ex10-56.htm


    EXHIBIT
10.56

     

    
      FOURTH AMENDMENT TO SECURED
PROMISSORY NOTE

       

      This
Fourth Amendment to Secured Promissory Note (this "Amendment") is made
as of November 11, 2009, by and between Imageware Systems, Inc., a Delaware
corporation ("Borrower"), and BET
Funding LLC, a Delaware limited liability company ("Lender").

       

      BACKGROUND

       

      A.           On
February 12, 2009, Borrower issued to Lender a secured promissory note (the
"Original
Note") in the original principal amount of Five Million Dollars
($5,000,000).  On such date, Lender made to Borrower an initial
advance under the Note of One Million Dollars ($1,000,000).  The Note
and all instruments, documents and agreements executed in connection therewith,
or related thereto, are referred to herein collectively as the "Financing
Documents".  All capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Note.

       

      B.           On
June 9, 2009, Borrower and Lender entered into that certain Waiver and Amendment
Agreement (the "Waiver
and Amendment Agreement") in order to (i) waive certain existing events
of default under the Note and (ii) amend certain terms of the Note.

       

      C.           On
June 22, 2009, Borrower and Lender entered into that certain Amendment to
Promissory Note (the "Second Amendment")
pursuant to which (i) Lender made a subsequent advance to Borrower under the
Note in the principal amount of Three Hundred Fifty Thousand Dollars ($350,000),
and (ii) certain terms of the Note were amended.

       

      D.           On
October 5, 2009, Borrower and Lender entered into that certain Third Amendment
to Promissory Note (the "Third Amendment") pursuant to which (i) Lender agreed
to make additional advances in an aggregate amount up to One Million Dollars
($1,000,000) to only be used for the purpose of compromising certain of the
Company's outstanding vendor payables or paying for the audit of the Company's
financial statements, (ii) Lender made an advance of Three Hundred Thousand
Dollars ($300,000) of such amount and (iii) certain terms of the Note were
amended.  The Original Note, as amended by the Waiver and Amendment
Agreement, the Second Amendment and the Third Amendment, is hereinafter referred
to as the "Note".

       

      E.           Lender
is making a subsequent advance of $350,000 under the Note (the "Additional Advance")
on the terms and conditions set forth in this Amendment.  In
connection therewith, Borrower and Lender have agreed to amend certain terms of
the Note as evidenced herein.

       

      F.           As
consideration for the making of the Additional Advance, Borrower shall execute
and deliver to Lender, as a loan origination fee, an assignment of receivables,
in substantially the form of Exhibit A attached
hereto, pursuant to which Borrower shall assign to Lender all of Borrower's
rights, title and interest in its accounts receivables (the "Assignment of
Receivables").

       

      NOW
THEREFORE, with the foregoing Background deemed incorporated by reference and
for good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto, intending to be legally bound, covenant and
agree as follows:

       

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      SECTION
1.  ACKNOWLEDGMENT OF INDEBTEDNESS, ETC.

       

      1.1           Note.  Borrower
hereby acknowledges and confirms that as of the close of business on November
11, 2009, Borrower is indebted to Lender, without defense, setoff, claim or
counterclaim under the Financing Documents, in the aggregate principal amount of
$2,012,437.35 (which amount includes the Additional Advance being made on the
date hereof and the legal fees of $12,437.35 paid by Lender to Klehr, Harrison,
Harvey Branzburg & Ellers LLP on October 26, 2009), together with accrued
and unpaid interest in the amount of $82,002.86 and all other unreimbursed fees,
costs and expenses (including attorneys' fees) incurred to date in connection
with the Financing Documents.

       

      1.2           Fees and
Expenses.  Borrower acknowledges and agrees that it is liable
for all fees, costs and expenses (including attorneys' fees) incurred by Lender
in connection with the documentation, preparation, interpretation and
negotiation of this Amendment and the Financing Documents, and any amendment,
modification or supplement to this Amendment or to the Financing Documents, the
consummation and administration of the transactions contemplated hereby and
thereby and the enforcement, preservation, protection or defense of any of
Lender's rights and remedies hereunder and under the Financing Documents,
including, without limitation any costs for appraisals, searches or filing fees
incurred by Lender.  All such fees, costs and expenses are referred to
herein as "Expenses."  All
Expenses will be payable within 15 days after Lender gives notice
thereof.  Lender reserves the right to add some or all of its Expenses
to the outstanding principal balance of the Note upon notice to
Borrower.  Any such amount added to the principal balance of the Note
by Lender for payment of its Expenses shall be deemed to have been loaned to
Borrower under the terms of the Note.

