be validly issued and free from all taxes, liens, claims, transfer restrictions, and encumbrances (other than restrictions on transfer contained in this Agreement or the Certificate of Designation), (ii) will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company or any other Person (as defined below) and (iii) will not impose personal liability on any holder thereof. The Conversion Shares and the Dividend Shares are duly authorized and reserved for issuance, and, upon issuance of the Dividend Shares or conversion of the Preferred Stock, in each case in accordance with the terms of the Certificate of Designation, (x) will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims, transfer restrictions, and encumbrances (other than restrictions on transfer contained in this Agreement), (y) will not be subject to preemptive rights, rights of first refusal or other similar rights of stockholders of the Company or any other Person and (z) will not impose personal liability upon any holder thereof. Except for the filing of any notice prior or subsequent to the Closing Date that may be required under applicable state and/or federal securities laws (or comparable laws of any other jurisdiction), no authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency, instrumentality or other third party, is or will be necessary for, or in connection with, the execution and delivery by the Company of this Agreement, the offer, issue, sale, execution or delivery of the Securities and the Dividend Shares, or the performance by the Company of its obligations under this Agreement. No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “ Disqualification Event ”) is applicable to the Company or, to the Company’s knowledge, any Person listed in the first paragraph of Rule 506(d)(1), except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable. “ 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.
 
(e)   No Conflicts . Except as set forth in Section 3(e) of the Disclosure Schedule, the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock, and the issuance and reservation for issuance of the Conversion Shares and the Dividend Shares) will not (i) result in a violation of the Certificate of Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws, rules and regulations and rules and regulations of any self-regulatory organizations to which either the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected, or (iv) result in the imposition of a mortgage, pledge, security interest, encumbrance, charge or other lien on any asset of the Company or any Subsidiary.
 
(f)   Compliance . Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, Bylaws or other organizational documents, and neither the Company nor any of its Subsidiaries is in default (and no event has occurred that with notice or lapse of time or both would put the Company or any of its Subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party. The businesses of the Company and its Subsidiaries are not being conducted, and shall not be conducted so long as any Purchaser (or any of its respective affiliates) owns any of the Securities or Dividend Shares, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either singly or in the aggregate have not had and would not materially affect the Company or any of its Subsidiaries. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state,
 
 
 
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provincial or foreign governmental or regulatory authorities that are material to the conduct to their business, and neither the Company nor any of its Subsidiaries has received any notice of proceeding relating to the revocation or modification of any such certificate, authorization or permit. The Company has complied in all material respects with and is not in default or violation in any material respect of, and is not, to the Company’s knowledge, under investigation with respect to or has not been, to the knowledge of the Company, threatened to be charged with or given notice of any violation of, any applicable federal, state, local or foreign law, statute, ordinance, license, rule, regulation, policy or guideline, order, demand, writ, injunction, decree or judgment of any federal, state, local or foreign governmental or regulatory authority. Except for statutory or regulatory restrictions of general application, no federal, state, local or foreign governmental or regulatory authority has placed any material restriction on the business or properties of the Company or any of its Subsidiaries.
 
(g)   SEC Documents, Financial Statements . The Company has timely filed (within applicable extension periods) all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the Securities Act and/or the Securities Exchange Act of 1934, as amended (including the rules and regulations promulgated thereunder, the “ Exchange Act ”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, the “ SEC Documents ”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings made prior to the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“ GAAP ”), consistently applied, during the periods involved (except as may be otherwise indicated in such financial statements or the notes thereto or, in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to immaterial year-end audit adjustments). Except as set forth in the financial statements of the Company included in the Select SEC Documents (as defined below), the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of the Company. For purposes of this Agreement, “ Select SEC Documents ” means the Company’s (A) Annual Report on Form 10-K for the fiscal year ended December 31, 2017, (B) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2018, and (C) all Current Reports on Form 8-K filed since August 9, 2018.
 
(h)   Absence of Certain Changes . Since June 30, 2018, (i) there has not been any change in the capital stock (other than pursuant to the Company’s stock plans pursuant to the Company’s Approved Share Plan (as defined below), pursuant to the conversion or exercise of outstanding securities that are convertible into or exercisable for Common Stock, or pursuant to publicly disclosed equity or debt financings) or long-term debt of the Company, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock; (ii) neither the Company nor any of its Subsidiaries has entered into any transaction or agreement that is material to the Company or any of its Subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company or any of its Subsidiaries and, except as contemplated by this Agreement, has made any material change or amendment to a material contract or arrangement by which the Company or any of its Subsidiaries or any of their respective assets or properties is bound or subject; (iii) neither the Company nor any of its Subsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority; and (iv)
 
 
 
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there has been no material adverse change and no material adverse development in the business, properties, operations, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole. Neither the Company nor any of its Subsidiaries has taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy or receivership law, nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings with respect to the Company or any of its Subsidiaries. For purposes of this Section 3(h), “ Approved Share Plan ” shall mean the Company’s Amended and Restated 1999 Stock Award Plan.
 
(i)   Transactions With Affiliates . None of the officers, directors, or employees of the Company or any of its Subsidiaries, or any of their family members, is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services solely in their capacity as officers, directors or employees), including, without limitation, any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director, employee or family member or any corporation, partnership, trust or other entity in which any such officer, director, employee or family member has an ownership interest of five percent or more or is an officer, director, trustee or partner.
 
(j)   Absence of Litigation . Except as disclosed in the Select SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body (including, without limitation, the SEC) pending or affecting the Company, any of its Subsidiaries, or any of their respective directors or officers in their capacities as such. To the knowledge of the Company or any of its Subsidiaries, there are no actions, suits, proceedings, inquiries or investigations before or by any court, public board, government agency, self-regulatory organization or body (including, without limitation, the SEC) threatened against the Company, any of its Subsidiaries, or any of their respective directors or officers in their capacities as such, which, if determined adversely, could, either individually or in the aggregate, be material to the Company or any of its Subsidiaries. There are no facts which, if known by a potential claimant or governmental authority, could give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its Subsidiaries, could reasonably be expected to be material to the Company or any of its Subsidiaries.
 
(k)   Intellectual Property . Each of the Company and its Subsidiaries owns or is duly licensed (and, in such event, has the unfettered right to grant sublicenses) to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, inventions, discoveries, processes, scientific, technical, engineering and marketing data, object and source codes, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, “ Intellectual Property ”) used in or necessary for the conduct of its business as now being conducted and as presently contemplated to be conducted in the future (collectively, the “ Company Intellectual Property ”). Section 3(k) of the Disclosure Schedule sets forth a list of all material Company Intellectual Property owned and/or used by the Company or any of its Subsidiaries in its business. Except as set forth on the Disclosure Schedule, there are no rights of third parties to any of the Company Intellectual Property except through licensing agreements. Except as set forth on the Disclosure Schedule, there are no outstanding options, licenses or agreements of any kind relating to the Company Intellectual Property, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the Intellectual Property of any other Person (collectively, the “ Third Party License Agreements ”) other than such licenses or agreements arising from the purchase of generally available products, as to which the aggregate consideration paid by or due from the Company or any of its Subsidiaries does not exceed $25,000 in value, or “off the shelf” products. All of the Third Party License Agreements are valid, binding and in full force and effect in all material respects and to the Company’s knowledge enforceable by the Company or its applicable Subsidiary in accordance with their respective terms in all material respects, subject to general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies. Neither the Company nor any of its Subsidiaries is in material breach of any such Third Party License Agreements. To the Company’s knowledge, no other party to any of the Third Party License Agreements is in material default thereunder. Neither the Company nor any Subsidiary of the Company infringes or is in conflict with any right of any other Person with respect to any third party Intellectual Property. Neither the Company nor any of its Subsidiaries has received written notice of any pending
 
 
 
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conflict with or infringement upon any third party Intellectual Property. There is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the Company’s or any of its Subsidiaries’ ownership of or licensing rights in or to any Company Intellectual Property. Neither the Company nor any of its Subsidiaries has entered into any consent agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to the validity of the Company’s or its Subsidiaries’ ownership of or right to use its Company Intellectual Property and there is no reasonable basis for any such claim to be successful. The rights of the Company and its Subsidiaries in the Company Intellectual Property are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and in good standing. The Company and its Subsidiaries have taken all reasonable steps required to perfect their ownership of and interest in the Company Intellectual Property and has taken reasonable security measures to protect the secrecy, confidentiality and value of all of the Company Intellectual Property. The Company and its Subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Company Intellectual Property used pursuant to licenses. No Person is infringing on or violating the Company Intellectual Property owned or used by the Company or its Subsidiaries. The Company and its Subsidiaries have used Company IP Counsel (as defined below) for all Intellectual Property matters since December 31, 2011 and, since such date, neither the Company nor any of its Subsidiaries has consulted any other counsel with respect to any Intellectual Property matters.
 
(l)   Title . The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and merchantable title to all personal property owned by them that is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.
 
(m)   Tax Status . Except as set forth in Section 3(m) of the Disclosure Schedule, the Company and each of its Subsidiaries has made or filed all foreign, U.S. federal, state, provincial and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges due and owing, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to any statute of limitations relating to the assessment or collection of any foreign, federal, state, provincial or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
 
(n)   Key Employees . Each of the Company’s and its Subsidiaries’ directors and officers and any Key Employee (as defined below) is currently serving the Company or its Subsidiaries in the capacity disclosed in the Select SEC Documents. No Key Employee is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its Subsidiaries to any material liability with respect to any of the foregoing matters. No Key Employee has, to the knowledge of the Company and its Subsidiaries, any intention to terminate or limit his employment with, or services to, the Company or any of its Subsidiaries, nor is any such Key Employee subject to any constraints which would cause such employee to be unable to devote his full time and attention to such employment or services. For purposes of this Agreement, “ Key Employee ” means the persons listed in Section 3(n) of the Disclosure Schedule and any individual who assumes or performs any of the duties of a Key Employee.
 
 
 
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(o)   Employee Relations . (i) No application or petition for certification of a collective bargaining agent is pending and none of the employees of Company or any of its Subsidiaries are or have been represented by any union or other bargaining representative and no union has attempted to organize any group of the Company's or any of its Subsidiaries’ employees, and no group of the Company's or any of its Subsidiaries’ employees has sought to organize themselves into a union or similar organization for the purpose of collective bargaining. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer (as defined in Rule 501(f) of the Securities Act) has notified the Company or any of its Subsidiaries that such officer intends to leave the Company or any of its Subsidiaries or otherwise terminate such officer’s employment with the Company or any of its Subsidiaries. The Company and its Subsidiaries are in compliance with all federal, state and local laws and regulations and, to the Company’s knowledge, all foreign laws and regulations, in each case respecting employment and employment practices, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, be material to the Company or any of its Subsidiaries.
 
(p)   Insurance . The Company and each of its Subsidiaries has in force fire, casualty, product liability and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company or any of its Subsidiaries may reasonably become subject, and such types and amounts of other insurance with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by Persons engaged in the same or similar business as the Company and its Subsidiaries. No default or event has occurred that could give rise to a default under any such policy.
 
(q)   Environmental Matters . The Company and each of its Subsidiaries is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of Hazardous Substances (as defined below) and protection of health and safety or the environment which are applicable to its business. There is no environmental litigation or other environmental proceeding pending or threatened by any governmental or regulatory authority or others with respect to the current or any former business of the Company or any of its Subsidiaries or any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries. No state of facts exists as to environmental matters or Hazardous Substances that involves the reasonable likelihood of a material capital expenditure by the Company or any of its Subsidiaries. No Hazardous Substances have been treated, stored or disposed of, or otherwise deposited, in or on the properties owned or leased by the Company or any of its Subsidiaries or by any partnership or joint venture currently or at any time affiliated with the Company or any of its Subsidiaries in violation of any applicable environmental laws. The environmental compliance programs of the Company and each of its Subsidiaries comply in all respects with all environmental laws, whether foreign, federal, state, provincial or local, currently in effect. For purposes of this Agreement, “ Hazardous Substances ” means any substance, waste, contaminant, pollutant or material that has been determined by any governmental authority to be capable of posing a risk of injury to health, safety, property or the environment.
 
(r)   Listing . The Company is not in violation of the listing requirements of the OTCQB Marketplace (the   “ OTCQB ”) on which it trades, does not reasonably anticipate that the Common Stock will be delisted by the OTCQB for the foreseeable future, and has not received any notice regarding the possible delisting of the Common Stock from the OTCQB. The issuance and sale of the Preferred Stock and the transactions contemplated by the Transaction Documents do not contravene the rules and regulations of the OTCQB.
 
(s)   No General Solicitation or Integrated Offering . Neither the Company nor any Person acting for the Company has conducted any “general solicitation” (as such term is defined in Regulation D) with respect to any of the Securities and/or Dividend Shares being offered hereby. Neither the Company nor any of its affiliates, nor any Person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration of the Securities and/or Dividend Shares being offered hereby under the Securities Act or cause this offering of Securities and/or Dividend Shares to be integrated with any prior offering of securities of the Company for purposes of the Securities Act, which result of such integration would require registration under the Securities Act, or any applicable stockholder approval provisions.
 
 
 
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(t)   No Brokers . Other than the fees and expenses of Northland Securities, Inc., no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other third party with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other third parties for fees of a type contemplated in this Section 3(t) that may be due in connection with the transactions contemplated by the Transaction Documents.
 
(u)   Acknowledgment Regarding Securities . The number of Conversion Shares issuable upon conversion of the Preferred Stock may increase in certain circumstances. The Company’s directors and executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue (i) Conversion Shares upon conversion of the Preferred Stock and (ii) the Dividend Shares, in each case, in accordance with the Certificate of Designation, is absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders and the availability of remedies provided for in this Agreement relating to a failure or refusal to issue Conversion Shares and Dividend Shares to the extent required by the Certificate of Designation. Taking the foregoing into account, the Company’s Board of Directors has determined in its good faith business judgment that the issuance of the Preferred Stock hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders.
 
(v)   Internal Control over Financial Reporting . The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) that complies with the requirements of the Exchange Act and has been designed by the Company’s principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company does not have any material weaknesses in its internal control over financial reporting. Since the date of the latest audited financial statements included in the Select SEC Documents, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
(w)   Disclosure Controls and Procedures . The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Exchange Act) that comply with the requirements of the Exchange Act. Such disclosure controls and procedures have been designed to ensure that material information relating to the Company is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, by others within those entities.
 
(x)   Sarbanes-Oxley Compliance . The Company and the Company’s directors and officers, in their capacities as such, are in compliance with any provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith (“ SOX ”), including Section 402 related to loans and Sections 302 and 906 related to certifications, and neither the Company nor any of its officers has received notice from any governmental entity questioning or challenging the accuracy, completeness, content, form or manner of filing or submission of such certifications. The Company has no reasonable basis to believe that it will not continue to be in compliance with SOX as in effect on the Closing Date (including, without limitation, the requirements of Section 404 thereof).
 
(y)   Disclosure . All information relating to or concerning the Company and/or any of its Subsidiaries set forth in this Agreement or provided to the Purchasers pursuant to Section 2(d) hereof or otherwise by the Company in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or its Subsidiaries or their respective businesses, properties, prospects, operations or financial conditions, which has not been publicly disclosed but, under applicable law, rule or regulation, would be required to be disclosed by the Company in a registration statement filed on the date hereof by the Company under the Securities Act with respect to a primary issuance of the Company’s securities.
 
 
 
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(z)   Absence of Indebtedness . On the Closing Date, as a result of the transactions contemplated by this Agreement, neither the Company nor any Subsidiary shall have any indebtedness for borrowed money that would be required to be disclosed by the Company on a balance sheet prepared in accordance with GAAP. Section 3(z) of the Disclosure Schedule sets for the indebtedness for borrowed money of the Company and its Subsidiaries as of immediately prior to the Closing Date.
 
