Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES D 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 as
follows:
WHEREAS, on August 21, 2020, the Board
of Directors of the Company (the “Board of Directors”) duly adopted
a resolution (the “Original
Certificate of Designations of Series D Convertible Preferred
Stock”) creating a series of Preferred Stock
designated as the Series D Convertible Preferred Stock;
and
WHEREAS, the Board of Directors desires
to amend and restate the Original Certificate of Designations of
Series D Convertible Preferred Stock.
RESOLVED, that pursuant to the authority
expressly granted to and vested in the Board of Directors by
provisions of the Certificate of Incorporation of the Company (the
“Certificate of
Incorporation”), which was amended and restated on
November 12, 2020, the Original Certificate of Designations of
Series D Convertible Preferred Stock is hereby amended and restated
in its entirety to read as follows:
1. Designation and
Rank.
(a) The designation of
such series of the Preferred
Stock shall be the Series
D Convertible Preferred Stock,
par value $0.01 per share (the
“Series D Preferred”). The maximum number of shares of Series D Preferred shall be Twenty-Eight Thousand Five Hundred
(28,500) shares. The Series D 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”), Series A-1
Convertible Preferred Stock (“Series A-1 Preferred”), Series C
Convertible Preferred Stock (the “Series C Preferred”) and, except
as provided in Section l(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 D Preferred (collectively, “Junior
Stock”).
(b) The Series D 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 D Preferred with respect to rights on redemption or conversion. The date of original issuance of the Series
D Preferred is referred to herein as the “Issuance Date”.
2. Dividends.
(a) Payment
of Dividends.
(i) The holders of record of shares of Series D 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, calculated on the basis of
actual days elapsed in a year of 360 days, 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 additional Series D
Preferred. Dividends on each
outstanding share of Series D
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 Series D Preferred, the number of shares of Series D
Preferred to be issued to each applicable holder shall be
determined by dividing the total dividend then being paid to such
holder in shares of Series D Preferred by the Liquidation
Preference Amount per share of Series D Preferred (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
D 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
D Preferred shall receive the same proportion of cash and Dividend
Shares.
“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 four percent (4%) 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 four
percent (4%) 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 D 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 S-3 (or, if such form is not
available to the Company, a Form S-1) to register under the
Securities Act of 1933, as amended (the “Securities Act”), the resale, by
the holders of shares of Series D Preferred, of any Conversion
Shares (as defined below) issuable hereunder and not otherwise
eligible for resale under Rule 144 promulgated under the Securities
Act (“Rule
144”), without volume or manner-of-sale
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 D Preferred may sell all of such Conversion
Shares without restriction pursuant to Rule 144, without volume or
manner-of-sale restrictions or current public information
requirements, and (ii) the date when all of the Conversion Shares
registered thereunder have been disposed of by such holders of
Series D 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.
(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 D 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 D 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, Series A-1
Preferred, Series C Preferred or any other Junior Stock without
obtaining the approval (by vote or written consent) of the Majority
Holders, except that (i) the Company may pay dividends on the
Series A Preferred and Series A-1 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”) and the
Certificate of Designations, Preferences and Rights of Series A-1
Convertible Preferred Stock of ImageWare Systems, Inc.
(“Series A-1
Certificate”), each as in effect on the Issuance Date)
on the terms expressly set forth in Section 2 of the Series A
Certificate and Series A-1 Certificate, each as in effect on the
Issuance Date, (ii) the Company may pay dividends on the Series C
Preferred at the “Specified Rate” (as defined in the
Certificate of Designations, Preferences and Rights of Series C
Convertible Preferred Stock of ImageWare Systems, Inc. (the
“Series C
Certificate”) as in effect on the Issuance Date) on
the terms expressly set forth in Section 2 of the Series C
Certificate as in effect on the Issuance Date, and (iii) the
Company may pay dividends on the Common Stock solely in shares of
Common Stock; provided,
that the Series D Preferred will participate pro rata in any dividends paid on the
Series A Preferred, Series A-1 Preferred, Series C Preferred, or
Common Stock, pursuant to clauses (i), (ii), or (iii) of this
Section 2(c),
respectively. “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
D 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 D 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 D 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 D 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 D 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 D 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.
4. Liquidation, Dissolution, Winding-Up
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 D 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) $1,000 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 D
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 D Preferred, then all of said assets will be
distributed among the holders of the Series D Preferred, 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
D Preferred shall be equal to a ratably proportionate amount of the
payment with respect to each whole outstanding share of Series D
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) 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 D Preferred 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 D 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 D 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 D 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 D
Preferred to convert such shares of Series D Preferred pursuant to
and in accordance with Section 5 hereof.