       

      SECTION
2.  AMENDMENTS TO NOTE

       

      2.1           Amendments to Note.
The Note is hereby amended as follows:

       

      (a)           Preamble.  The
second paragraph of the Preamble of the Note is hereby amended to add the
following sentence at the end thereof:

       

      "Further,
pursuant to that certain Fourth Amendment to Secured Promissory Note, dated as
of November 11, 2009, Lender made an additional advance in the principal amount
of Three Hundred Fifty Thousand Dollars ($350,000) (the "Fourth Amendment
Advance").

       

      (b)           Section
2(a).  Section 2(a) of the Note is hereby amended by adding the
following sentence at the end thereof:

       

      "Notwithstanding
the foregoing, Company shall repay Lender in full the amount of the Fourth
Amendment Advance, together with all accrued and unpaid interest thereon, on or
before December 31, 2009."

       

      
        
          
          

        

        
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      (c)           Section
2(b).  The second sentence of Section 2(b) of the Note is
hereby amended by replacing "fourteen percent (14%)" with "eighteen percent
(18%)".

       

      2.2           Incorporation of Amendment
into Note.  Borrower hereby directs Lender to attach an
original counterpart of this Amendment to the Note.  The Note and this
Amendment shall be deemed to constitute a single instrument.

       

      SECTION
3.  ASSIGNMENT OF RECEIVABLES

       

      3.1           Assignment of
Receivables.  In consideration of Lender's agreeing to make the
Additional Advance to Borrower, Borrower shall execute and deliver to Lender the
Assignment of Receivables.

       

      3.2           Origination
Fee.  Borrower acknowledges the value to its business of the
Additional Advance.  Borrower's Board of Directors has determined that
Borrower would not be able to obtain financing in the amount and on the same or
better terms as the Additional Advance from a third party.  Borrower
acknowledges and confirms that the origination fee that it has agreed to pay
Lender in consideration for the Additional Advance (i.e., the Assignment of
Receivables) is fair and reasonable in relation of the value of the Additional
Advance to Borrower and its business.

       

      SECTION
4.  COLLATERAL

       

      4.1           Affirmation of Existing
Collateral.  Borrower covenants, confirms and agrees that as
security for the repayment of the Obligations, Lender has, and shall continue to
have, and is hereby granted a continuing, perfected lien on and security
interest in the Collateral, all whether now owned or hereafter acquired, created
or arising, together with all proceeds, including insurance proceeds
thereof.  Borrower acknowledges and agrees that nothing herein
contained in any way impairs Lender's existing rights and priority in the
Collateral.

       

      4.2           Further
Assurances.  Upon execution of this Amendment, and thereafter
as Lender may from time to time request, Borrower shall further assist Lender in
effectuating the terms and intent of this Amendment and the Financing Documents
and in assuring continued, effective and proper perfection of Lender's liens and
security interests in the Collateral.  Borrower hereby authorizes
Lender to sign (if necessary) on Borrower's behalf and/or file, from time to
time, without signature of Borrower, any financing statements as Lender may
reasonably deem necessary to perfect, or maintain perfection, of Lender's
security interests.

       

      SECTION
5.  EFFECTIVENESS CONDITIONS

       

      5.1           Conditions.  Lender's
undertakings hereunder are subject to satisfactory completion, as determined by
Lender in its sole discretion (all documents to be in form and substance
satisfactory to Lender and its counsel) of the following conditions ("Effectiveness
Conditions"):

       

      
        
          
          

        

        
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      (a)           Borrower's
execution and delivery of this Amendment and the Assignment of
Receivables;

       

      (b)           Borrower
shall have delivered to Lender resolutions of the Board of Directors of Borrower
authorizing the execution and delivery of this Amendment and the Assignment of
Receivables and the transactions herein and therein contemplated;

       

      (c)           No
Default or Event of Default shall have occurred and be continuing under the
Financing Documents; and

       

      (d)           All
Expenses incurred by Lender shall have been paid by Borrower when
due.