(aa)   No Registration . Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 2 hereof, it is not necessary, in connection with the issuance and sale of the Preferred Stock to the Purchasers, the issuance of the Conversion Shares upon conversion of the Preferred Stock or the issuance of the Dividend Shares pursuant to the terms of the Certificate of Designation and the Certificate of Incorporation, in each case in the manner contemplated by this Agreement and the other Transaction Documents, to register the Preferred Stock, the Conversion Shares or the Dividend Shares under the Securities Act, except for any registration that is required under the terms of the Registration Rights Agreement.
 
(bb)   Acknowledgment Regarding Purchasers’ Purchase of Securities . The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
 
(cc)   Acknowledgment Regarding Purchaser’s Trading Activity . Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, short sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, and (iii) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, and (z) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.
 
4.   COVENANTS .
 
(a)   Form D: Blue Sky Laws . The Company shall timely file with the SEC a Form D with respect to the Securities as required under Regulation D and provide a copy thereof to any Purchaser promptly upon request of such Purchaser. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to each Purchaser pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to each Purchaser on or prior to the Closing Date. Within four business days after the Closing Date, the Company shall file a Form 8-K with the SEC concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K (the “ 8-K Filing ”). The Company shall provide the Purchasers with a copy of the 8-K Filing at least two (2) business days prior to the filing of the 8-K Filing for the Purchasers’ review and comment, it being understood that nothing contained herein shall prevent the Company from filing such 8-K Filing within four (4) business days after the Closing Date. The Company shall consider in good faith the comments received by
 
 
 
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the Purchasers or their counsel to the 8-K Filing and shall incorporate the same into the 8-K Filing unless the Company, acting in good faith, has a reasonable basis for not incorporating any such comments, in which case the Company shall consult with the Purchasers or their counsel with respect to such comments. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the SEC or any regulatory agency or trading market (including, without limitation, on any signature page to any Transaction Document), without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with any registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law, in which case the Company shall provide the applicable Purchaser(s) with prior notice of such disclosure permitted under this clause (ii). From and after the 8-K Filing, the Company hereby represents and acknowledges to the Purchasers that no Purchaser shall be in possession of any material nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the 8-K Filing. In addition, effective upon the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, agents, employees or affiliates on the one hand, and any of the Purchasers or any of their affiliates on the other hand, shall terminate. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the 8-K Filing without the express written consent of such Purchaser. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material non-public information to a Purchaser without such Purchaser’s express written consent, the Company hereby covenants and agrees that such Purchaser shall not have any duty of confidentiality to the Company, any of its Subsidiaries or affiliates, or any of their respective officers, directors, agents or employees or affiliates, or a duty to the Company, any of its Subsidiaries or affiliates or any of their respective officers, directors, agents or employees not to trade on the basis of, such material non-public information, provided that the Purchaser shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material non-public information regarding the Company or any of its Subsidiaries or affiliates, the Company shall simultaneously file such notice with the SEC pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company or its affiliates.
 
(b)   Reporting Status . So long as any Purchaser (or any of its affiliates) beneficially owns any of the Securities or Dividend Shares, the Company covenants to maintain the registration of the Common Stock under Section 12(b) or 12(g) of the Exchange Act and shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. In addition, the Company shall take all actions necessary to meet the “registrant eligibility” requirements set forth in the general instructions to Form S-1 or any successor form thereto, to continue to be eligible to register the resale of its Common Stock on a registration statement on Form S-1 under the Securities Act.
 
(c)   Use of Proceeds . The Company shall use the proceeds from the sale and issuance of the Preferred Stock for general corporate purposes and working capital; provided that such proceeds shall not be used to (i) pay dividends, except for dividends paid or payable to holders of the Company’s Series B Convertible Redeemable Preferred Stock; (ii) purchase debt or equity securities of any entity (including redeeming the Company’s own securities), except for (A) evidences of indebtedness issued or fully guaranteed by the United States of America and having a maturity of not more than one year from the date of acquisition, (B) certificates of deposit, notes, acceptances and repurchase agreements having a maturity of not more than one year from the date of acquisition issued by a bank organized in the United States, (C) the highest-rated commercial paper having a maturity of not more than one year from the date of acquisition, and (D) “Money Market” fund shares, or money market accounts fully insured by the Federal Deposit Insurance Corporation and sponsored by banks and other financial institutions, provided that the investments consist principally of the types of investments described in clauses (A), (B), or (C) above; or (iii) make any investment not directly related to the current business of the Company.
 
 
 
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(d)   Listing . The Company shall maintain, so long as any Purchaser (or any of its affiliates) beneficially owns any Securities or Dividend Shares, the listing of all Dividend Shares, if any, and Conversion Shares from time to time issuable upon conversion of the Preferred Stock on each national securities exchange, automated quotation system or electronic bulletin board on which shares of Common Stock are currently listed. The Company will use its best efforts to continue the listing and trading of its Common Stock on the OTCQB, the NASDAQ Capital Market (“ NASDAQ ”) or the NYSE MKT Exchange (“ NYSE MKT ”), as applicable.
 
(e)   Corporate Existence . So long as any Purchaser (or any of its affiliates) beneficially owns any Securities or Dividend Shares, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company’s assets, the Company shall ensure that the surviving or successor entity in such transaction and, if an entity different from the successor or acquiring entity, the entity whose securities into which the Common Stock shall become convertible or exchangeable in such transaction (i) expressly assumes in writing, for the benefit of the Purchasers, the Company’s obligations under this Agreement and the other Transaction Documents and the agreements and instruments entered into in connection herewith and therewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all the Preferred Stock outstanding as of the date of such transaction and (ii) except in the event of a merger, consolidation of the Company into any other corporation, or the sale or conveyance of all or substantially all of the assets of the Company where the consideration consists solely of cash, the surviving or successor entity and, if an entity different from the successor or acquiring entity, the entity whose securities into which the Common Stock shall become convertible or exchangeable in such transaction, is a publicly traded corporation whose common stock is listed for quotation or trading on the OTCQB, NASDAQ or NYSE MKT.
 
(f)   No Integrated Offerings . The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause this offering of the Securities to be integrated with any other offering of securities by the Company for purposes of any stockholder approval provision applicable to the Company or its securities.
 
(g)   Legal Compliance . The Company shall conduct its business and the business of its Subsidiaries in compliance with all laws, ordinances or regulations of governmental entities applicable to such businesses, except where the failure to do so would not be material to the Securities, the Dividend Shares or the business, operations, properties, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries.
 
(h)   Press Release . Neither the Purchasers nor the Company may issue any press release (whether or not included in the 8-K Filing) relating to the transactions contemplated by this Agreement or any other Transaction Document without the prior written approval of the Purchasers, in the case of a press release issued by the Company, or the Company, in the case of a press release issued by any Purchaser, in each case, such approval not to be withheld, conditioned or delayed by any such Person.
 
(i)   Legends . Each Purchaser agrees to the imprinting, so long as is required by this Section 4(i) , of a legend on any of the Securities or Dividend Shares in the following form:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. THE SECURITIES REPRESENTED HEREBY MAY BE PLEDGED IN ACCORDANCE WITH THE TERMS OF THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 10, 2018, IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LENDING ARRANGEMENT WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
 
 
 
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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities and/or Dividend Shares to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities and/or Dividend Shares to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. The Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities and/or Dividend Shares may reasonably request in connection with a pledge or transfer of the Securities and/or Dividend Shares, including, if the Securities and/or Dividend Shares are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.
 
Instruments (including statements related to book-entry accounts), whether certificated or uncertificated, evidencing the Securities and/or Dividend Shares shall not contain any legend (including the legend set forth above in this Section 4(i) ), and the Company shall take all actions that are necessary to remove any such legend, (i) while a registration statement (including, without limitation, the registration statement contemplated by the Registration Rights Agreement) covering the resale of such Securities and/or Dividend Shares is effective under the Securities Act, (ii) following any sale of such Securities and/or Dividend Shares pursuant to Rule 144, (iii) if such Securities and/or Dividend Shares are eligible for sale under Rule 144 (whether or not such Securities and/or Dividend Shares are being sold under Rule 144 at the applicable time), without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such Securities and/or Dividend Shares and without volume or manner-of-sale restrictions, (iv) the holder of any such Securities and/or Dividend Shares provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security and/or Dividend Share may be made without registration under the Securities Act; or (v) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC). Promptly after such time as such legend is no longer required, the Company shall cause its counsel to issue a legal opinion to its transfer agent if required by the transfer agent to effect the removal of the legend hereunder, or to a Purchaser upon request. The Company agrees that following such time as such legend is no longer required, it will, no later two (2) business days following the delivery by a Purchaser to the Company or its transfer agent of an instrument (including statements related to book-entry accounts), whether certificated or uncertificated, representing Securities and/or Dividend Shares, as the case may be, issued with (or subject to) a restrictive legend, deliver or cause to be delivered to such Purchaser an instrument (including statements related to book-entry accounts), whether certificated or uncertificated, representing such Securities and/or Dividend Shares that is free from all restrictive and other legends.
 
(j)   Shareholder Rights Plan . No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “acquiring person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities and/or Dividend Shares under the Transaction Documents or under any other agreement between the Company and the Purchasers.
 
 
 
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5.   TRANSFER AGENT INSTRUCTIONS .
 
(a)   Upon conversion of the Preferred Stock by any Person or the issuance of any Dividend Shares, (i) if the DTC Transfer Conditions (as defined below) are satisfied, the Company shall cause its transfer agent to electronically transmit all Conversion Shares and/or Dividend Shares, as applicable, by crediting the account of such Person or its nominee with the Depository Trust Company (“ DTC ”) through its Deposit Withdrawal Agent Commission system; or (ii) if the DTC Transfer Conditions are not satisfied, the Company shall issue and deliver, or instruct its transfer agent to issue and deliver, certificates or statements related to book-entry accounts (subject to the legend and other applicable provisions hereof and the Certificate of Designation), registered in the name of such Person or its nominee, representing the Conversion Shares and/or the Dividend Shares, as applicable. Even if the DTC Transfer Conditions are satisfied, any Person effecting a conversion of Preferred Stock or receiving Dividend Shares may instruct the Company to deliver to such Person or its nominee physical certificates representing the Conversion Shares and/or Dividend Shares, as applicable, in lieu of delivering such shares by way of DTC transfer. For purposes of this Agreement, “ DTC Transfer Conditions ” means that (A) the Company’s transfer agent is participating in the DTC Fast Automated Securities Transfer program and (B) the certificates for the Conversion Shares and/or Dividend Shares, as applicable, required to be delivered are not required to bear a legend pursuant to Section 4(i) and the Person effecting such conversion or exercise is not then required to return such certificate for the placement of a legend thereon.
 
(b)   The Company warrants that no instruction other than such instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof in the case of the transfer of the Conversion Shares and/or Dividend Shares prior to registration of the Conversion Shares and/or Dividend Shares under the Securities Act or without an exemption therefrom, shall be given by the Company to its transfer agent and that the Conversion Shares and/or Dividend Shares shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. Nothing in this Section shall affect in any way the Purchasers’ obligations and agreement set forth in Section 4(i) hereof to resell the Securities and/or Dividend Shares pursuant to an effective registration statement or under an exemption from the registration requirements of applicable securities law.
 
(c)   If any Purchaser provides the Company and the transfer agent with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that the Securities and/or Dividend Shares to be sold or transferred may be sold or transferred pursuant to an exemption from registration, or any Purchaser provides the Company with reasonable assurances that such Securities and/or Dividend Shares may be sold under Rule 144 (whether or not such Securities and/or Dividend Shares are actually being sold at the applicable time), the Company shall permit the transfer and, in the case of the Conversion Shares and/or Dividend Shares, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Purchasers. Nothing in this Section 5(c) shall alter, modify, reduce, supersede or otherwise change the obligations of the Company under Section 4(i).
 
6.   CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL .
 
The obligation of the Company hereunder to issue and sell the Preferred Stock to each Purchaser is subject to the satisfaction, on or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
 
(a)   Each Purchaser shall have executed such Purchaser’s Signature Page to this Agreement and each other Transaction Document to which such Purchaser is a party and delivered the same to the Company.
 
(b)   Each Purchaser shall have delivered to Escrow Agent the full amount of such Purchaser’s applicable Purchase Price on the Closing Date in accordance with Section 1(b) hereof and the wire transfer instructions set forth on Exhibit D .
 
 
 
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(c)   The Company and Northland Securities, Inc., with the written consent of the Required Purchasers (which consent may be via e-mail), shall have delivered a joint written notice to the Escrow Agent notifying the Escrow Agent that the conditions precedent to the Closing have been satisfied or waived and instructing the Escrow Agent to release and disburse the Escrow Funds (as defined in the Escrow Agreement) to the Company.
 
(d)   The representations and warranties of each Purchaser shall be true and correct as of the date when made and on the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and such Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Purchaser on or prior to the Closing Date.
 
(e)   No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
 
7.   CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE .
 
The obligation of each Purchaser hereunder to purchase the Preferred Stock on the Closing Date is subject to the satisfaction of each of the following conditions, provided that such conditions are for each Purchaser’s individual and sole benefit and may be waived by such Purchaser at any time in such Purchaser’s sole discretion:
 
(a)   The Company shall have executed such Purchaser’s Signature Page to this Agreement and each other Transaction Document to which the Company is a party and delivered executed originals of the same to such Purchaser.
 
(b)   All consents, approvals and waivers required for the consummation of the transactions contemplated hereby shall have been obtained.
 
(c)   The Company shall have delivered to such Purchaser (i) duly executed certificates (or, if the shares of Preferred Stock are not represented by certificates, duly executed statements related to book-entry accounts) representing the Preferred Stock for the number of shares of Preferred Stock being purchased by such Purchaser on the Closing Date, registered in such Purchaser’s name, and (ii) evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of Delaware.
 
(d)   The Common Stock shall be authorized for quotation and listed on the OTCQB and trading in the Common Stock (or on the OTCQB generally) shall not have been suspended by the SEC or the OTCQB.
 
(e)   The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company on or prior to the Closing Date. In connection with the issuance of the Preferred Stock on the Closing Date, such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company after reasonable investigation, dated as of the Closing Date to the foregoing effect.
 
(f)   No statute, rule, regulation, executive order, decree, ruling, injunction, action or proceeding shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which questions the validity of, challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement.
 
 
 
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(g)   Such Purchaser shall have received an opinion of the Company’s counsel, Disclosure Law Group, a professional corporation, dated as of the Closing Date, addressed to such Purchaser in form and substance reasonably satisfactory to Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers.
 
(h)   Such Purchaser shall have received an opinion of the Company’s intellectual property counsel, San Diego IP Law Group LLP (“ Company IP Counsel ”), dated as of the Closing Date, addressed to such Purchaser in form and substance reasonably satisfactory to Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers.
 
(i)   There shall have been no material adverse changes and no material adverse developments in the business, properties, operations, prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, since the date hereof, and no information that is materially adverse to the Company and of which such Purchaser is not currently aware shall come to the attention of such Purchaser.
 
(j)   Such Purchaser shall have received a copy of resolutions, duly adopted by the Board of Directors of the Company, which shall be in full force and effect at the time of the Closing, authorizing the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation by the Company of the transactions contemplated hereby and thereby, certified as such by the Secretary or Assistant Secretary of the Company on or before the Closing Date, and such other documents they reasonably request in connection with the issuance of the Preferred Stock on the Closing Date.
 
(k)   The Company shall have paid (or shall pay concurrently with the Closing) the reasonable fees and disbursements of Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers.
 
(l)   The aggregate Purchase Price for all the Preferred Stock purchased by other Purchasers who are not affiliates of such Purchaser shall have been, or concurrently with the Closing will be, delivered to the Escrow Agent by wire transfer of immediately available funds in accordance with the wire transfer instructions set forth in Exhibit D .
 
(m)   The Company and Northland Securities, Inc., with the written consent of the Required Purchasers (which consent may be via e-mail), shall have delivered a joint written notice to the Escrow Agent notifying the Escrow Agent that the conditions precedent to the Closing have been satisfied or waived and instructing the Escrow Agent to release and disburse the Escrow Funds to the Company.
 
(n)   The transactions contemplated by (i) that certain Exchange Agreement, dated September 10, 2018, by and between the Company and Charles Crocker and (ii) that certain Exchange Agreement, dated September 10, 2018, by and between the Company and Neal Goldman shall have occurred, or concurrently with the Closing, will occur.
 
(o)   The Amendment No. 1 to the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock in the form of Exhibit E attached hereto shall have been duly executed by the Company and duly filed with the Secretary of State of Delaware, and the Purchasers shall have received evidence of such execution and filing, and no other amendments, supplements or other modifications to the Company’s Certificate of Incorporation shall have been made since February 9, 2018.
 
8.   GOVERNING LAW; MISCELLANEOUS .
 
(a)   Governing Law; Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. The Company and each Purchaser irrevocably consent to the exclusive jurisdiction of the United States federal courts and the state courts located in the County of New York, State of New York, in any suit or proceeding based on or arising under this Agreement and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Purchaser to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner.
 
 
 
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(b)   Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission or electronic mail of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
 
(c)   Construction . Whenever the context requires, the gender of any word used in this Agreement includes the masculine, feminine or neuter, and the number of any word includes the singular or plural. Unless the context otherwise requires, all references to articles and sections refer to articles and sections of this Agreement, and all references to schedules are to schedules attached hereto, each of which is made a part hereof for all purposes. The descriptive headings of the several articles and sections of this Agreement are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof.
 
(d)   Severability . If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.
 
(e)   Entire Agreement; Amendments . This Agreement and the other Transaction Documents (including any schedules and exhibits hereto and thereto) contain the entire understanding of the Purchasers, the Company, their affiliates and persons acting on their behalf with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchasers make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement, and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and each Purchaser.
 
(f)   Notices . Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally, by responsible overnight carrier or by confirmed facsimile or by electronic mail (“ e-mail ”), and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by responsible overnight carrier or confirmed facsimile, or when sent if sent by e-mail, in each case addressed to a party. The initial addresses for such communications shall be as follows, and each party shall provide notice to the other parties of any change in such party’s address:
 
(i)   If to the Company:
 
ImageWare Systems, Inc.
10815 Rancho Bernardo Road
Suite 310
San Diego, California 92127
E-mail: wgw@iwsinc.com
Attention: Chief Financial Officer
 
with a copy simultaneously transmitted by like means (which transmittal shall not constitute notice hereunder) to:
 
Disclosure Law Group, a professional corporation
600 West Broadway, Suite 700
San Diego, CA 92101
Telephone: (619) 272-7062
Facsimile: (619) 330-2101
E-Mail: drumsey@disclosurelawgroup.com
Attention: Daniel W. Rumsey, Esq.
 
(ii)   If to any Purchasers, to the address set forth under such Purchaser’s name on the Signature Page hereto executed by such Purchaser.
 
 
 
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(g)   Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. Except as provided herein, the Company shall not assign this Agreement or any rights or obligations hereunder. Any Purchaser may assign or transfer the Securities pursuant to the terms of this Agreement and of such Securities. Any Purchaser may assign such Purchaser’s rights and obligations hereunder or thereunder to any Person to whom such Purchaser assigns or transfers any Securities and/or Dividend Shares (any such assignee thereafter becoming a “Purchaser” hereunder). In addition, and notwithstanding anything to the contrary contained in this Agreement or the other Transaction Documents, the Securities may be pledged and all rights of any Purchaser under this Agreement or any other Transaction Document may be assigned, without further consent of the Company, to a bona fide pledgee in connection with such Purchaser’s margin or brokerage account or any other lending arrangement with a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act.
 
(h)   Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Indemnitee that is not a party to this Agreement shall be a third party beneficiary of Section 8(k).
 
(i)   Survival . The representations and warranties of the Company and the agreements and covenants set forth in Sections 2, 3, 4, 5 and 8 hereof shall survive the Closing Date notwithstanding any due diligence investigation conducted by or on behalf of, or any knowledge of, any Purchaser, and such representations, warranties, agreements and covenants are part of the basis of the bargain contemplated by this Agreement. Moreover, none of the representations and warranties made by the Company herein shall act as a waiver of any rights or remedies any Purchaser may have under applicable U.S. federal or state securities laws.
 
(j)   Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
 
(k)   Indemnification . In consideration of each Purchaser’s execution and delivery of this Agreement and the other Transaction Documents and purchase of the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement and the other Transaction Documents, from and after the Closing Date, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of the Securities and/or Dividend Shares and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives, including, without limitation, those retained in connection with the transactions contemplated by this Agreement (collectively, the “ Indemnitees ”), from and against any and all actions, causes of action, suits, judgments, claims, losses, costs, penalties, fees, liabilities, amounts paid in settlements, and damages (including diminution in value of the Securities and Dividend Shares), and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to any action for which indemnification hereunder is sought), whether or not involving a third party claim, and including reasonable attorneys’ fees and disbursements (the “ Indemnified Liabilities ”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby or (iii) any cause of action, suit or claim brought or made against such Indemnitee by any Person (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of this Agreement, any other Transaction Document or any other certificate, instrument or document contemplated hereby or thereby, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance and sale of the Securities, or (C) the status of such Purchaser or holder of the Securities and/or Dividend Shares as an investor in the Company, and shall reimburse each such Indemnitee for the reasonable costs and expenses as they are incurred in connection with investigating, monitoring, responding to or defending any of the foregoing. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.
 
 
 
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(l)   Joint Participation in Drafting . Each party to this Agreement has participated in the negotiation and drafting of this Agreement and the other Transaction Documents. As such, the language used herein and therein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement.
 
(m)   Knowledge . As used in this Agreement, the term “knowledge” of any Person shall mean and include (i) with respect to the Company, the actual knowledge of any of the Company’s officers or directors and (ii) that knowledge which a reasonably prudent business person could have obtained in the management of his or her business affairs after making due inquiry and exercising due diligence which a prudent business person should have made or exercised, as applicable, with respect thereto.
 
(n)   Exculpation Among Purchasers . The Company acknowledges that the obligations of each Purchaser under this Agreement and each of the other Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. Each Purchaser acknowledges that it has independently evaluated the merits of the transactions contemplated by this Agreement and the other Transaction Documents, that it has independently determined to enter into the transactions contemplated hereby and thereby, that it is not relying on any advice from or evaluation by any other Purchaser, and that it is not acting in concert with any other Purchaser in making its purchase of securities hereunder or in monitoring its investment in the Company. The Purchasers and the Company agree that no action taken by any Purchaser pursuant hereto or the other Transaction Documents shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or would deem such Purchasers to be members of a “group” for purposes of Section 13(d) of the Exchange Act, and the Purchasers have not agreed to act together for the purpose of acquiring, holding, voting or disposing of equity securities of the Company. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a “group” for purposes of Section 13(d) of the Exchange Act with respect to the Transaction Documents or the transactions contemplated hereby or thereby. Each Purchaser acknowledges that it has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.
 
(o)   Business Days and Trading Days . For purposes of this Agreement, the term “business day” means any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law, regulation or executive order to close, and the term “trading day” means any day on which the OTCQB or, if the Common Stock is not then traded on the OTCQB, the principal national securities exchange, automated quotation system or other trading market where the Common Stock is then listed, quoted or traded, is open for trading.
 
(p)   Termination . This Agreement may be terminated at any time prior to the Closing by the written notice of the Required Purchasers to the Company if the Closing shall not have occurred on or before September 11, 2018. Any such termination shall be effective immediately upon delivery of such notice to the Company, unless such notice provides for a different time for termination. If this Agreement is terminated prior to the Closing, then the Company shall promptly (but in no event later than one (1) business day after the date of such termination) deliver written notice to the Escrow Agent that the “Termination Date” (as defined in the Escrow Agreement) has occurred and instruct the Escrow Agent to, and otherwise cause the Escrow Agent to, refund to the Purchasers all amounts deposited into the Escrow Account (as defined in the Escrow Agreement) by the Purchasers in accordance with the terms of the Escrow Agreement. The Company shall not amend or permit any other Person to amend the Escrow Agreement without the prior written consent of the Required Purchasers. “ Required Purchasers ” shall mean the Purchasers who have agreed to purchase at least a majority of the Securities to be sold hereunder.
 
 
 
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(q)   Fees and Expenses . Except as expressly set forth in the Transaction Documents to the contrary (including the requirement of the Company to pay the reasonable fees and disbursements of Stroock & Stroock & Lavan LLP, as counsel to certain Purchasers as set forth in Section 7(k) above), each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities and/or Dividend Shares to the Purchasers.
 
(r)   Specific Performance . The Company and each of the Purchasers acknowledge and agree that (a) irreparable damage would occur in the event that any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, and (b) remedies at law would not be adequate to compensate the non-breaching party. Accordingly, the Company and each of the Purchasers agree that each of them shall have the right, in addition to any other rights and remedies existing in its favor, to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce its rights and obligations hereunder not only by an action or actions for damages but also by an action or actions for specific performance, injunctive and/or other equitable relief. The right to equitable relief, including specific performance or injunctive relief, shall exist notwithstanding, and shall not be limited by, any other provision of this Agreement. The Company and each of the Purchasers hereby waives any defense that a remedy at law is adequate and any requirement to post bond or other security in connection with actions instituted for injunctive relief, specific performance or other equitable remedies.
 
 
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
 
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IN WITNESS WHEREOF, the Purchasers and the Company have caused this Agreement to be duly executed as of the date first above written.
 
IMAGEWARE SYSTEMS, INC.
 
 
By:                                                                            
Name:
Title:
 
PURCHASER:
 
 
(Print or Type Name of Purchaser)
 
 
By:                                                                            
Name:
Title:
 
ADDRESS:                      
 
 
Telephone:                                                      
Facsimile:                                                      
E-Mail:                                                      
Attention:                                                      
 
AGGREGATE SUBSCRIPTION AMOUNT:
 
Number of shares of Preferred Stock:                                                                                                            
Purchase Price ($10,000 per share of Preferred Stock):                                                                                                                      
 
 
 
 
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EXHIBIT A
 
Certificate of Designations
 
 
 
-23-
 
 
EXHIBIT B
 
Registration Rights Agreement
 
 
 
 
-24-
 
 
EXHIBIT C
 
Escrow Agreement
 
 
 
 
-25-
 
 
EXHIBIT D
 
Wire Instructions
 
 
 
 
-26-
 
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
 
This Registration Rights Agreement (the “ Agreement ”) is made and entered into as of this 10th day of September, 2018 by and among ImageWare Systems, Inc., a Delaware corporation (the “ Company ”), and the “ Purchasers ” named in that certain Securities Purchase Agreement by and among the Company and the Purchasers (the “ Purchase Agreement ”). Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.
 
The parties hereby agree as follows:
 
1.
Certain Definitions .
 
As used in this Agreement, the following terms shall have the following meanings:
 
“ Affiliate ” means, with respect to any Person, any other Person that (either directly or indirectly) controls, is controlled by, or is under common control with the specified Person, and shall also include any Related Fund of such Person. The term “ control ” includes the possession, directly or indirectly, of the power to direct the management or policies of a Person, whether through the ownership of securities, by contract or otherwise.
 
“ Common Stock ” means the Company’s common stock, par value $0.01 per share, and any securities into which such Common Stock may hereinafter be reclassified.
 
“ Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Preferred Stock issued pursuant to the Purchase Agreement.
 
“ 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 authority.
 
“ Prospectus ” means (i) the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus, and (ii) any “ free writing prospectus ” as defined in Rule 405 under the 1933 Act.
 
“ Purchasers ” means the Purchasers identified in the Purchase Agreement and any Affiliate or permitted transferee of any Purchaser who is a subsequent holder of any Registrable Securities.
 
“ Register ,” “ registered ” and “ registration ” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document.
 
“ Registrable Securities ” means the (i) Conversion Shares and any other securities issued or issuable with respect to or in exchange for Registrable Securities, whether by merger, charter amendment or otherwise, and (ii) shares of Common Stock issuable as dividends payable with respect to the Preferred Stock; provided , that, a security shall cease to be a Registrable Security upon sale pursuant to a Registration Statement or Rule 144 under the 1933 Act.
 
 
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“ Registration Statement ” means any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.
 
“ Related Fund ” means, with respect to any Person, any fund, account or investment vehicle that is controlled or managed by (i) such Person, (ii) an Affiliate of such Person or (iii) the same investment manager, advisor or subadvisor as such Person or an Affiliate of such investment manager, advisor or subadvisor.
 
“ Required Purchasers ” means, as of any date of determination, the Purchasers holding a majority of the Registrable Securities as of such date.
 
“ SEC ” means the U.S. Securities and Exchange Commission.
 
 “ 1933 Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
 
“ 1934 Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
2.
Registration .
 
(a)   Registration Statements .
 
(i)   No later than 30 days from the date of this Agreement (the “ Filing Deadline ”), the Company shall prepare and file with the SEC one Registration Statement (the “ Initial Registration Statement ”) covering the resale of all of the Registrable Securities on a continuous basis pursuant to Rule 415 of the Securities Act. The Initial Registration Statement filed hereunder shall be on Form S-3; provided , that if Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (x) register the resale of the Registrable Securities on another appropriate form and (y) undertake to register the resale of Registrable Securities on Form S-3 as soon as such form is available, provided , that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the staff of the SEC. No Purchaser shall be named as an “underwriter” in the Initial Registration Statement without such Purchaser’s prior written consent. Such Initial Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. Such Initial Registration Statement shall not include any shares of Common Stock or other securities for the account of any other Person (including the Company) without the prior written consent of the Required Purchasers. The Initial Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Purchasers and their counsel prior to its filing or other submission. If (i) the Initial Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, or (ii) prior to the effective date of the Initial Registration Statement, the Company shall fail to file any pre-effective amendment to the Initial Registration Statement required to be filed by the SEC or otherwise respond to comments from the SEC within 15 days from the date of receipt of such comments (a “ Response Failure ”), the Company will make payments to each Purchaser, as liquidated damages and not as a penalty, in an amount equal to 1.0% of the aggregate Purchase Price paid by such Purchaser for its Preferred Stock on the Closing Date pursuant to the Purchase Agreement (such amount, with respect to each Purchaser, the “ Investment Amount ”) for the first 30-day period or pro rata for any portion thereof following the Filing Deadline for which no Initial Registration Statement is filed with respect to the Registrable Securities, or following a Response Failure, as the case may be, and 1.5% of such Purchaser’s Investment Amount for each 30-day period thereafter or pro rata for any portion thereof for which no Initial Registration Statement is filed with respect to the Registrable Securities, or following a Response Failure, as the case may be; provided , that the maximum payments to any Purchaser pursuant to this Section 2(a)(i) shall not exceed 12.0% of such Purchaser’s Investment Amount. Such payments shall constitute the Purchasers’ exclusive monetary remedy for such events, but shall not affect the right of the Purchasers to seek injunctive relief.
 
 
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(b)   Expenses . The Company will pay all expenses associated with each Registration Statement (whether or not such Registration Statement becomes effective), including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, listing fees, and the reasonable fees and expenses of counsel to, (i) with respect to the Initial Registration Statement, the Required Purchasers, (ii) with respect to a Demand Registration, the Requesting Holders and (iii) with respect to any Piggyback Registration, Purchasers that at the relevant time hold at least a majority of the Registrable Securities held by all Purchasers to be included in such Piggyback Registration.
 
(c)   Effectiveness of Registration Statements .
 