5. Conversion.
(a) Voluntary Conversion. At any
time that is at least ninety (90) days following the Issuance Date,
the holder of any shares of Series D Preferred may, at such
holder’s option, elect to convert (a “Voluntary
Conversion”) all
or any portion of the shares of Series D 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 D 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 D 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 D 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 D 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 D Preferred that will be paid or distributed on
such redemption.
(b) Mandatory Conversion. If, on
any date that is at least five (5) years following the Issuance
Date, (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 D 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 l44 promulgated under the
Securities Act without volume or manner-of-sale 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 a share of Common Stock is greater than 300% of
the Conversion Price (as defined in Section 5(d) below) then in
effect (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 at least
twenty (20) Trading Days in any period of thirty (30) 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 D Preferred into Conversion
Shares.
(c) Mechanics
of Conversion. Conversions of Series D Preferred shall be
conducted in the following manner:
(i) Voluntary Conversion. To
convert Series D 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 D 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 D 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 D
Preferred of its intention to require the conversion of all of the
shares of Series D Preferred. The Mandatory Conversion Notice shall
set forth the number of Series D Preferred being converted (which
shall be all, and not less than all, issued and outstanding shares
of Series D Preferred), the date on which such conversion shall be
effective (the “Mandatory
Conversion Date”), and shall be given to the holders
of the Series D 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 D Preferred is convertible
pursuant to Section
5(b), each holder of the Series D 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 D Preferred owned by such holder. Upon the Mandatory
Conversion Date, such converted Series D 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 D Preferred are convertible pursuant to
Section 5(b), (y)
all accrued and unpaid dividends on such shares of Series D
Preferred pursuant to Section 2(b), and (z) any cash
in lieu of a fractional share of Common Stock pursuant to
Section
5(j).
(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 D Preferred represented by the
Preferred Stock Certificate(s) submitted for conversion is greater
than the number of shares of Series D 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 D Preferred not
converted. For purposes of this Section 5(e)(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 D 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(e)(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 $0.0583 per share of
Common Stock, subject to adjustment under Section 5(e)
hereof.
(ii) Notwithstanding
the foregoing to the contrary, if during any period (a
“Black-Out
Period”), a holder of Series D 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 D Preferred) such holder of
Series D 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 Black-Out 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 D Preferred that would have been applicable had such
Voluntary Conversion Date or Mandatory Conversion Date, as
applicable, been at any earlier time during the Black-Out
Period.
(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 D 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 D 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
D Preferred shall receive the number or amount of securities, cash,
indebtedness, or other property which they would have received had
their Series D 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 D
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 D
Preferred shall have the right thereafter to convert such share of
Series D 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 D Preferred might
have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further
adjustment as provided herein.
(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 D 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 D 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 D 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
D Preferred against impairment. In the event a holder shall elect
to convert any shares of Series D 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 D 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 D 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 D 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 D 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 D 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 D
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 D
Preferred, Conversion Shares, Dividend Shares or shares of Common
Stock or other securities issued on account of Series D 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.
(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, return-receipt 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 D 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 D 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 D 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 D 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 D Preferred and paying dividends on the
Series D 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 D 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 D
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 D Preferred based on the number of shares of Series D
Preferred held by each holder of record at the time of issuance of
the Series D 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 D
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 D Preferred shall
be allocated to the remaining holders of Series D Preferred,
pro rata based on the
number of shares of Series D 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 D Preferred and payment of
dividends on the Series D 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 D
Preferred. Conversion of shares of Series D 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 D 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 D 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 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
D Preferred, Conversion Shares, Dividend Shares and shares of
Common Stock or other securities issued on account of Series D
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.
6. No Preemptive Rights. Except as
provided in Section
2(c) and Section
5 hereof, no holder of the Series D 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. On the fourth (4th) anniversary of the Issuance
Date (or the next Trading Day thereafter), or in the event of the
consummation of a Change of Control (as defined in Section 7(c) below), if any
shares of Series D Preferred are outstanding, then each holder of
Series D 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 D Preferred at the Liquidation
Preference Amount per share of Series D 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 D 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 D Preferred in cash at a price per share
of Series D Preferred equal to 115% of the Liquidation Preference
Amount per share of Series D Preferred 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;
(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.
(iv) the
initiation, filing or implementation of a Voluntary Insolvency
Action with respect to the Company (or any material subsidiary of
the Company); or
(v) any liquidation,
dissolution, winding up of the affairs of the Company.
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 D Preferred shall receive
payment of the Liquidation Preference Amount in accordance with
Section
4.