       

      SECTION
6.  REPRESENTATIONS, WARRANTIES AND COVENANTS

       

      Borrower
represents, warrants and covenants to Lender that:

       

      6.1           Prior
Representations.  By execution of this Amendment, except as
otherwise expressly set forth herein, Borrower reconfirms all warranties and
representations made to Lender under the Financing Documents and restates such
warranties and representations as of the date hereof all of which shall be
deemed continuing until all of the Obligations are paid and satisfied in
full.

       

      6.2           No Conflict. The execution and
delivery by Borrower of this Amendment and the Assignment of Receivables and the
performance of the obligations of Borrower hereunder and thereunder and the
consummation by Borrower of the transactions contemplated hereby and thereby:
(i) are within the corporate powers of Borrower; (ii) are duly authorized by the
Board of Directors of Borrower and, if necessary, its stockholders; (iii) are
not in contravention of the terms of the articles or certificate of
incorporation or bylaws of Borrower or of any indenture, contract, lease,
agreement instrument or other commitment to which Borrower is a party or by
which Borrower or any of its property are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person; (v) do not contravene any statute, law, ordinance regulation, rule,
order or other governmental restriction applicable to or binding upon Borrower;
and (vi) will not, except as contemplated herein for the benefit of Lender,
result in the imposition of any Liens upon any property of
Borrower.

       

      6.3           Stockholder
Authorization.  Neither the execution, delivery or performance
by Borrower of this Amendment or the Assignment of Receivables nor the
consummation by it of the transactions contemplated hereby or thereby requires
any consent or authorization of Borrower's stockholders.

       

      6.4           Valid, Binding and
Enforceable.  This Amendment and the Assignment of Receivables
and any assignment or other instrument, document or agreement executed and
delivered in connection herewith or therewith, will be valid, binding and
enforceable in accordance with their respective terms with respect to Borrower
upon the execution and delivery by Borrower thereof.

       

      
        
          
          

        

        
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      6.5           Event of
Default.  No Default or Event of Default has occurred (other
than the Existing Defaults (as defined under the Waiver and Amendment
Agreement)) or is continuing under the Note or any of the other Financing
Documents.

       

      6.6           Covenants.  Borrower
has performed and complied with all covenants, agreements, obligations and
conditions to be performed or complied with under the Note and the other
Financing Documents.

       

      6.7           Accounts
Receivables.  Exhibit B attached
hereto sets forth a true and complete list of Borrower's current accounts
receivables (the "Accounts
Receivables").  All of the Accounts Receivables (i) have arisen
in bona fide transactions on ordinary trade terms, (ii) are valid claims against
account debtors for goods or services delivered or rendered, subject to no
defenses, offsets or counterclaims, and (iii) have been collected or are
collectible in the ordinary course of business in the aggregate recorded amounts
thereof in accordance with their terms.

       

      SECTION
7.  BORROWER'S EXISTING COVENANTS

       

      7.1           Existing
Covenants.  Borrower covenants that on and after the date of
execution of this Amendment and until the Obligations are indefeasibly paid and
satisfied in full that, except as expressly modified hereby, Borrower shall
continue to observe and maintain compliance with all covenants, representations
and warranties contained in, or arising in conjunction with, the Financing
Documents.

       

      SECTION
8.  MISCELLANEOUS

       

      8.1           Default.

       

      (a)           In
addition to each of the Events of Default set forth in the Financing Documents,
the (i) failure of Borrower to comply with its representations, warranties,
covenants or other undertakings under this Amendment, or (ii) occurrence or
institution of any action or proceeding which may adversely affect Borrower's
ability to perform under this Amendment (as determined by Lender in its
discretion), shall be an Event of Default under the Financing Documents and upon
such failure, Lender's undertakings under this Amendment may at Lender's
discretion, and without notice to Borrower immediately terminate and Lender may
exercise its rights and remedies as granted under the Financing Documents and
under applicable law or in equity.

       

      (b)           Any
default by Borrower under any of the Financing Documents, shall be considered a
default and an Event of Default under all of the Financing Documents and upon
such default, Lender's undertakings under this Amendment may at Lender's
discretion, and without notice to Borrower immediately terminate and Lender may
exercise its rights and remedies as granted under the Financing Documents and
under applicable law or in equity.

       

      8.2           Integrated
Agreement.  This Amendment shall be deemed incorporated into
and made a part of the Financing Documents.  The Financing Documents
and this Amendment shall be construed as integrated and complementary of each
other, and as augmenting and not restricting the Lender's rights, remedies and
security.  If, after applying the foregoing, an inconsistency still
exists, the provisions of this Amendment shall control.

       

      
        
          
          

        

        
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      8.3           Non-Waiver.  No
omission or delay by Lender in exercising any right or power under this
Amendment, or the Financing Documents or any related agreement will impair such
right or power or be construed to be a waiver of any default or Event of Default
or an acquiescence therein, and any single or partial exercise of any such right
or power will not preclude other or further exercise thereof or the exercise of
any other right, and no waiver will be valid unless in writing and signed by
Lender and then only to the extent specified.  Lender's rights and
remedies are cumulative and concurrent and may be pursued singly, successively
or together.

       

      8.4           Headings.  The
headings of any paragraph of this Amendment are for convenience only and shall
not be used to interpret any provision of this Amendment.

       

      8.5           Survival.  All
warranties, representations and covenants made by Borrower herein, or in any
agreement referred to herein or on any certificate, document or other instrument
delivered by it or on its behalf under this Amendment, shall be considered to
have been relied upon by Lender. All statements in any such certificate or other
instrument shall constitute warranties and representations by Borrower
hereunder.  All warranties, representations, and covenants made by
Borrower hereunder or under any other agreement or instrument shall be deemed
continuing until the Obligations are indefeasibly paid and satisfied in
full.

       

      8.6           Successors and
Assigns.  This Amendment shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties
hereto.  No delegation by Borrower of any duty or obligation of
performance may be made or is intended to be made to Lender.  No
rights are intended to be created hereunder or under any related instruments,
documents or agreements for the benefit of any third party donee, creditor,
incidental beneficiary or affiliate of Borrower.

       

      8.7           GOVERNING
LAW.  THIS
AMENDMENT, AND ALL MATTERS ARISING OUT OF OR RELATING TO THIS AMENDMENT, SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE.  THE PROVISIONS OF THIS AMENDMENT, THE OTHER FINANCING
DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN ARE TO BE
DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION SHALL
NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL CONTINUE IN FULL FORCE
AND EFFECT.

       

      8.8           CONSENT
TO JURISDICTION.  BORROWER AND LENDER
HEREBY IRREVOCABLY CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN THE STATE OF DELAWARE IN ANY AND ALL ACTIONS AND
PROCEEDINGS WHETHER ARISING HEREUNDER OR UNDER ANY OTHER AGREEMENT OR
UNDERTAKING.  BORROWER WAIVES ANY OBJECTION TO IMPROPER VENUE AND
FORUM NON-CONVENIENS TO PROCEEDINGS IN ANY SUCH COURT AND ALL RIGHTS TO TRANSFER
FOR ANY REASON.  BORROWER IRREVOCABLY AGREES TO SERVICE OF PROCESS BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED.

       

      
        
          
          

        

        
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      8.9           WAIVER OF
JURY TRIAL.  BORROWER AND LENDER
HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH
ANY LITIGATION COMMENCED BY OR AGAINST LENDER WITH RESPECT TO RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE FINANCING DOCUMENTS, WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE.

       

      8.10           RELEASE.  AS FURTHER CONSIDERATION
FOR THE LENDER'S AGREEMENT TO MAKE THE ADVANCE SET FORTH HEREIN, BORROWER HEREBY
WAIVES AND RELEASES AND FOREVER DISCHARGES LENDER AND ITS MEMBERS, OFFICERS,
DIRECTORS, ATTORNEYS, AGENTS AND EMPLOYEES FROM ANY LIABILITY, DAMAGE, CLAIM,
LOSS OR EXPENSE OF ANY KIND THAT BORROWER MAY NOW OR HEREAFTER HAVE AGAINST
LENDER ARISING OUT OF OR RELATING TO THE OBLIGATIONS, THIS AMENDMENT OR THE
FINANCING DOCUMENTS.

       

      8.11           Waivers.

       

      (a)           Borrower
will not, directly or indirectly, do any act or fail to do any act, which would
impair or affect Lender's security interest in any Collateral, nor will Borrower
upon any default or Event of Default under this Amendment or the other Financing
Documents, contest Lender's right to obtain judgment against Borrower or to
foreclose upon any Collateral pledged to Lender, nor will Borrower move to
vacate or enjoin such judgment or foreclosure.

       

      (b)           Borrower
waives and renounces all rights which are waivable under Article 9 of the
Uniform Commercial Code as such rights relate to Borrower's relationship with
Lender, whether such rights are waivable before or after default, including,
without limitation, those rights with respect to compulsory disposition of
collateral (U.C.C. §§9-610, 9-615 and 9-620), any right of redemption under
U.C.C. §9-623, and any right to notice relating to disposition of collateral
under U.C.C. §9-611.

       

      8.12           Advice of
Counsel.  Borrower acknowledges that it had the right to
consult with independent legal counsel concerning this Amendment and
specifically regarding the effect and implications of Sections 8.8, 8.9, 8.10 and 8.11 above and
Borrower knowingly and voluntarily hereby waives the rights described therein or
affected thereby.

       

      8.13           Signatories.  Each
individual signatory hereto represents and warrants that he or she is duly
authorized to execute this Amendment on behalf of his or her principal and that
he or she executes the Amendment in such capacity and not as a
party.

       

      
        
          
          

        

        
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      8.14           Duplicate
Originals.  Two or more duplicate originals of this Amendment
may be signed by the parties, each of which shall be an original but all of
which together shall constitute one and the same instrument.  This
Amendment may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed
document.  Signature by facsimile or PDF shall bind the parties
hereto.

       

      8.15           Effect of
Amendment.  Except as expressly stated herein:  (a)
the Financing Documents are and shall be unchanged and remain in full force and
effect, and (b) this Amendment shall not constitute a waiver of any Default or
Event of Default or a waiver of the right of Lender to insist upon compliance
with any term, covenant, condition or provision of the Note and the other
Financing Documents, as amended hereby.  Except as specifically stated
herein, the execution and delivery of this Amendment shall in no way release,
diminish, impair, reduce or otherwise affect the respective obligations and
liabilities of Borrower or any other Person under any of the Financing
Documents, all of which as amended hereby, shall continue in full force and
effect.  Borrower hereby ratifies and confirms the existence of each
of the Financing Documents to which it is a party, each of the Liens created
pursuant to each such Financing Document and each and every term, condition,
obligation, liability, undertaking and covenant therein
contained.  Each of the Financing Documents is hereby amended and
modified to the extent necessary (and without any further action on behalf of
Borrower, Lender or any other Person) in order to give full force and effect to
this Amendment.  This Amendment constitutes a Financing
Document.

       

      


       

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      IN
WITNESS WHEREOF, the undersigned parties have executed this Fourth Amendment the
day and year first above written.

       

      IMAGEWARE
SYSTEMS, INC.

      


      


      


      By:           _________________________

      Name:   S. James
Miller

      Title: Chairman and CEO

      


      


      BET
FUNDING LLC

      


      


      By: ________________________

      Name:  Douglas
Topkis

      Title:  Member

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Exhibit
A

       

      Form of
Assignment of Receivables

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Exhibit
B

       

      Accounts
Receivables

       

      


       

      


       

      ·  US
Government (Classified
Contract)           $171,355.25

      ·  Unisys
Canada (CATSA)                
             
$617,024.63

      ·  Unisys
USA (Veterans
Admin)                       $309,652.88

      ·  Transtech  (Veterans
Admin)                  
      $128,410.55