(i)   The Company shall use its best efforts to have the Initial Registration Statement declared effective as soon as practicable, but in no event later than ninety (90) days after the date of this Agreement. The Company shall notify the Purchasers by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Purchasers with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby. If (A) the Initial Registration Statement covering the Registrable Securities is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Initial Registration Statement will be made or that the SEC has no further comments on the Registration Statement and (ii) the 90 th day after the date hereof; (B) after the Initial Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Initial Registration Statement for any reason (including without limitation by reason of a stop order, the Company’s failure to update the Initial Registration Statement or on account of any event described in Section 3(h)) or the inability of any Purchaser to sell the Registrable Securities covered thereby due to market conditions; or (C) the Initial Registration Statement ceases to remain continuously effective as to all Registrable Securities included thereunder, then the Company will make payments to each Purchaser, as liquidated damages and not as a penalty, in an amount equal to 1.0% of such Purchaser’s Investment Amount for the first 30-day period or pro rata for any portion thereof following the date by which such Initial Registration Statement should have been effective and 1.5% of such Purchaser’s Investment Amount for each 30-day period thereafter or pro rata for any portion thereof for which such Initial Registration Statement should have been effective (the “ Blackout Period ”); provided , that the maximum payments to any Purchaser pursuant to this Section 2(c) shall not exceed 16.0% of such Purchaser’s Investment Amount. Such payments shall constitute the Purchasers’ exclusive monetary remedy for such events, but shall not affect the right of the Purchasers to seek injunctive relief.
 
(d)   Rule 415; Cutback If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in any Registration Statement filed pursuant to the terms and conditions of this Agreement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Purchaser to be named as an “underwriter”, the Company shall use its best efforts to persuade the SEC that the offering contemplated by such Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Purchasers is an “underwriter”. The Purchasers shall have the right to participate or have their counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to comment or have their counsel comment on any written submission made to the SEC with respect thereto. No such written submission shall be made to the SEC to which the Required Purchasers’, or, with respect to a Demand Registration, the Requesting Purchasers’ (as such term is defined in Section 2(f)(i) below), counsel reasonably objects. In the event that, despite the Company’s best efforts and compliance with the terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from such Registration Statement such portion of the Registrable Securities that the SEC requires to be removed from such Registration Statement, while still including the maximum number of Registrable Securities permitted to be registered by the SEC under such Registration Statement at such time (such removed Registrable Securities, the “ Cut Back Shares ”), and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “ SEC Restrictions ”); provided, however , that the Company shall not agree to name any Purchaser as an “underwriter” in any Registration Statement without the prior written consent of such Purchaser. Any cut-back imposed on the Purchasers pursuant to this Section 2(d) shall be allocated, first, among all securities that are not Registrable Securities (to the extent previously permitted by the Required Purchasers, or, in the case of a Demand Registration, by the Requesting Purchasers), and second, among the Purchasers on a pro rata basis, unless the SEC Restrictions otherwise require or provide or the Purchasers otherwise agree. In the event of any cut-back imposed on the Purchasers pursuant to this Section 2(d), the Company will use its best efforts to file with the SEC, as promptly as allowed by the SEC, one or more Registration Statements on Form S-1 covering the resale of the Cut Back Shares or such other form available to register for resale the Cut Back Shares. No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is permitted to effect the registration of such Cut Back Shares using Form S-3 in accordance with any SEC Restrictions (such date, the “ Restriction Termination Date ” of such Cut Back Shares). From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of this Section 2 (including the liquidated damages provisions) shall again be applicable to any Cut Back Shares that are not included in a Registration Statement prior to the Restriction Termination Date; provided, however , that (i) the Filing Deadline for any Registration Statement including any Cut Back Shares that have not otherwise been included in a Registration Statement that has been declared effective shall be ten (10) Business Days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares under Section 2(c) shall be the 120 th day immediately after the Restriction Termination Date.
 
 
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(e)   Right to Piggyback Registration .
 
(i)   If at any time following the date of this Agreement that any Registrable Securities remain outstanding the Company proposes for any reason to register any shares of Common Stock under the 1933 Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form)) with respect to an offering of Common Stock by the Company for its own account or for the account of any of its stockholders, it shall, unless a holder of Registrable Securities has provided written notice to the Company that it does not want to receive such information, at each such time promptly give written notice to the holders of the Registrable Securities of its intention to do so (but in no event less than thirty (30) days before the anticipated filing date) and, to the extent permitted under the provisions of Rule 415 under the 1933 Act, include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after receipt of the Company’s notice (a “ Piggyback Registration ”). Such notice shall offer the holders of the Registrable Securities the opportunity to register such number of shares of Registrable Securities as each such holder may request and shall indicate the intended method of distribution of such Registrable Securities.
 
(ii)   Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Purchasers must sell their Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible for other expenses as set forth in Section 2(b)) and subject to the Purchasers entering into customary underwriting documentation for selling stockholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to Section 2(e)(i) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement to become effective under the 1933 Act, the Company shall deliver written notice to the Purchasers and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration; provided, however , that nothing contained in this Section 2(e) shall limit the Company’s liabilities and/or obligations under this Agreement, including, without limitation, the obligation to pay liquidated damages under this Section 2. Any Purchaser may elect to withdraw such Purchaser’s request for inclusion of Registrable Securities in any Piggyback Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement or the pricing of an underwritten offering, as applicable.
 
(f)   Demand Registration .
 
(i)   At any time and from time to time after the Initial Registration Statement has been declared effective, any Purchaser or group of Purchasers (acting together) that own or control Registrable Securities representing at least fifty percent (50%) of the then-issued and outstanding Registrable Securities (collectively, the “ Requesting Purchasers ”), may deliver to the Company a written notice (a “ Demand Registration Notice ”) informing the Company that such Requesting Purchasers require the Company to register for resale some or all of such Requesting Purchasers’ Registrable Securities not otherwise then registered for resale by the Initial Registration Statement (a “ Demand Registration ”); provided, however, that the Company will not be required to effect more than two (2) Demand Registrations in accordance with this Agreement. Upon receipt of the Demand Registration Notice, the Company will use best efforts to file with the SEC as promptly as practicable after receiving the Demand Registration Notice, but in no event more than sixty (60) days following receipt of the Demand Registration Notice, a Registration Statement covering all requested Registrable Securities (the “ Demand Registration Statement ”), and agrees to use best efforts to cause the Demand Registration Statement to be declared effective by the SEC as soon as practicable following the filing thereof, but in no event later than ninety (90) days after the filing of such Demand Registration Statement. The Company agrees to use best efforts to keep any Demand Registration Statement continuously effective (including the preparation and filing of any amendments and supplements necessary for that purpose) until such time as all of the Registrable Securities covered thereby have been sold (“ Minimum Effective Period ”).
 
(ii)   Notice to Purchasers . The Company shall give written notice of the proposed filing of any Demand Registration Statement to all Purchasers (other than the Requesting Purchasers) as soon as practicable, and each such Purchaser who wishes to participate in such Demand Registration Statement shall notify the Company in writing within five (5) Business Days after the receipt by such Purchaser of the notice from the Company, and shall specify in such notice the number of Registrable Securities held by such Purchaser to be included in the Demand Registration Statement. Upon the written request of any Purchaser, delivered to the Company no later than five (5) Business Days after the Company’s notice is delivered to such Purchaser (each such Purchaser, a “ Joining Purchaser ”), to register, on the same terms and conditions as the Registrable Securities otherwise being sold pursuant to such Demand Registration, any of its Registrable Securities, the Company will use its best efforts to cause such Registrable Securities to be included in the Demand Registration Statement proposed to be filed by the Company on the same terms and conditions as any Registrable Securities included therein.
 
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3.
Company Obligations . The Company will use best efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:
 
(a)   use best efforts to cause the Initial Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Initial Registration Statement as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by such Initial Registration Statement may be sold without restriction and without the need for current public information pursuant to Rule 144 (the “ Effectiveness Period ”) and advise the Purchasers in writing when the Effectiveness Period has expired;
 
(b)   prepare and file with the SEC such amendments and post-effective amendments to any Registration Statement and Prospectus as may be necessary to keep such Registration Statement effective for, with respect to the Initial Registration Statement, the Effectiveness Period and with respect to any Demand Registration Statement, the Minimum Effective Period, and in any case to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered in any Registration Statement;
 
(c)   provide copies to and permit counsel designated by the Purchasers to review each Registration Statement and all amendments and supplements thereto no fewer than seven (7) days prior to their filing with the SEC and not file any Registration Statement or other document to which such counsel reasonably objects;
 
(d)   furnish to the Purchasers and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than two (2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1) copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Purchaser may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Purchaser that are covered by the related Registration Statement;
 
(e)   use best efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;
 
(f)   prior to any public offering of Registrable Securities, use best efforts to register or qualify or cooperate with the Purchasers and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Purchasers and do any and all other acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by any Registration Statement; provided, however , that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general consent to service of process in any such jurisdiction;
 
 
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(g)   use best efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed or quoted;
 
(h)   immediately notify the Purchasers, at any time prior to the end of the Effectiveness Period or the Minimum Effective Period, as applicable, upon discovery that, or upon the happening of any event as a result of which, any Prospectus includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;
 
(i)   otherwise use best efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, including, without limitation, Rule 172 under the 1933 Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly inform the Purchasers in writing if, at any time during the Effectiveness Period or Minimum Effective Period, as applicable, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Purchasers are required to deliver a Prospectus in connection with any disposition of Registrable Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 3(i), “ Availability Date ” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “ Availability Date ” means the 90th day after the end of such fourth fiscal quarter);
 
(j)   if during the Effectiveness Period, the number of Registrable Securities at any time exceeds 100% of the number of shares of Common Stock then registered in the Initial Registration Statement, the Company shall file as soon as reasonably practicable an additional Registration Statement covering the resale by the Purchasers of not less than the number of such Registrable Securities; and
 
(k)   with a view to making available to the Purchasers the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Purchasers to sell shares of Common Stock to the public without registration, the Company covenants and agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction (including without volume or manner-of-sale restrictions) and without the need for current public information by the holders thereof pursuant to Rule 144 or any other rule of similar effect and (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (iii) furnish to each Purchaser upon request, as long as such Purchaser owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Purchaser of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration. The parties agree that nothing contained herein shall limit the Company’s obligations under the Purchase Agreement.
 
 
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4.
Due Diligence Review; Information . The Company shall make available, upon reasonable advance written notice, during normal business hours, for inspection and review by the Purchasers, advisors to and representatives of the Purchasers (who may or may not be affiliated with the Purchasers and who are reasonably acceptable to the Company), all financial and other records, all SEC Documents (as defined in the Purchase Agreement) and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Purchasers or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Purchasers and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the accuracy of such Registration Statement.
 
The Company shall not disclose material nonpublic information to the Purchasers, or to advisors to or representatives of the Purchasers, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Purchasers, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Purchaser wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.
 
5.
Obligations of the Purchasers .
 
(a)   Each Purchaser shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least ten (10) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Purchaser of the information the Company requires from such Purchaser if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement. A Purchaser shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement.
 
(b)   Each Purchaser, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.
 
(c)   Each Purchaser agrees that, upon receipt of any notice from the Company of the happening of an event pursuant to Section 3(h) hereof, such Purchaser will immediately discontinue disposition of Registrable Securities pursuant to the applicable Registration Statement covering such Registrable Securities, until the Purchaser is advised by the Company that such dispositions may again be made.
 
 
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6.
Indemnification .
 
(a)   Indemnification by the Company . The Company will indemnify and hold harmless each Purchaser and its officers, directors, members, employees and agents, successors and assigns, and each other person, if any, who controls such Purchaser within the meaning of the 1933 Act (collectively, the “ Purchaser Indemnitees ”), against any losses, claims, damages or liabilities, joint or several, to which such Purchaser Indemnitee may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “ Blue Sky Application ”); (iii) the omission or alleged omission to state in a Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act or 1934 Act or any state securities laws in connection with the performance of its obligations under this Agreement; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Purchaser’s behalf and will promptly reimburse such Purchaser Indemnitee for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however , that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Purchaser or any such controlling person in writing specifically for use in such Registration Statement or Prospectus. The indemnity provided in this Section 6(a) shall survive the transfer of the Registrable Securities by any Purchaser to any other Person.
 
(b)   Indemnification by the Purchasers . Each Purchaser agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) (collectively, the “ Company Indemnitees ”) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of a Purchaser be greater in amount than the dollar amount of the proceeds (net of all underwriter’s discounts and expenses paid by such Purchaser in connection with any claim relating to this Section 6 and the amount of any damages such Purchaser has otherwise been required to pay by reason of such untrue statement or omission) received by such Purchaser upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.
 
(c)   Conduct of Indemnification Proceedings . Any person entitled to indemnification under Section 6(a) or Section 6(b) (an “ Indemnitee ”) shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the Indemnitee; provided that any Indemnitee shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Indemnitee or (c) in the reasonable judgment of any such Indemnitee, based upon written advice of its counsel, a conflict of interest exists between such Indemnitee and the indemnifying party with respect to such claims (in which case, if such Indemnitee notifies the indemnifying party in writing that such Indemnitee elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Indemnitee); and provided, further , that the failure of any Indemnitee to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all such Indemnitees. No indemnifying party will, except with the consent of the Indemnitee, consent to entry of any judgment or enter into any settlement that (i) does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liability in respect of such claim or litigation or (ii) includes a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of the Indemnitee.
 
(d)   Contribution . If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an Indemnitee or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the Indemnitee as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the Indemnitee and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.
 
 
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7.
Miscellaneous .
 
(a)   Amendments and Waivers . This Agreement may be amended only by a writing signed by the Company and the Required Purchasers. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Required Purchasers.
 
(b)   Notices . All notices and other communications provided for or permitted hereunder shall be made as set forth in the Purchase Agreement.
 
(c)   Assignments and Transfers by Purchasers . The provisions of this Agreement shall be binding upon and inure to the benefit of the Purchasers and their respective successors and assigns. A Purchaser may transfer or assign, in whole or from time to time in part, to one or more persons its rights and obligations hereunder in connection with the transfer of Registrable Securities by such Purchaser to such person, provided that such Purchaser complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected (such transferee, a " permitted transferee ").
 
(d)   Assignments and Transfers by the Company . This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Purchasers, provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder (and shall have acknowledged such assumption in writing), the term “ Company ” shall be deemed to refer to such Person and the term “ Registrable Securities ” shall be deemed to include the securities received by the Purchasers in connection with such transaction unless such securities are otherwise freely tradable by the Purchasers after giving effect to such transaction.
 
(e)   Benefits of the Agreement . Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement and except for any Indemnitee not a party hereto (solely with respect to Section 6).
 
(f)   Counterparts; Faxes . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed via facsimile or other electronic means, which shall be deemed an original.
 
(g)   Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
 
(h)   Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.
 
(i)   Further Assurances . The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.
 
 
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(j)   Entire Agreement . This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.
 
(k)   Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.
 
(l)   Injunctive Relief . It is hereby agreed and acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties to this Agreement fail to comply with any of the obligations imposed on them by this Agreement and that in the event of any such failure, a non-breaching party hereto will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, be entitled to injunctive relief, specific performance or other equitable remedies to enforce such obligations, this being in addition to any other remedy to which such Person is entitled at law or in equity. Each of the parties hereto hereby waives any defense that a remedy at law is adequate and any requirement to post bond or other security in connection with actions instituted for injunctive relief, specific performance or other equitable remedies. Each of the parties hereto hereby agrees not to assert that specific performance, injunctive relief and other equitable remedies are unenforceable, violate public policy, invalid, contrary to law or inequitable for any reason. The right of specific performance, injunctive relief and other equitable remedies is an integral part of the transactions contemplated by this Agreement.
 
(m)   Recapitalizations, Exchanges, Etc . The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Registrable Securities, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Registrable Securities and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof
 
 
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(n)   Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser hereunder are several and not joint with the obligations of any other Purchaser hereunder, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of group or entity, or create a presumption that the Purchasers are in any way acting in concert or as a group or entity with respect to such obligations or the transactions contemplated by this Agreement or any other matters, and the Company acknowledges that the Purchasers are not acting in concert or as a group, and the Company shall not assert any such claim, with respect to such obligations or transactions. Without limiting the foregoing, no Purchaser has agreed with any other Purchaser, and no term, provision, obligation or agreement of any Purchaser set forth herein shall be deemed to constitute an agreement with any other Purchaser, to act together for the purposes of acquiring, holding, voting or disposing of equity securities of the Company. Each Purchaser shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The use of a single agreement with respect to the obligations of the Company contained herein was solely in the control of the Company, not the action or decision of any Purchaser, and was done solely for the convenience of the Company and not because it was required or requested to do so by any Purchaser. It is expressly understood and agreed that each provision contained in this Agreement is between the Company and an Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among Purchasers.
 
(o)   No Inconsistent Agreements . Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Purchasers in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any of its Subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.
 
(p)   Prohibition on Filing Other Registration Statements . The Company shall not file any other registration statements until all Registrable Securities are registered pursuant to the Initial Registration Statement that is declared effective by the staff of the Commission, provided that this Section 7(p) shall not prohibit the Company from filing amendments to registration statements filed prior to the date of this Agreement.
 
 
 
( Signature Pages Follow )
 
 
 

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.
 
The Company:  
IMAGEWARE SYSTEMS, INC.
 
 
 
By:_________________________
Name: Jim Miller
Title: Chief Executive Officer
 
 
 
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The Purchasers:   
____________________________________
 
 
 
By:_______________________________
Name:
Title:
 
 
 
 
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Exhibit 10.3
890 shares of Series C Convertible Preferred Stock
 
ImageWare Systems, Inc.
 
PLACEMENT AGENCY AGREEMENT
 
 
September 10, 2018
NORTHLAND SECURITIES, INC.
150 South Fifth Street, Suite 3300
Minneapolis, Minnesota 55402
 
Ladies and Gentlemen:
 
ImageWare Systems, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated in this Placement Agency Agreement (this “Agreement”) and the Securities Purchase Agreement in a form mutually agreed upon by the Company and the Placement Agent (the “Purchase Agreement”) entered into with the investors identified therein (each, an “Investor” and collectively, the “Investors”), to issue and sell up to an aggregate of 890 shares of the Company’s Series C Convertible Preferred Stock (the “Preferred Stock”), which are convertible into shares of the Company’s Common Stock (the “Conversion Shares,” and together with the Preferred Stock, the “Securities”). The Company hereby confirms its agreement with Northland Securities, Inc. (“Northland” or the “Placement Agent”) as set forth below. Northland Capital Markets is the trade name for certain capital markets and investment banking activities of Northland Securities, Inc., member FINRA/SIPC.
 
1.   Agreement to Act as Placement Agent; Delivery and Payment . On the basis of the representations, warranties and agreements of the Company herein contained, and subject to the terms and conditions set forth in this Agreement:
 
(a)   The Company hereby engages the Placement Agent, as the exclusive agent of the Company concerning a potential private placement (the “Private Placement”), to, on a commercially reasonable efforts basis, solicit offers to purchase the Preferred Stock from the Company on the terms and subject to the conditions set forth in the Purchase Agreement and Private Placement Documents (as defined below). In undertaking this assignment, the Placement Agent will, among other things, identify potential investors (the “Potential Investors”). The Placement Agent is permitted to engage selected dealers and co-agents in performing the services hereunder. The Placement Agent is authorized on behalf of the Company to use and distribute copies of any documents provided to the Placement Agent or Potential Investors in connection with the Private Placement, including SEC Documents, the Certificate of Designation, Preferences, Rights and Limitations of Series C Convertible Preferred Stock in the form of Exhibit A attached to the Purchase Agreement, the Registration Rights Agreement, in the form attached to the Purchase Agreement as Exhibit B (collectively, the “Private Placement Documents”) in connection with the sale of the Securities as, and to the extent, permitted by federal and applicable state securities laws. The Private Placement Documents do not contain any material, non-public information regarding the Company. The Placement Agent shall use commercially reasonable efforts to assist the Company in obtaining performance by each Investor whose offer to purchase the Preferred Stock was solicited by the Placement Agent and accepted by the Company, but the Placement Agent shall not, except as otherwise provided in this Agreement, have any liability to the Company in the event any such purchase is not consummated for any reason. In connection with its commercially reasonable efforts to solicit offers to purchase the Preferred Stock, the Placement Agent shall only communicate information regarding the Company to potential purchasers of the Preferred Stock that is consistent with the information contained in the Private Placement Documents. Under no circumstances will the Placement Agent or any of its affiliates be obligated to underwrite or purchase any of the Preferred Stock for its own account or otherwise provide any financing. The Placement Agent shall act solely as the Company’s agent and not as principal. The Placement Agent shall not have any authority to bind the Company with respect to any prospective offer to purchase Preferred Stock, and the Company shall have the sole right to accept offers to purchase Preferred Stock and may reject any such offer, in whole or in part.
 
 
 
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(b)   As compensation for services rendered by the Placement Agent hereunder, on the Closing Date (as defined below), the Company shall pay or cause to be paid to the Placement Agent by wire transfer of immediately available funds to an account or accounts designated by the Placement Agent, an aggregate amount equal to 8.0% of the gross proceeds received by the Company from the sale of the Preferred Stock to Investors (the “Agency Fee”). Such amount may be deducted from the payment made by the Investor(s) to the Company and paid directly to the Placement Agent on the Closing Date. The Placement Agent agrees that the foregoing compensation, together with any expense reimbursement payable hereunder, constitutes all of the compensation that the Placement Agent shall be entitled to receive in connection with the Offering contemplated hereby. The Placement Agent may allow concessions, or pay commissions, to other dealers participating in the offering of the Preferred Stock.
 
(c)   The Preferred Stock is being sold to the Investors at a price of $10,000 per share (the “Purchase Price”). The purchases of Preferred Stock by the Investors shall be evidenced by the execution of the Purchase Agreement by each of the parties thereto.
 
(d)   Prior to the earlier of ( i ) the date on which this Agreement is terminated and ( ii ) the Closing Date, the Company shall not, without the prior written consent of the Placement Agent, solicit or accept offers to purchase shares of the Common Stock (other than pursuant to the exercise of options or warrants to purchase shares of Common Stock that are outstanding at the date hereof or are granted in the ordinary course to directors, officers or employees of the Company under the Company’s equity incentive plans) otherwise than through the Placement Agent in accordance herewith.
 
(e)   No Preferred Stock that the Company has agreed to sell pursuant to this Agreement and the Purchase Agreement shall be deemed to have been purchased and paid for, or sold by the Company, until such Preferred Stock shall have been delivered to the Investor purchasing such Preferred Stock against payment therefor by such Investor. If the Company shall default in its obligations to deliver Preferred Stock to an Investor whose offer it has accepted, the Company shall indemnify and hold the Placement Agent harmless against any loss, claim, damage or liability directly or indirectly arising from or as a result of the default by the Company in accordance with the procedures set forth in Section 6(c) hereof.
 
(f)   Payment of the purchase price for, and delivery of the Preferred Stock shall be made at a closing (the “Closing”) at the time and date as the Placement Agent and the Company determine pursuant to Rule 15c6-1(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (such date of payment and delivery being herein referred to as the “Closing Date”). Subject to the terms hereof, payment of the purchase price for the Preferred Stock shall be made to the Company in the manner set forth below by Federal Funds wire transfer, against delivery of the Preferred Stock to such persons and shall be registered in the name or names and shall be in such denominations as the Placement Agent may request at least one business day before the Closing Date. Payment of the purchase price for the Preferred Stock to be purchased by Investors shall be made by such Investors to the Escrow Agent, as defined in the Purchase Agreement for disbursement to the Company on the Closing Date. Subject to the terms and conditions hereof, on the Closing Date, the Company shall pay to the Placement Agent the amount of expenses for which the Placement Agent is entitled to reimbursement pursuant hereto. At least one day prior to the Closing Date, the Placement Agent shall submit to the Company its bona fide estimate of the amount of expenses for which it is entitled to reimbursement pursuant hereto. As soon as reasonably practicable after the Closing Date, the Placement Agent shall submit to the Company its expense reimbursement invoice and the Company or the Placement Agent, as applicable, shall make any necessary reconciling payment(s) within thirty days of receipt of such invoices.
 
2.   Representations and Warranties of the Company . The Company represents and warrants to the Placement Agent as of the date hereof and as of the Closing Date, and agrees with the Placement Agent, as follows:
 
 
 
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(a)   Financial Statements . The consolidated financial statements contained in each report, registration statement and definitive proxy statement filed by the Company with the SEC (all documents filed with the SEC, the “ SEC Documents”) and the Private Placement Documents comply in all material respects with the requirements of the Securities Act and the Exchange Act and fairly present the financial condition of the Company and its consolidated subsidiaries as of the dates indicated and the results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted accounting principles in the United States consistently applied throughout the periods involved; the supporting schedules included in the SEC Documents present fairly the information required to be stated therein; all non-GAAP financial information included in the SEC Documents complies in all material respects with the requirements of Regulation G and Item 10 of Regulation S-K under the Securities Act; and, except as disclosed in the SEC Documents, there are no material off-balance sheet arrangements (as defined in Regulation S-K under the Securities Act, Item 303(a)(4)(ii)) or any other relationships with unconsolidated entities or other persons, that may have a material current or, to the Company’s knowledge, material future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures, capital resources or significant components of revenue or expenses. No other financial statements or schedules are required to be included in the SEC Documents. To the Company’s knowledge Mayer Hoffman McCann P.C. has expressed its opinion with respect to the financial statements and schedules filed as a part of the SEC Documents, is (x) an independent public accounting firm within the meaning of the Securities Act and the Rules and Regulations, (y) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”)) and (z) not in violation of the auditor independence requirements of the Sarbanes-Oxley Act.
 
(b)   Organization and Good Standing . Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and its subsidiaries has full corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the SEC Documents, and is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it owns or leases real property or in which the conduct of its business makes such qualification necessary and in which the failure to so qualify would have a material adverse effect upon the business, prospects, management, properties, operations, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken as a whole (“Material Adverse Effect”).
 
(c)   Absence of Certain Events . Except as contemplated in the SEC Documents, subsequent to the respective dates as of which information is given in the SEC Documents, neither the Company nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants or conversion of convertible securities), or any material change in the short term or long term debt (other than as a result of the conversion of convertible securities), or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of the Company or any of its subsidiaries, or any material adverse change in the general affairs, condition (financial or otherwise), business, prospects, management, properties, operations or results of operations of the Company and its subsidiaries, taken as a whole (“Material Adverse Change”) or any development which could reasonably be expected to result in any Material Adverse Change.
 
(d)   Absence of Proceedings . Except as set forth in the SEC Documents, there is not pending or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding (a) to which the Company or any of its subsidiaries is a party or (b) which has as the subject thereof any officer or director of the Company or any subsidiary, any employee benefit plan sponsored by the Company or any subsidiary or any property or assets owned or leased by the Company or any subsidiary before or by any court or Governmental Authority (as defined below), or any arbitrator, which, individually or in the aggregate, would result in any Material Adverse Change, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement or which are otherwise material in the context of the sale of the Securities. There are no current or, to the knowledge of the Company, pending, legal, governmental or regulatory actions, suits or proceedings (x) to which the Company or any of its subsidiaries is subject or (y) which has as the subject thereof any officer or director of the Company or any subsidiary, any employee plan sponsored by the Company or any subsidiary or any property or assets owned or leased by the Company or any subsidiary, that are required to be described in the SEC Documents by the Exchange Act or by the Rules and Regulations and that have not been so described.
 
 
 
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(e)   Authorization; No Conflicts; Authority . This Agreement has been duly authorized, executed and delivered by the Company, and constitutes a valid, legal and binding obligation of the Company, enforceable in accordance with its terms, except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity. The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (B) result in any violation of the provisions of the Company’s charter or by-laws or (C) result in the violation of any law or statute or any judgment, order, rule, regulation or decree of any court or arbitrator or federal, state, local or foreign governmental agency or regulatory authority having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets (each, a “Governmental Authority”), except in the case of clauses (A) and (C) as would not result in a Material Adverse Effect. No consent, approval, authorization or order of, or registration or filing with any Governmental Authority is required for the execution, delivery and performance of this Agreement or for the consummation of the transactions contemplated hereby, including the issuance or sale of the Securities by the Company, except such as may be required under the Securities Act, the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the OTCQB Marketplace (“OTCQB”) or state securities or blue sky laws; and the Company has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby, including the authorization, issuance and sale of the Securities as contemplated by this Agreement.
 
(f)   Capitalization; the Securities; Registration Rights . All of the issued and outstanding shares of capital stock of the Company, including the outstanding shares of Common Stock, are duly authorized and validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state and foreign securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities that have not been waived in writing (a copy of which, if any, has been delivered to counsel to the Placement Agent), and the holders thereof are not subject to personal liability by reason of being such holders; the Securities which may be sold hereunder by the Company have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable, and the holders thereof will not be subject to personal liability by reason of being such holders; and the capital stock of the Company conforms to the description thereof in the SEC Documents. Except as otherwise stated in the SEC Documents, (A) there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company’s charter, by laws or any agreement or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound; (B) the offering or sale of the Securities as contemplated by this Agreement does not give rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company (collectively “Registration Rights”) and (C) any person to whom the Company has granted Registration Rights has agreed not to exercise such rights until after expiration of the Lock-Up Period (as defined below). All of the issued and outstanding shares of capital stock of each of the Company’s subsidiaries have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise described in the SEC Documents, the Company owns of record and beneficially, free and clear of any security interests, claims, liens, proxies, equities or other encumbrances, all of the issued and outstanding shares of such stock. The Company has an authorized and outstanding capitalization as set forth in the SEC Documents. The Common Stock conforms in all material respects to the description thereof contained in the SEC Documents.
 
 
 
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(g)   Stock Options . Except as described in the SEC Documents, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from the Company or any subsidiary of the Company any shares of the capital stock of the Company or any subsidiary of the Company. The description of the Company’s stock option, stock bonus and other stock plans or arrangements (the “Company Stock Plans”), and the options or other rights granted thereunder (collectively, the “Awards”), set forth in the SEC Documents accurately and fairly presents in all material respects the information required to be shown with respect to such plans, arrangements and Awards. Each grant of an Award (A) was duly authorized no later than the date on which the grant of such Award was by its terms to be effective by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto and (B) was made in accordance with the terms of the applicable Company Stock Plan, and all applicable laws and regulatory rules or requirements, including all applicable federal securities laws.
 
(h)   Compliance with Laws . The Company and each of its subsidiaries holds, and is operating in compliance in all material respects with, all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders of any Governmental Authority or self-regulatory body required for the conduct of its business and all material franchises, grants, authorizations, licenses, permits, easements, consents, certifications and orders are valid and in full force and effect; and neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any material franchise, grant, authorization, license, permit, easement, consent, certification or order or has reason to believe that any material franchise, grant, authorization, license, permit, easement, consent, certification or order will not be renewed in the ordinary course; and the Company and each of its subsidiaries is in compliance in all material respects with all applicable federal, state, local and foreign laws, regulations, orders and decrees.
 
(i)   Ownership of Assets . The Company and its subsidiaries have good and marketable title to, or have valid rights to lease or otherwise use, all property (whether real or personal) described in the SEC Documents as being owned, leased or used by them, in each case free and clear of all liens, claims, security interests, other encumbrances or defects except such as are described in the SEC Documents. The property held under lease by the Company and its subsidiaries is held by them under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do not interfere in any material respect with the conduct of the business of the Company or its subsidiaries.
 
(j)   Intellectual Property.
 
(A) 
The Company and each of its subsidiaries owns or has the right to use pursuant to a valid and enforceable written license or other legally enforceable right, all Intellectual Property (as defined below) necessary for the conduct of the Company’s and its subsidiaries’ businesses as now conducted or as described in the SEC Documents to be conducted (the “Company IP”). “Intellectual Property” means all patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, domain names, technology, know-how and other intellectual property.
 
(B) 
To the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any Company IP. There is no pending or, to the knowledge of the Company, threatened, action, suit, proceeding or claim by others challenging the Company’s or its subsidiaries’ rights in or to any Company IP, and the Company is unaware of any facts which would form a reasonable basis for any such claim. The Intellectual Property owned by the Company and its subsidiaries, and to the knowledge of the Company, the Intellectual Property licensed to the Company and its subsidiaries, has not been adjudged invalid or unenforceable, in whole or in part, and there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Company IP, and the Company is unaware of any facts which would form a reasonable basis for any such claim. There is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others that the Company or its subsidiaries infringe, misappropriate or otherwise violate any Intellectual Property or other proprietary rights of others, and neither the Company nor any of its subsidiaries has received any written notice of such claim and the Company is unaware of any other fact which would form a reasonable basis for any such claim.
 
 
 
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(C) 
To the Company’s knowledge, no employee of the Company or any of its subsidiaries is in or has ever been in material violation of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company or any of its subsidiaries or actions undertaken by the employee while employed with the Company or any of its subsidiaries.
 
(D) 
The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their material Intellectual Property.
 
(E) 
All patent applications owned by the Company or its subsidiaries and filed with the U.S. Patent and Trademark Office (the “PTO”) or any foreign or international patent authority that have resulted in patents or currently pending applications that describe inventions necessary to conduct the business of the Company or its subsidiaries as now conducted or as described in the SEC Documents to be conducted (collectively, the “Company Patent Applications”) have been or were duly and properly filed.
 
(F) 
The Company and its subsidiaries have complied with their duty of candor and disclosure to the PTO for the Company Patent Applications. To the Company’s knowledge, there are no facts required to be disclosed to the PTO that were not disclosed to the PTO and which would preclude the grant of a patent for the Company Patent Applications. The Company has no knowledge of any facts which would preclude it or its applicable subsidiary from having clear title to the Company Patent Applications that have been identified by the Company as being exclusively owned by the Company or one of its subsidiaries.
 
(k)   No Violations or Defaults . Neither the Company nor any of its subsidiaries is in violation of its respective charter, by laws or other organizational documents, or in breach of or otherwise in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default in the performance of any obligation, agreement or condition contained in any bond, debenture, note, indenture, loan agreement or any other contract, lease or other instrument to which it is subject or by which any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, except as would not have a Material Adverse Effect.
 
(l)   Taxes . The Company and its subsidiaries have timely filed all federal, state, local and foreign income and franchise tax returns required to be filed and are not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, other than any which the Company or any of its subsidiaries is contesting in good faith. There is no pending dispute with any taxing authority relating to any of such returns, and the Company has no knowledge of any proposed liability for any tax to be imposed upon the properties or assets of the Company for which there is not an adequate reserve reflected in the Company’s financial statements included in the SEC Documents.
 
(m)   Exchange Listing and Exchange Act Registration . The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is quoted on the OTCQB and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Securities and Exchange Commission (the “Commission”) is contemplating terminating such registration. The Company has complied in all material respects with the applicable requirements of the OTCQB for maintenance of inclusion of the Common Stock on the OTCQB automated quotation system. Except as previously disclosed to counsel for the Placement Agent or as set forth in the SEC Documents, to the knowledge of the Company, no beneficial owners of the Company’s capital stock who, together with their associated persons and affiliates, hold in the aggregate 10% or more of such capital stock, have any direct or indirect association or affiliate with a FINRA member.
 
 
 
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(n)   Ownership of Other Entities . Other than the subsidiaries listed in this paragraph, the Company, directly or indirectly, owns no capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust or other entity. The Company’s subsidiaries currently consist of the following entities: I.W. Systems Canada Company, a Nova Scotia unlimited liability company; Digital Imaging International GmbH, a company formed under German laws; and ImageWare Mexico, S. DE R.L.
 
(o)   Internal Controls . The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the SEC Documents, the Company’s internal control over financial reporting is effective and none of the Company, its board of directors and audit committee is aware of any “significant deficiencies” or “material weaknesses” (each as defined by the Public Company Accounting Oversight Board) in its internal control over financial reporting, or any fraud, whether or not material, that involves management or other employees of the Company and its subsidiaries who have a significant role in the Company’s internal controls; and since the end of the latest audited fiscal year, there has been no change in the Company’s internal control over financial reporting (whether or not remediated) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s board of directors has, subject to the exceptions, cure periods and the phase in periods specified in the applicable stock exchange rules (“Exchange Rules”), validly appointed an audit committee to oversee internal accounting controls whose composition satisfies the applicable requirements of the Exchange Rules and the Company’s board of directors and/or the audit committee has adopted a charter that satisfies the requirements of the Exchange Rules.
 
(p)   No Brokers or Finders . Other than as contemplated by this Agreement, the Company has not incurred any liability for any finder’s or broker’s fee or agent’s commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
 
(q)   Insurance. The Company and each of its subsidiaries carries, or is covered by, insurance from reputable insurers in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and the properties of its subsidiaries and as is customary for companies engaged in similar businesses in similar industries; all policies of insurance and any fidelity or surety bonds insuring the Company or any of its subsidiaries or its business, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any of its subsidiaries has been refused any insurance coverage sought or applied for; and neither the Company nor any of its subsidiaries has reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.
 
(r)   Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Securities, will not be an “investment company,” as such term is defined in the Investment Company Act of 1940, as amended.
 
(s)   Sarbanes-Oxley Act . The Company is in compliance with all applicable provisions of the Sarbanes-Oxley Act and the rules and regulations of the Commission thereunder.
 
(t)     Disclosure Controls. The Company has established and maintains disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Exchange Act) and such controls and procedures are effective in ensuring that material information relating to the Company, including its subsidiaries, is made known to the principal executive officer and the principal financial officer. The Company has utilized such controls and procedures in preparing and evaluating the disclosures in the SEC Documents.
 
 
 
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(u)    Anti-Bribery and Anti-Money Laundering Laws . Each of the Company, its subsidiaries, its affiliates and any of their respective officers, directors, supervisors, managers, agents or employees has not, to the Company’s, knowledge, violated and its participation in the offering will not violate each of the following laws: anti-bribery laws, including but not limited to, any applicable law, rule, or regulation of any locality, including but not limited to any law, rule, or regulation promulgated to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed December 17, 1997, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010, or any other law, rule or regulation of similar purposes and scope, or anti-money laundering laws, including but not limited to, applicable federal, state, international, foreign or other laws, regulations or government guidance regarding anti-money laundering, including, without limitation, Title 18 U.S. Code Section 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and international anti-money laundering principles or procedures by an intergovernmental group or organization, such as the Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur, all as amended, and any executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder.
 
(v)     OFAC.
 
(A) 
Neither the Company nor any of its subsidiaries, nor any of their directors, officers or employees, nor, to the Company’s knowledge, any agent, affiliate or representative of the Company or its subsidiaries, is an individual or entity that is, or is owned or controlled by an individual or entity that is:
 
(1) 
the subject of any sanctions administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority (collectively, “Sanctions”), nor
 
(2) 
located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, the Crimea Region of Ukraine, Cuba, Iran, North Korea, Sudan and Syria).
 
(B) 
Neither the Company nor any of its subsidiaries will, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other individual or entity:
 
(1) 
to fund or facilitate any activities or business of or with any individual or entity or in any country or territory that, at the time of such funding or facilitation, is the subject of Sanctions; or
 
(2) 
in any other manner that will result in a violation of Sanctions by any individual or entity (including any individual or entity participating in the offering, whether as underwriter, advisor, investor or otherwise).
 
(C) 
For the past five years, neither the Company nor any of its subsidiaries has knowingly engaged in, and is not now knowingly engaged in, any dealings or transactions with any individual or entity, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions.
 
(w)   Compliance with Environmental Laws . Except as disclosed in the SEC Documents, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any Governmental Authority or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim would, individually or in the aggregate, have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. Neither the Company nor any of its subsidiaries anticipates incurring any material capital expenditures relating to compliance with Environmental Laws.
 
 
 
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(x)   Compliance with Occupational Laws . The Company and each of its subsidiaries (A) is in compliance, in all material respects, with any and all applicable foreign, federal, state and local laws, rules, regulations, treaties, statutes and codes promulgated by any and all Governmental Authorities (including pursuant to the Occupational Health and Safety Act) relating to the protection of human health and safety in the workplace (“Occupational Laws”); (B) has received all material permits, licenses or other approvals required of it under applicable Occupational Laws to conduct its business as currently conducted; and (C) is in compliance, in all material respects, with all terms and conditions of any such permits, licenses or approvals. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against the Company or any of its subsidiaries relating to Occupational Laws, and the Company does not have knowledge of any facts, circumstances or developments relating to its operations or cost accounting practices that could reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings.
 
(y)   ERISA and Employee Benefits Matters . (A) To the knowledge of the Company, no “prohibited transaction” as defined under Section 406 of ERISA (as defined below) or Section 4975 of the Code (as defined below) and not exempt under ERISA Section 408 and the regulations and published interpretations thereunder has occurred with respect to any Employee Benefit Plan (as defined below). At no time has the Company or any ERISA Affiliate (as defined below) maintained, sponsored, participated in, contributed to or has or had any liability or obligation in respect of any Employee Benefit Plan subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, or Section 412 of the Code or any “multiemployer plan” as defined in Section 3(37) of ERISA or any multiple employer plan for which the Company or any ERISA Affiliate has incurred or could incur liability under Section 4063 or 4064 of ERISA. No Employee Benefit Plan provides or promises, or at any time provided or promised, retiree health, life insurance, or other retiree welfare benefits except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or similar state law. Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable laws, including but not limited to ERISA and the Code and, to the knowledge of the Company, no event has occurred (including a “reportable event” as such term is defined in Section 4043 of ERISA) and no condition exists that would subject the Company or any ERISA Affiliate to any material tax, fine, lien, penalty or liability imposed by ERISA, the Code or other applicable law. Each Employee Benefit Plan intended to be qualified under Code Section 401(a) is so qualified and has a favorable determination or opinion letter from the IRS upon which it can rely, and any such determination or opinion letter remains in effect and has not been revoked; to the knowledge of the Company, nothing has occurred since the date of any such determination or opinion letter that is reasonably likely to adversely affect such qualification; (B) with respect to each Foreign Benefit Plan (as defined below), such Foreign Benefit Plan (1) if intended to qualify for special tax treatment, meets, in all material respects, the requirements for such treatment, and (2) if required to be funded, is funded to the extent required by applicable law, and with respect to all other Foreign Benefit Plans, adequate reserves therefor have been established on the accounting statements of the applicable Company or subsidiary; (C) neither the Company nor any of its subsidiaries has any obligations under any collective bargaining agreement with any union and no organization efforts are underway with respect to employees of the Company or any of its subsidiaries. As used in this Agreement, “Code” means the Internal Revenue Code of 1986, as amended; “Employee Benefit Plan” means any “employee benefit plan” within the meaning of Section 3(3) of ERISA, including, without limitation, all stock purchase, stock option, stock-based severance, employment, change-in-control, medical, disability, fringe benefit, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, under which (1) any current or former employee, director or independent contractor of the Company or its subsidiaries has any present or future right to benefits and which are contributed to, sponsored by or maintained by the Company or any of its subsidiaries or (2) the Company or any of its subsidiaries has had or has any present or future obligation or liability; “ERISA” means the Employee Retirement Income Security Act of 1974, as amended; “ERISA Affiliate” means any member of the Company’s controlled group as defined in Code Section 414(b), (c), (m) or (o); and “Foreign Benefit Plan” means any Employee Benefit Plan established, maintained or contributed to outside of the United States of America or which covers any employee working or residing outside of the United States.
 
 
 
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(z)    Business Arrangements . Except as disclosed in the SEC Documents, neither the Company nor any of its subsidiaries has granted exclusive rights to develop, manufacture, produce, assemble, distribute, license, market or sell its products to any other person and is not bound by any agreement that affects the exclusive right of the Company or such subsidiary to develop, manufacture, produce, assemble, distribute, license, market or sell its products.
 
(aa)     Labor Matters . No labor problem or dispute with the employees of the Company or any of its subsidiaries exists or is threatened or imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or its subsidiaries’ principal suppliers, contractors or customers, that could have a Material Adverse Effect.
 
(bb)   Restrictions on Subsidiary Payments to the Company . No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as provided by applicable state law or described in the SEC Documents.
 
(cc)    Statistical Information . Any third-party statistical and market-related data included in the SEC Documents are based on or derived from sources that the Company believes to be reasonably current and reliable and accurate in all material respects.
 
(dd)    Forward-looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the SEC Documents has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
 
(ee)   Non-public Information. The Company has not provided and has not authorized any other person to act on its behalf to provide any Investor or its respective agents or counsel with any information about the Company that constitutes or might constitute material, non-public information which is not otherwise disclosed in the SEC Documents.
 
(ff)   Private Placement . Assuming the accuracy of the representations of the Purchasers in the Purchase Agreement, on each Closing Date and solely as this subsection relates to the issue and sale of the Conversion Shares on the date(s) of conversion of the Preferred Stock (assuming no change in applicable law prior to the date the Conversion Shares are issued), are and will be exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 (the “Securities Act”) and have been or will be registered or qualified (or are or will be exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Securities to the purchasers in the Private Placement. Upon the conversion of the Preferred Stock pursuant to their terms, the Conversion Shares will be quoted on the OTCQB. Other than the Private Placement Documents, the Company has not distributed and will not distribute prior to a Closing any offering material in connection with the offering and sale of the Securities, unless such offering materials are provided to the Placement Agent prior to or simultaneously with such delivery to the offerees of the Securities. The Company agrees that no Private Placement Documents (as hereinafter defined) or materials presented or distributed to the Potential Investors, including the SEC Documents, shall contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
 
(gg)   No General Solicitation . Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D promulgated under the Securities Act) in connection with the offer or sale of the Securities.
 
 
 
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(hh)   Bad Actor Disqualification.
 
(A) 
With respect to Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act (“Regulation D Securities”), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the Private Placement, any beneficial owner of 20% or more of the Company's outstanding voting equity securities (calculated on the basis of voting power), nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of such sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i)–(viii) under the Securities Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Placement Agent and the Potential Investors a copy of any disclosures provided thereunder.
 
(B) 
The Company is not aware of any person (other than any Issuer Covered Person or Dealer Covered Person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of the Securities. For the purposes of this subsection, “Dealer Covered Person” shall mean Northland Securities, Inc. or any of its directors, executive officers, general partners, managing members or other officers participating in the Private Placement.
 
(C) 
The Company will notify the Placement Agent in writing, prior to each Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.
 
(ii)   No Manipulation; Disclosure Of Information . None of the Company, its subsidiaries or any executive officer of the Company (as defined in Rule 501(f) of Regulation D under the Securities Act) has taken and will not take any action designed to or that might reasonably be expected to cause or result in an unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities,. The Company confirms that, to its knowledge, with the exception of the proposed sale of Securities contemplated in the Purchase Agreement (as to which the Company makes no representation), neither it nor any other person acting on its behalf has provided any of the Potential Investors or their agent or counsel with any information that constitutes or might constitute material, non-public information. The Company understands and confirms that the Potential Investors shall be relying on the foregoing representations in effecting transactions in securities of the Company. All disclosures provided to the Potential Investors regarding the Company, its business and the transactions contemplated by the Purchase Agreement, including the exhibits to the Purchase Agreement and the SEC Documents, furnished by the Company are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
 
(jj)   Application Of Takeover Protections; Rights Agreement . The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s articles of incorporation or the laws of the jurisdiction of its formation which is or could become applicable to any Potential Investor as a result of the transactions contemplated by the Purchase Agreement, including, without limitation, the Company’s issuance of the Securities and any Potential Investor’s ownership of the Securities. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.
 
 
 
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Any certificate signed by any officer of the Company or any Subsidiary and delivered to the Placement Agent or to counsel for the Placement Agent in connection with the offering of the Preferred Stock shall be deemed a representation and warranty by the Company to the Placement Agent and the Investors as to the matters covered thereby. All representations and warranties of the Company in the Purchase Agreement are deemed to have been made to the Placement Agent and incorporated by reference herein.
 
3.   Covenants . The Company covenants and agrees with the Placement Agent as follows:
 
(a)   Blue Sky Laws. The Company will promptly take or cause to be taken, from time to time, such actions as the Placement Agent may reasonably request to qualify the Securities for offering and sale under the state securities, or blue sky, laws of such states or other jurisdictions as the Placement Agent may reasonably request and to maintain such qualifications in effect so long as the Placement Agent may request for the distribution of the Securities, provided that in no event shall the Company be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to file a general consent to service of process in any jurisdiction or subject itself to taxation as doing business in any jurisdiction. The Company will advise the Placement Agent promptly of the suspension of the qualification or registration of (or any exemption relating to) the Securities for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment.
 
(b)   Public Communications. Prior to 9:00 a.m. New York City time on the business day immediately subsequent to the date hereof, the Company shall issue a press release (the “Press Release”) reasonably acceptable to the Placement Agent disclosing the execution of this Agreement, the Purchase Agreement and the transactions contemplated hereby and thereby. Prior to the Closing Date, the Company covenants not to issue any press release (other than the Press Release) or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Placement Agent is notified), without the prior written consent of the Placement Agent, unless in the judgment of the Company and its counsel, and after notification to the Placement Agent, such press release or communication is required by law.
 
(c)   Stabilization. The Company will not take directly or indirectly any action designed, or that would reasonably be expected to cause or result in, or that will constitute, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Preferred Stock and Conversion Shares.
 
(d)   Transfer Agent. The Company shall engage and maintain, at its expense, a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Preferred Stock and Conversion Shares.
 
(e)   Investment Company Act. The Company shall not invest or otherwise use the proceeds received by the Company from its sale of the Preferred Stock in such a manner as would require the Company or any Subsidiary to register as an investment company under the Investment Company Act.
 
4.   Costs and Expenses . In addition to the Agency Fee, the Company, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, will reimburse the Placement Agent for (a) all reasonable fees and disbursements of counsel retained by the Placement Agent with the Company’s consent, provided that such fees and disbursements of such counsel shall not exceed $90,000, (b) all of the Placement Agent’s reasonable travel and related expenses, and (c) any other reasonable out-of-pocket expenses incurred by the Placement Agent in connection with the performance of their services hereunder.
 
 
 
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5.   Conditions of Placement Agent’s Obligations . The obligations of the Placement Agent hereunder and the Investors under the Purchase Agreement are subject to the following conditions:
 
(a)   Action Preventing Issuance. No action shall have been taken and no law, statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would prevent the issuance or sale of the Securities or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued which would prevent the issuance or sale of the Securities or materially and adversely affect or potentially materially and adversely affect the business or operations of the Company.
 
(b)   Material Adverse Change. Subsequent to the date of the latest audited financial statements included or incorporated by reference in the SEC Documents, ( i ) the Company has not sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth in the SEC Documents, or ( ii ) there has not been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants or the conversion of convertible indebtedness), or material change in the short-term debt or long-term debt of the Company (other than upon conversion of convertible indebtedness) or any material adverse change, in or affecting the business, assets, general affairs, management, financial position, prospects, stockholders’ equity or results of operations of the Company, otherwise than as set forth in the SEC Documents, the effect of which, in any such case described in clause (i) or (ii) of this subsection (b) , is, in the reasonable judgment of the Placement Agent, so material and adverse as to make it impracticable or inadvisable to proceed with Private Placement.
 
(c)   Representations and Warranties. Each of the representations and warranties of the Company contained herein shall be true and correct in all material respects when made and on and as of the Closing Date, as if made on such date (except that those representations and warranties that address matters only as of a particular date shall remain true and correct as of such date), and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with.
 
(d)   Opinions of Counsel to the Company. The Placement Agent shall have received from Disclosure Law Group, a professional corporation, counsel to the Company, such counsel’s written opinions, addressed to the Placement Agent and the Investors and dated the Closing Date, in form and substance reasonably satisfactory to the Placement Agent and its counsel.
 
(e)   Opinion of Intellectual Property Counsel to the Company. The Placement Agent shall have received from San Diego IP Law Group LLP, intellectual property counsel for the Company, such opinion or opinions, dated the Closing Date, with respect to such matters as the Placement Agent may reasonably require, and the Company shall have furnished to such counsel such documents as it requests to enable it to pass upon such matters.
 
(f)   Opinion of Counsel to the Placement Agent. The Placement Agent shall have received from Faegre Baker Daniels LLP, counsel for the Placement Agent, such opinion or opinions, dated the Closing Date, with respect to such matters as the Placement Agent may reasonably require, and the Company shall have furnished to such counsel such documents as it requests to enable it to pass upon such matters.
 
(g)   No FINRA Objection. The Placement Agent shall not have received any unresolved objection from the FINRA as to the fairness and reasonableness of the amount of compensation allowable or payable to the Placement Agent in connection with the issuance and sale of the Securities.
 
 
 
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(h)   Officers’ Certificate. The Placement Agent shall have received on the Closing Date a certificate, addressed to the Placement Agent and dated the Closing Date, of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that:
 
(i)           each of the representations, warranties and agreements of the Company contained in this Agreement were true and correct when originally made and are true and correct in all material respects as of the Closing Date as if made on each such date (except that those representations and warranties that address matters only as of a particular date remain true and correct as of each such date); and the Company has complied with all agreements and satisfied all the conditions on its part required under this Agreement to be performed or satisfied at or prior to the Closing Date; and
 
(ii)           there has not been, subsequent to the date of the most recent audited financial statements included the SEC Documents, any material adverse change in the financial position or results of operations of the Company, or any change or development that, singularly or in the aggregate, would involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results of operations, business, assets or prospects of the Company except as set forth in the SEC Documents.
 
(i)   Purchase Agreement. The Company shall have entered into the Purchase Agreement with each of the Investors, and such agreement shall be in full force and effect on the Closing Date.
 
(j)   Additional Documents. Prior to the Closing Date, the Company shall have furnished to the Placement Agent such further information, certificates or documents as the Placement Agent shall have reasonably requested.
 
All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Placement Agent.
 
If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Placement Agent by notice to the Company at any time prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4 , Section 6 and Section 8 hereof shall at all times be effective and shall survive such termination.
 
6.   Indemnification and Contribution .
 
(a)   Indemnification of the Placement Agent. The Company agrees to indemnify, defend and hold harmless the Placement Agent, its affiliates and each of its and their respective directors, officers, members, employees, representatives and agents and its affiliates, and each of its and their respective directors, officers, members, employees, representatives and agents and each person who controls the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the successors and assigns of all of the foregoing persons, from and against any losses, claims, damages, expenses or liabilities, joint or several, to which such person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, the common law or otherwise (including in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon ( i ) any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Documents or any amendment or supplement thereto, or in any materials or information provided to Investors or Potential Investors by, or with the approval of, the Company in connection with the marketing of the offering of the Common Stock, including any roadshow or investor presentations made to Investors or Potential Investors by the Company (whether in person or electronically) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Placement Agent for any legal or other expenses reasonably incurred by it in connection with investigating or defending against such loss, claim, damage, liability, expense or action; or ( ii ) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or ( iii ) in whole or in part upon any failure of the Company to perform its obligations hereunder or under law.
 
 
 
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(b)   Notice and Procedures. If any action, suit or proceeding (each, a “Proceeding”) is brought against a person (an “Indemnified Party”) in respect of which indemnity may be sought against the Company or the Placement Agent (as applicable, the “Indemnifying Party”) pursuant to subsections (a)  or (b) above, respectively, of this Section 6 , such Indemnified Party shall promptly notify such Indemnifying Party in writing of the institution of such Proceeding and such Indemnifying Party shall assume the defense of such Proceeding, including the employment of counsel reasonably satisfactory to such Indemnified Party and payment of all fees and expenses; provided, however, that the omission to so notify such Indemnifying Party shall not relieve such Indemnifying Party from any liability which such Indemnifying Party may have to any Indemnified Party or otherwise, except to the extent the Indemnifying Party has been materially prejudiced by such failure; and provided, further, that the failure to notify the Indemnifying Party shall not relieve it from any liability that it may have to an Indemnified Party otherwise than under subsection (a) or (b) above. The Indemnified Party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless ( i ) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such Proceeding, ( ii ) the Indemnifying Party shall not have, within a reasonable period of time in light of the circumstances, employed counsel to defend such Proceeding or ( iii ) such Indemnified Party or parties shall have reasonably concluded upon written advice of counsel that there may be one or more legal defenses available to it or them which are different from, additional to or in conflict with those available to such Indemnifying Party (in which case such Indemnifying Party shall not have the right to direct that portion of the defense of such Proceeding on behalf of the Indemnified Party or parties, but such Indemnifying Party or parties may employ counsel and participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of the Indemnifying Party), in any of which events such reasonable fees and expenses shall be borne by such Indemnifying Party and paid as incurred (it being understood, however, that such Indemnifying Party shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel) in any one Proceeding or series of related Proceedings in the same jurisdiction representing the Indemnified Parties who are parties to such Proceeding). An Indemnifying Party shall not be liable for any settlement of any Proceeding effected without its written consent but, if settled with its written consent, such Indemnifying Party agrees to indemnify and hold harmless the Indemnified Party or parties from and against any loss or liability by reason of such settlement. Notwithstanding the foregoing sentence, if at any time an Indemnified Party shall have requested an Indemnifying Party to reimburse the Indemnified Party for fees and expenses of counsel as contemplated by the second sentence of this Section 6(c) , then the Indemnifying Party agrees that it shall be liable for any settlement of any Proceeding effected without its written consent if ( i ) such settlement is entered into more than 60 days after receipt by such Indemnifying Party of the aforesaid request, ( ii ) such Indemnifying Party shall not have fully reimbursed the Indemnified Party in accordance with such request prior to the date of such settlement and ( iii ) such Indemnified Party shall have given the Indemnifying Party at least 30 days’ prior notice of its intention to settle. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not include an admission of fault or culpability or a failure to act by or on behalf of such Indemnified Party.
 
(c)   Contribution. If the indemnification provided for in this Section 6 is unavailable to an Indemnified Party under subsections (a)  or (b)  of this Section 6 or insufficient to hold an Indemnified Party harmless in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of the losses, claims, damages, liabilities or expenses referred to in subsections (a) or (b) above, ( i ) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party or parties on the one hand and the Indemnified Party or parties on the other hand from the offering of the Securities or ( ii ) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Party or parties on the one hand and the Indemnified Party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Placement Agent on the other hand shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Preferred Stock (before deducting expenses) received by the Company
 
 
 
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bear to the Agency Fee received by the Placement Agent. The relative fault of the Company on the one hand and the Placement Agent on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Placement Agent, on the other hand, and the parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the Placement Agent provided no written information to the Company for use in the Private Placement Documents.
 
(d)   Allocation. The Company and the Placement Agent agree that it would not be just and equitable if contribution pursuant to subsection (d) above were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the first sentence of subsection (d) above. Notwithstanding the provisions of this Section 6(e) , the Placement Agent shall not be required to contribute any amount in excess of the total Agency Fee received by the Placement Agent in accordance with Section 1(b) less the amount of any damages which the Placement Agent has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement, omission or alleged omission, act or alleged act or failure to act or alleged failure to act. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Party at law or in equity.
 
(e)   Representations and Agreements to Survive Delivery. The obligations of the Company and the Placement Agent under this Section 6 shall be in addition to any liability which the Company and the Placement Agent may otherwise have. The indemnity and contribution agreements contained in this Section 6 and the covenants, agreements, warranties and representations of the Company contained in this Agreement shall remain operative and in full force and effect regardless of ( i ) any termination of this Agreement, ( ii ) any investigation made by or on behalf of the Placement Agent, any person who controls the Placement Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act or any affiliate of the Placement Agent, or by or on behalf of the Company, its directors or officers or any person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and ( iii ) the issuance and delivery of the Preferred Stock. The Company and the Placement Agent agree promptly to notify each other of the commencement of any Proceeding against it and, in the case of the Company, against any of the Company’s officers or directors in connection with the issuance and sale of the Securities, or in connection with the Private Placement Documents.
 
7.   Termination. The Placement Agent shall have the right to terminate this Agreement by giving notice as hereinafter specified at any time at or prior to the Closing Date, without liability on the part of the Placement Agent to the Company, if ( i ) prior to delivery and payment for the Preferred Stock ( A ) trading in securities generally shall have been suspended on or by the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Market, the NASDAQ Capital Market or in the over-the-counter markets, ( B ) trading in the Common Stock of the Company shall have been suspended on any exchange or in the over-the-counter market or by the Commission, or ( C ) a general moratorium on commercial banking activities shall have been declared by federal or New York state authorities or a material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States, ( D ) there shall have occurred any outbreak or material escalation of hostilities or acts of terrorism involving the United States or there shall have been a declaration by the United States of a national emergency or war, or ( E ) there shall have occurred any other calamity or crisis or any material change in general economic, political or financial conditions in the United States or elsewhere, if the effect of any such event specified in clause (D) or (E), in the reasonable judgment of the Placement Agent, is material and adverse and makes it impractical or inadvisable to proceed with the completion of the sale of and payment for the Preferred Stock on the Closing Date on the terms and in the manner contemplated by this Agreement and the Private Placement Documents, ( ii ) since the time of execution of this Agreement or the earlier respective dates as of which information is given in the Private Placement Documents, there has been any Material Adverse Effect, ( iii ) the Company shall have failed, refused or been unable to comply with the material terms or perform any material agreement or obligation of this Agreement or the Purchase Agreement, other than by reason of a default by the Placement Agent, or ( iv ) any condition of the Placement Agent’s obligations hereunder is not fulfilled. This Agreement may be terminated by any party if the Closing does not occur on or before September 30, 2018. Any such termination shall be without liability of any party to any other party except that the provisions of Section 4 , Section 6 , and Section 12 hereof shall at all times be effective notwithstanding such termination.
 
 
 
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8.   Notices . All statements, requests, notices and agreements hereunder shall be in writing or by facsimile, and:
 
(a)   if to the Placement Agent, shall be delivered or sent by mail or facsimile transmission as follows:
 
Northland Securities, Inc.
45 South Seventh Street, Suite 2000
Minneapolis, Minnesota 55402
Attention: Investment Banking
 
with a copy (which shall not constitute notice) to:
 
Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Jonathan R. Zimmerman
Facsimile No.: (612) 766-1600
 
(b)   if to the Company shall be delivered or sent by mail or facsimile transmission to:
 
ImageWare Systems, Inc.
10815 Rancho Bernanrdo Road, Suite 310,
San Diego, California 92127,
Attention: S. James Miller
 
with a copy (which shall not constitute notice) to:
 
Disclosure Law Group, a professional corporation
600 West Broadway, Suite 700
San Diego, California 92101
Attention: Jessica R. Sudweeks
Facsimile: (619) 330-2101
 
Any such statements, requests, notices or agreements shall be effective only upon receipt. Any party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.
 
9.   Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and shall be binding upon the Placement Agent, the Company, and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person other than the persons mentioned in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person, except that ( i ) the representations, warranties, covenants, agreements and indemnities of the Company contained in this Agreement shall also be for the benefit of the controlling persons, officers and directors referred to in Section 6(a) hereof and the indemnities of the Placement Agent shall also be for the benefit of the controlling persons, officers and directors referred to in Section 6(b) hereof; and ( ii ) the Investors are relying on the representations, warranties, covenants and agreements made by the Company under, and are intended third party beneficiaries of, this Agreement. The term “successors and assigns” as herein used shall not include any purchaser of the Securities by reason merely of such purchase.
 
 
 
-17-
 
 
10.   Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. Except as set forth below, no Proceeding may be commenced, prosecuted or continued in any court other than the courts of State of New York located in the City and County of New York or the United States District Court for the Southern District of New York, which courts shall have jurisdiction over the adjudication of such matters, and the parties hereby consent to the jurisdiction of such courts and personal service with respect thereto. The Company hereby consents to personal jurisdiction, service and venue in any court in which any Proceeding arising out of or in any way relating to this Agreement is brought by any third party against the Placement Agent. All parties hereby waive all right to trial by jury in any Proceeding (whether based upon contract, tort or otherwise) in any way arising out of or relating to this Agreement. All parties agree that a final judgment in any such Proceeding brought in any such court shall be conclusive and binding upon each party and may be enforced in any other courts in the jurisdiction of which a party is or may be subject, by suit upon such judgment.
 
11.   No Fiduciary Relationship . The Company hereby acknowledges and agrees that:
 
(a)   No Other Relationship. The Placement Agent has been retained solely to act as the exclusive placement agent in connection with the offering of the Company’s securities. The Company further acknowledges that the Placement Agent is acting pursuant to a contractual relationship created solely by this Agreement entered into on an arm’s-length basis and in no event do the parties intend that the Placement Agent act or be responsible as a fiduciary to the Company, its management, stockholders, creditors or any other person in connection with any activity that the Placement Agent may undertake or has undertaken in furtherance of the offering of the Company’s securities, either before or after the date hereof, irrespective of whether the Placement Agent has advised or is advising the Company on other matters . The Placement Agent hereby expressly disclaims any fiduciary or similar obligations to the Company, either in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions, and the Company hereby confirms its understanding and agreement to that effect.
 
(b)   Arm’s-Length Negotiations. The price and terms of the Securities set forth in this Agreement was established by the Company following discussions and arm’s-length negotiations with the Investors and the Placement Agent, and the Company is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement.
 
(c)   Absence of Obligation to Disclose. The Company has been advised that the Placement Agent and its affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and that the Placement Agent does not have any obligation to disclose such interests or transactions to the Company by virtue of any fiduciary, advisory or agency relationship.
 
(d)   Waiver. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Placement Agent with respect to any breach or alleged breach of any fiduciary or similar duty to the Company in connection with the transactions contemplated by this Agreement or any matters leading up to such transactions and agrees that the Placement Agent shall have no liability (whether direct or indirect) to the Company in respect of such a fiduciary duty claim to any person asserting a fiduciary duty claim on behalf of the Company, including stockholders, employees or creditors of the Company.
 
12.   Headings . The Section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement.
 
13.   Amendments and Waivers . No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The failure of a party to exercise any right or remedy shall not be deemed or constitute a waiver of such right or remedy in the future. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided.
 
 
 
-18-
 
 
14.   Counterparts . This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original and all such counterparts shall together constitute one and the same instrument. Delivery of an executed counterpart by facsimile or portable document format (.pdf) shall be effective as delivery of a manually executed counterpart thereof.
 
15.   Research Analyst Independence . The Company acknowledges that the Placement Agent’s research analysts and research departments are required to be independent from its investment banking division and are subject to certain regulations and internal policies, and that the Placement Agent’s research analysts may hold views and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the offering that differ from the views of their investment banking division. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Placement Agent with respect to any conflict of interest that may arise from the fact that the views expressed by its independent research analysts and research department may be different from or inconsistent with the views or advice communicated to the Company by the Placement Agent’s investment banking division. The Company acknowledges that the Placement Agent is a full service securities firm and as such from time to time, subject to applicable securities laws, rules and regulations, may effect transactions for its own account or the account of its customers and hold long or short positions in debt or equity securities of the Company; provided, however, that nothing in this Section 16 shall relieve the Placement Agent of any responsibility or liability it may otherwise bear in connection with activities in violation of applicable securities laws, rules or regulations.
 
16.   Entire Agreement . This Agreement constitutes the entire agreement of the parties to this Agreement with respect to the Company’s offering, issuance and sale of the Securities, and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof.
 
17.   Partial Unenforceability . The invalidity or unenforceability of any section, paragraph, clause or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph, clause or provision hereof. If any section, paragraph, clause or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
 
18.   Effectiveness . This Agreement shall become effective upon the execution and delivery hereof by the parties hereto.
 
[Signature page follows.]
 
-19-
 
 
If the foregoing is in accordance with your understanding of the agreement between the Company and the Placement Agent, kindly indicate your acceptance in the space provided for that purpose below.
 
 
 
 
 
 
 
 
Very truly yours,
 
 
 
 
 
IMAGEWARE SYSTEMS, INC.
 
 
 
 
 
By:
 
s/ Wayne Wetherell
 
 
 
Name: Wayne Wetherell
 
 
 
Title: Chief Financial Officer
Accepted as of
 
 
the date first above written:
 
 
 
 
 
 
NORTHLAND SECURITIES, INC.
 
 
By:   /s/ Shawn D. Messner
        Name: Shawn D. Messner
       Title: Managing Director, Investment Banking
 
 
 
 
 
 
 
-20-
 
 Exhibit 10.4
EXCHANGE AGREEMENT
 
This Exchange Agreement (this “ Agreement ”) is dated as of September __, 2018 (the “ Closing Date ”), by and among ImageWare Systems, Inc., a Delaware corporation (the “ Company ”), and ________ (“ ______ ”).
 
RECITALS
 
WHEREAS, the Company and Crocker are currently parties to that certain Convertible Promissory Note, dated _________, as amended ________ (as amended, the “ Note ”), which Note provides for maximum borrowings of up to $_______;
 
WHEREAS, as of September __, 2018, the total amount of advances under the Note, including outstanding principal and all accrued and unpaid interest thereon, equals $_______ (the “ Outstanding Amount ”); and
 
WHEREAS, subject to the terms and conditions set forth herein, the Company and _______ desire that, concurrently with the execution and delivery of this Agreement by the Company and ____________, (i) the Outstanding Amount shall be exchanged for shares of the Company’s Series A Convertible Preferred Stock, par value $0.01 per share, with a stated value of $1,000 per share (the “ Exchange Shares ”) (the “ Exchange ”), which Exchange Shares shall be convertible into shares of common stock of the Company, par value $0.01 per share (“ Conversion Shares ”), and (ii) all indebtedness, liabilities and other obligations arising under or relating to the Note (including, without limitation, principal, interest, fees, expenses, costs, disbursements, premium, and indemnification) be deemed cancelled, extinguished, released, discharged and satisfied in full without the requirement for the payment or provision of any consideration or other amounts (except for the issuance of the Exchange Shares in exchange for the Outstanding Amount as contemplated herein), each on the terms and conditions set forth in this Agreement.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby agreed and acknowledged, the parties hereby agree as follows:
 
AGREEMENT
 
1.   Securities Exchange .
 
(a)   In consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, ____________ hereby exchanges the Outstanding Amount for that number of Exchange Shares equal to the Outstanding Amount divided by 1,000 (rounded down to the nearest whole share), it being understood that the number of Exchange Shares issued in connection with the Exchange shall include accrued and unpaid interest on such Note up to and including the Closing Date. In consideration for the foregoing, the Company agrees to issue and deliver the Exchange Shares to ____________, as directed by ____________. For the avoidance of doubt, the number of Exchange Shares issued by the Company in exchange for the Outstanding Amount pursuant to this Section 1(a) is _________ (_____) Exchange Shares.
 
(b)   Within five business days after the Closing Date, the Company shall issue and deliver to ____________ a certificate evidencing the Exchange Shares against delivery of the Note to the Company. Following the Closing Date, the parties agree that all indebtedness, liabilities and other obligations arising under or relating to the Note (including, without limitation, principal, interest, fees, expenses, costs, disbursements, premium, and indemnification) shall be deemed cancelled, extinguished, released, discharged and satisfied in full without the requirement for the payment or provision of any consideration or other amounts (except for the issuance of the Exchange Shares in exchange for the Outstanding Amount as contemplated herein), and the Note shall be marked cancelled and paid in full. As a result of the foregoing the Note shall be terminated and of no further force and effect.
 
 
-1-
 
 
2.   Representations, Warranties and Covenants of ____________ . ____________ hereby makes the following representations and warranties to the Company, and covenants for the benefit of the Company:
 
(a)   This Agreement has been duly authorized, validly executed and delivered by ____________ and is a valid and binding agreement and obligation of ____________ enforceable against ____________ in accordance with its terms, subject to limitations on enforcement by general principles of equity and by bankruptcy or other laws affecting the enforcement of creditors’ rights generally, and ____________ has full power and authority to execute and deliver the Agreement and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder.
 
(b)   ____________ understands that the Exchange Shares are being offered and sold to it in reliance on the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of ____________ set forth herein.
 
(c)   ____________ is and will be acquiring the Exchange Shares for ____________’s own account, for investment purposes, and not with a view to any resale or distribution in whole or in part, in violation of the Securities Act of 1933, as amended (“ Securities Act ”) or any applicable securities laws.
 
(d)   ____________ owns and holds, beneficially and of record, the entire right, title, and interest in and to the Note free and clear of all rights and Encumbrances (as defined below). ____________ has full power and authority to transfer and dispose of the Note free and clear of any right or Encumbrance. Other than the transactions contemplated by this Agreement, there is no outstanding plan, pending proposal, or other right of any person to acquire all or any of the Note. Encumbrances shall mean any security or other property interest or right, claim, lien, pledge, option, charge, security interest, contingent or conditional sale, or other title claim or retention agreement, interest or other right or claim of third parties, whether perfected or not perfected, voluntarily incurred or arising by operation of law, and including any agreement (other than this Agreement) to grant or submit to any of the foregoing in the future.
 
(e)   ____________ agrees and acknowledges that it is currently an “affiliate” of the Company, as such term is defined in the Securities Act, and as a result cannot resell the Exchange Shares or Conversion Shares, as such term is defined in the Certificate of Designations, Preferences and Rights of the Exchange Shares, except in compliance with the Securities Act and any applicable state blue sky laws.
 
3.   Representations, Warranties and Covenants of the Company . The Company represents and warrants to ____________, and covenants for the benefit of ____________, as follows:
 
(a)   The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and to conduct its business as currently conducted, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to register or qualify would not have a Material Adverse Effect. For purposes of this Agreement, “ Material Adverse Effect ” shall mean any material adverse effect on the business, operations, properties, prospects, or financial condition of the Company and its subsidiaries and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its obligations under this Agreement in any material respect.
 
(b)   The Exchange Shares have been duly authorized by all necessary corporate action and, when paid for or issued in accordance with the terms hereof, the Exchange Shares shall be validly issued and outstanding, fully paid and nonassessable, free and clear of all liens, encumbrances and rights of refusal of any kind.
 
(c)   This Agreement has been duly authorized, validly executed and delivered on behalf of the Company and is a valid and binding agreement and obligation of the Company enforceable against the Company in accordance with its terms, subject to limitations on enforcement by general principles of equity and by bankruptcy or other laws affecting the enforcement of creditors’ rights generally, and the Company has full power and authority to execute and deliver the Agreement and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder.
 
 
 
 
-2-
 
 
(d)   The Company has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and delivery of the Exchange Shares hereunder.
 
4.   Governing Law; Consent to Jurisdiction . This Agreement shall be governed by and interpreted in accordance with the laws of the State of California without giving effect to conflict of law principles that would result in the application of the substantive laws of another jurisdiction. Each of the parties consents to the exclusive jurisdiction of the Federal courts whose districts encompass any part of the State of California in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens , to the bringing of any such proceeding in such jurisdictions. Each party waives its right to a trial by jury. Each party to this Agreement irrevocably consents to the service of process in any such proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party at its address set forth herein. Nothing herein shall affect the right of any party to serve process in any other manner permitted by law.
 
5.   Entire Agreement . This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior and/or contemporaneous oral or written proposals or agreements relating thereto all of which are merged herein. This Agreement may not be amended or any provision hereof waived in whole or in part, except by a written amendment signed by both of the parties.
 
6.   Counterparts . This Agreement may be executed by facsimile signature and in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
 
 
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
 
-3-
 
 
IN WITNESS WHEREOF, this Agreement was duly executed on the date first written above.
 
 
 
IMAGEWARE SYSTEMS, INC.
 
 
  By:______________________________________
       Name:
       Title:
 
 
 
______________:
________________________________________
 
 
 
 
 
-4-
 
  Exhibit 99.1
 
 
ImageWare ® Systems Closes $8.9 Million Preferred Stock
Private Placement and Approximately $6.9 Million
Debt Conversion into Equity
 
 
San Diego, CA, September 12, 2018 – ImageWare ® Systems, Inc. ( OTCQB: IWSY ), a leader in mobile and cloud-based, multi-factor, multi-modal biometric identity management solutions, today announced that it has completed a private placement of $8.9 million of the Company’s newly designated Series C Convertible Preferred Stock, with four new institutional investors. Shares of Series C Preferred will accrue dividends at a rate of 8% per annum if paid in cash or 10% per annum if paid in shares of the Company’s common stock, and are convertible into shares of the Company’s common stock at a conversion price of $1.00 per share.
 
Northland Capital Markets acted as the exclusive placement agent for the Series C Financing.   Northland Capital Markets is the trade name for certain capital markets and investment banking services of Northland Securities, Inc., member FINRA/SIPC.
 
Concurrently with the Series C Financing, holders of approximately $6.9 million of unsecured debt converted their debt, which amount includes all accrued and unpaid interest thereon, into 6,897 shares of the Company’s existing Series A Convertible Preferred Stock. The Company’s Board of Directors also declared a dividend for the holders of the Series A Preferred, pursuant to which each holder of Series A Preferred will receive a warrant to purchase approximately 40 shares of the Company’s common stock for every share of Series A Preferred held, which warrant is only exercisable concurrently with conversion of outstanding shares of Series A Preferred.
 
Jim Miller, Chairman and CEO of ImageWare stated, “ We are extremely pleased with the financial commitment that our new investors and our existing debt holders have shown in support of the Company’s efforts through this financing and debt conversion. The proceeds from the Series C Financing will enable us to expand our sales and marketing efforts.”
 
About ImageWare ® Systems, Inc.
ImageWare Systems, Inc. is a leading developer of mobile and cloud-based identity management solutions, providing patented biometric authentication solutions for the enterprise. Biometric technology uses unique physical characteristics to authenticate a person’s identity. The Company delivers next-generation biometrics as an interactive and scalable cloud-based solution. ImageWare brings together cloud and mobile technology to offer multi-factor authentication for smartphone users, for the enterprise, and across industries. 
 
ImageWare’s products support multi-factor, multi-modal biometric authentication including, but not limited to, any individual use or combination of face, voice, fingerprint, iris, palm, and more. All the biometrics can be combined with or used as replacements for authentication and access control tools, including tokens, digital certificates, passwords, and PINS, to provide the ultimate level of assurance, accountability, and ease of use for corporate networks, web applications, mobile devices, and PC desktop environments.
 
ImageWare is headquartered in San Diego, California, with offices in Portland, Oregon; Ottawa, Ontario; and Mexico City, Mexico. To learn more about ImageWare, visit   https://iwsinc.com/ and follow us on  Twitter , LinkedIn , YouTube , and   Facebook .
 
Forward-Looking Statements
Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “if,” “should” and “will” and similar expressions as they relate to ImageWare Systems, Inc. are intended to identify such forward-looking statements. ImageWare may from time to time update publicly announced projections, but it is not obligated to do so. Any projections of future results of operations should not be construed in any manner as a guarantee that such results will in fact occur. These projections are subject to change and could differ materially from final reported results. For a discussion of such risks and uncertainties, see “Risk Factors” in ImageWare’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and its other reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.
 
Investor Relations Contact
Harvey Bibicoff, CEO
Bibicoff + MacInnis, Inc.
818.379.8500 harvey@bibimac.com