“Voluntary Insolvency Action”
means, as applied to any Person, for such Person to file any
insolvency, or reorganization case or proceeding, to institute
proceedings to have such Person be adjudicated bankrupt or
insolvent, to institute proceedings under any applicable insolvency
law, to seek any relief in writing under any law relating to relief
from debts or the protection of debtors, to consent in writing to
the filing or institution of bankruptcy or insolvency proceedings
against such Person, to file a petition seeking, or consent in
writing to, reorganization or relief with respect to such Person
under any applicable federal or state law relating to bankruptcy or
insolvency, to seek or consent in writing to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian,
or any similar official of or for such Person or a substantial part
of its property, to make any assignment for the benefit of
creditors of such Person or to admit in writing in any legal
proceeding such Person’s inability to pay its debts generally
as they become due.
(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 D 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 D
Preferred, which Notice of Redemption at Option of Company Upon
Change of Control shall indicate (i) the number of shares of Series
D Preferred that the Company is electing to redeem from such holder
(which shall not be less than all of the shares of Series D
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 D 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 D Preferred
as a holder of such Series D 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 D 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 D 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. On the fourth (4th)
anniversary of the Issuance Date (or the next Trading Day
thereafter) 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 D 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 D 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 D Preferred set forth in the Holder Redemption Notice at the
Holder Redemption Price. The Holder Redemption Price for each share
of Series D 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 D 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 self-regulatory organization with
jurisdiction over the Company or its securities from issuing all of
the Conversion Shares
to be issued to a holder of Series D 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 D 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:
(i) if the
Company’s inability to fully convert Series D 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 D Preferred
that were to be converted pursuant to such holder’s
Conversion Notice (provided that a holder’s voiding its
Conversion Notice shall not affect 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 D 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 D 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) Pro-Rata Conversion. In the
event the Company receives a Conversion Notice from more than one
holder of Series D Preferred on the same day and the Company can
convert some, but not all, of the Series D Preferred pursuant to
this Section 8, the
Company shall convert from each holder of Series D Preferred
electing to have Series D Preferred converted at such time an
amount equal to such holder’s pro rata amount (based on the number of
shares of Series D Preferred held each such holder who desires to
convert such shares on such date relative to the total number of
shares of Series D Preferred held by all such holders who desire to
convert such shares on such date) of all shares of Series D
Preferred being converted at such time.
9. Protective Provisions.
Notwithstanding anything herein to the contrary, and in addition to
any other vote or approval required under the Company’s
Certificate of Incorporation and Bylaws (the “Bylaws”), Company shall not
(either directly or by amendment, merger, consolidation, or
otherwise), without obtaining the approval (by vote or written
consent) of the Majority Holders (“Majority Holder
Approval”):
(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 D 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 D 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;
(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;
(g) engage in a
transaction that would result in a Change of Control;
(h) purchase or redeem,
or pay any dividend on, any class of capital stock of the Company
prior to the Series D Preferred; and
(i) increase or
decrease the size of the Board of Directors;
provided, that, for the purposes of
this Section 9,
Majority Holder Approval will be deemed provided with respect to
Sections 9(e),
(f) and
(g) if the
applicable action by the Company is approved by a majority of the
Board of Directors (which such majority must include each of the
Series D Directors); and provided,
further, that, for the purposes of this Section 9, the
following terms shall be defined as follows:
“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 D Preferred, and shall not
include any exchange, repurchase or refinancing of such
Indebtedness.
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, (ii) the Bylaws,
or (iii) 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 D Preferred); provided, that, for the purposes of
this Section 10,
Majority Holder Approval will be deemed provided with respect to
clause (ii) if the amendment to the Bylaws by the Company is
approved by a majority of the Board of Directors (which such
majority must include each of the Series D Directors).
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 D 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 re-issue Preferred Stock Certificates if the holder
contemporaneously requests the Company to convert such shares of
Series D 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
D 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 D Preferred shall be
entitled, in addition to all other available remedies, to an
injunction restraining any breach or the Series D 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 D 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 D 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.
15. Conflicts. If there is any conflict between the terms
of this Certificate of Designations and either the (i) Certificate
of Incorporation, or (ii) Bylaws, in each case, this Certificate of
Designations shall prevail.
[Signature
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IN
WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate of Designations and does affirm the foregoing as true
this 22nd
day of December, 2020.
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IMAGEWARE
SYSTEMS, INC.
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By:
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/s/ Kristin
Taylor
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Name:
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Kristin
Taylor
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Title:
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Chief
Executive Officer
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EXHIBIT
I
IMAGEWARE SYSTEMS,
INC.
CONVERSION
NOTICE
Reference is made
to the Certificate of Designations, Preferences and Rights of the
Series D Convertible Preferred Stock (“Series D 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 D 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 D Preferred specified below as of the date specified
below.
Date of
Conversion: ____________________
Number
of shares of Series D Preferred to be
converted:
____________________________
Stock
certificate no(s). of Series D 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 D 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
four-digit “DTC” participant number (obtained from the
receiving bank/broker): _____________________
Authorization:
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[SERIES
D PREFERRED HOLDER]
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By:
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Name:
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Title:
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Dated: