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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 29, 1996
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Wave Systems Corp.
(Exact name of registrant as specified in its charter)
Delaware 0-24752 13-3477246
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
540 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 755-3282
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Item 5. Other Events
On May 29, 1996 Wave Systems Corp. (the "Company") issued 350 shares of
newly created Series B Preferred Stock, at a price of $10,000 per share, for an
aggregate of $3,500,000. The shares were sold to five (5) offshore investors
pursuant to Regulation S promulgated under the Securities Act of 1933. The
Series B Preferred Stock is convertible into the Class A Common Stock of the
Company at an effective conversion price of the lower of (i) 110% of the average
closing bid price on the Nasdaq National Market System for the five (5) trading
days ending on the Closing Date, defined in the Certificate of Designation of
the Series B Preferred Stock attached hereto as Exhibit 3.1 (the "Certificate of
Designation"), or (ii) 85% of the average closing bid price on the Nasdaq
National Market System of the Company's Class A Common Stock for the five (5)
trading days immediately preceding the Date of Conversion, defined in the
Certificate of Designation.
Item 7. Financial Statements and Exhibits
Exhibit 3.1 Certificate of Designation of Series B Preferred
Stock of Wave Systems Corp., as filed with the
Delaware Secretary of State on May 24, 1996
Exhibit 4.1 Form of Subscription Agreement entered into with each
investor.
Exhibit 99.1 Press Release Dated May 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Wave Systems Corp.
Date: May 30, 1996 By: /s/Peter J. Sprague
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Name: Peter J. Sprague
Title: Chairman and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Certificate of Designation of Series B Preferred
Stock of Wave Systems Corp., as filed with the
Delaware Secretary of State on May 24, 1996
4.1 Form of Subscription Agreement entered into with each
investor.
99.1 Press Release Dated May 30, 1996.
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATION OF
SERIES B PREFERRED STOCK
OF
WAVE SYSTEMS CORP.
Pursuant to Section 151 of the General Corporation Law of the State of Delaware,
it is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Wave Systems Corp., a Delaware corporation.
2. The Certificate of Incorporation of the Corporation authorizes the
issuance of two million (2,000,000) shares of preferred stock, par value one
cent ($.01) per share, of which 360 shares of Series A Cumulative Redeemable
Preferred Stock ("Series A Preferred Stock") are issued or outstanding as of the
date hereof, and, further, authorizes the Board of Directors of the Corporation,
by resolution or resolutions, at any time and from time to time, to divide and
establish any or all of the unissued shares of preferred stock into then
allocated to any class or series of preferred stock into one or more classes or
series, and without limiting the generality of the foregoing, to fix and
determine the designation of each class or series, the number of shares which
shall constitute such class or series and certain relative rights and
preferences of the shares of each class or series so established.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series B issue of Preferred Stock:
RESOLVED, that five hundred (500) of the two million (2,000,000)
authorized shares of preferred stock of the Corporation shall be designated
Series B Preferred Stock, $.01 par value per share, and shall possess the rights
and preferences set forth below:
Section 1. Designation and Amount. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series B Preferred
Stock (the "Series B Preferred Stock") and the number of shares constituting the
Series B Preferred Stock shall be 500. The Series B Preferred Stock shall have a
stated value of $10,000 per share, with a 6% per annum premium as set forth
herein.
Section 2. Rank. The Series B Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Corporation hereafter created
(with the consent of the
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holders of the Series B Preferred Stock (the "Holders") pursuant to Section 7(b)
below) specifically ranking by its terms senior to the Series B Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Corporation's
Class A and Class B Common Stock, par value $.01 per share (collectively, the
"Common Stock"), (iii) prior to any class or series of capital stock of the
Corporation hereafter created (unless it specifically, by its terms, ranks
senior to or on parity with the Series B Preferred Stock) of whatever
subdivision (collectively with the Common Stock, the "Junior Securities"); and
(iv) on a parity with (A) any class or series of capital stock of the
Corporation hereafter created (with the consent of the Holders pursuant to
Section 7(b) below) specifically ranking by its terms on a parity with the
Series B Preferred Stock ("Parity Securities") and (B) all of the Corporation's
Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock")
in each case as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary (all such
distributions being referred to collectively as the "Distributions").
Section 3. Dividends. The Series B Preferred Stock will bear no
dividends, and the Holders shall not be entitled to receive dividends on the
Series B Preferred Stock.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the Holders shall be entitled to
receive, immediately after any distributions to the Series A Preferred Stock and
Senior Securities required by the Corporation's certificate of incorporation or
any certificate of designation, and prior and in preference to any distribution
to Junior Securities but in parity with any distribution to Parity Securities,
an amount per share equal to the sum of (i) $10,000 for each outstanding share
of Series B Preferred Stock (the "Original Series B Issue Price") plus (ii) an
amount equal to 6% of the Original Series B Issue Price per annum for the period
that has passed since the date that, in connection with the consummation of the
purchase by Holders of shares of Series B Preferred Stock from the Corporation,
the escrow agent first had in its possession funds representing full payment for
the shares of Series B Preferred Stock (such amount being referred to herein as
the "Premium"). If upon the occurrence of such event, and after payment in full
of the preferential amounts with respect to the Senior Securities, the assets
and funds available to be distributed among the Holders and the holders of the
Parity Securities shall be insufficient to permit the payment to all such
holders of the full preferential amounts due to the Holders and the holders of
the Parity Securities, respectively, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
Holders and the holders of the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Corporation's certificate of incorporation and any certificate(s) of
designation relating thereto.
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(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Corporation, they shall be distributed to holders
of Junior Securities in accordance with the Corporation's certificate of
incorporation including any duly adopted certificate(s) of designation.
(c) A sale, conveyance or disposition of all or substantially all of
the assets of the Corporation shall be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 4; provided, further, that a
consolidation, merger, acquisition, or other business combination of the
Corporation with or into any other corporation or corporations or the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of shall not be treated as a liquidation, dissolution or winding up
within the meaning of this Section 4, but instead shall be treated pursuant to
Section 5(e) hereof.
Section 5. Conversion. The record Holders shall have conversion rights
as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder shall be entitled (at the
times and in the amounts set forth below), to convert (in multiples of one
preferred share) (1) up to one-third (1/3) of the shares of Series B Preferred
Stock held by such Holder at any time beginning 40 days following the date of
the closing of a purchase and sale of Series B Preferred Stock that occurs
pursuant to the offering of the Series B Preferred Stock by the Corporation (the
"Closing Date"), and at anytime thereafter (2) up to an additional one-third
(1/3) of the shares of Series B Preferred Stock held by such Holder at any time
beginning 60 days following the Closing Date, and at anytime thereafter and (3)
all remaining Series B Preferred Stock held by such Holder at any time beginning
90 days following the Closing Date at the office of the Corporation, into that
number of fully-paid and non-assessable shares of Class A Common Stock of the
Corporation calculated in accordance with the following formula (the "Conversion
Rate"):
Number of shares issued upon conversion of one share of Series B
Preferred Stock=
(.06) (N/365) (10,000) + 10,000
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Conversion Price
where,
- N= the number of days between (i) the date that, in connection
with the consummation of the initial purchase by Holders of
shares of Series B Preferred Stock from the Corporation, the
Corporation first had in its possession funds representing
full
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payment for the shares of Series B Preferred Stock for which
conversion is being elected, and (ii) the applicable Date of
Conversion (as defined in Section 5(b)(iv) below) for the
shares of Series B Preferred Stock for which conversion is
being elected, and
- Conversion Price = the lesser of (x) 110% of the average
Closing Bid Price, as that term is defined below, for the 5
trading days ending on the Closing Date (the "Fixed Conversion
Price"), or (y) .85 times the average Closing Bid Price, as
that term is defined below, of the Corporation's Class A
Common Stock for the five (5) trading days immediately
preceding the Date of Conversion, as defined below.
For purposes hereof, the term "Closing Bid Price" shall mean
the closing bid price on the National Market System and if not available, the
mean of the high and low prices on the National Market System.
(b) Mechanics of Conversion. In order to convert Series B Preferred
Stock into full shares of Class A Common Stock, the Holder shall (i) send a copy
by facsimile of the fully executed notice of conversion in the form attached
hereto ("Notice of Conversion") to the Corporation at the office of the
Corporation and its designated transfer agent for the Series B Preferred Stock
(the "Transfer Agent") that the Holder elects to convert the same, which notice
shall specify the number of shares of Series B Preferred Stock to be converted,
the applicable conversion price and a calculation of the number of shares of
Class A Common Stock issuable upon such conversion (together with a copy of the
first page of each certificate to be converted) prior to midnight, New York City
time on the date of conversion specified on the Notice of Conversion and (ii)
surrender the original certificates representing the Series B Preferred Stock
being converted (the "Preferred Stock Certificates"), duly endorsed, along with
a copy of the Notice of Conversion no later than midnight, New York City time
the next business day, to a common courier for either overnight or 2-day
delivery to the office of the Corporation. In the case of a dispute as to the
calculation of the Conversion Rate, the Corporation shall promptly issue the
number of shares of Class A Common Stock that are not disputed. The Corporation
shall submit the disputed calculations to its outside accountant via facsimile
within three (3) days of receipt of Holder's Notice of Conversion. Such
accountant shall audit the calculations and notify the Corporation and Holder of
the results no later than 48 hours from the time it receives the disputed
calculations. Such accountant's calculation shall be deemed conclusive absent
manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates and (in the case of
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loss, theft or destruction) of indemnity or security reasonably satisfactory to
the Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Corporation
shall not be obligated to re-issue such lost or stolen Preferred Stock
Certificates if the Holder contemporaneously requests Corporation to convert
such Series B Preferred Stock into Class A Common Stock.
(ii) Date of Conversion. The date on which conversion occurs (the "Date
of Conversion") shall be deemed to be the date set forth in such Notice of
Conversion, provided (i) that the advance copy of the Notice of Conversion is
sent via facsimile to the Corporation before midnight, New York City time, on
the Date of Conversion, and (ii) that the original Preferred Stock Certificates
to be converted are surrendered by depositing such certificates with either
overnight courier or 2-day courier, as provided above, and received by the
Corporation within five (5) business days thereafter. The person or persons
entitled to receive the shares of Class A Common Stock issuable upon such
conversion shall be treated for all purposes as the record Holder or Holders of
such shares of Class A Common Stock on the Date of Conversion. If the original
Preferred Stock Certificates to be converted are not received by the Corporation
within five (5) business days after the Date of Conversion or if the facsimile
of the Notice of Conversion is not received by the Corporation prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Corporation's
option, may be declared null and void.
(iii) No Fractional Shares. If any conversion of the Series B Preferred
Stock would create a fractional share of Class A Common Stock or a right to
acquire a fractional share of Class A Common Stock, such fractional share shall
be disregarded and the number of shares of Class A Common Stock issuable upon
conversion, shall be the next higher number of shares.
(iv) Delivery of Certificate Upon Conversion. If the Corporation
receives a facsimile of both the Notice of Conversion and such Preferred Stock
Certificates (or, in the case of lost or stolen certificates, after provision of
agreement and indemnification required by Section 5(b)(i) above) on or before
six o'clock P.M. New York City time on the Date of Conversion, the Corporation
shall, within two (2) business days, issue, and cause to be delivered to a
common courier for either overnight or two (2) day delivery, to such Holder, at
the address of the Holder on the books of the Corporation, a certificate or
certificates for the number of shares of Class A Common Stock to which the
Holder shall be entitled as provided above. If the Corporation receives a
facsimile of both the Notice of Conversion and such Preferred Stock Certificates
(or, in the case of lost or stolen certificates, after provision of agreement
and indemnification required by Section 5(b)(i) above) after six o'clock P.M.
New York City time, but prior to midnight New York City time on the Date of
Conversion, the Corporation shall, within three (3) business days, issue, and
cause to be delivered to a
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common courier for either overnight or two (2) day delivery, to such Holder, at
the address of the Holder on the books of the Corporation, a certificate or
certificates for the number of shares of Class A Common Stock to which the
Holder shall be entitled as provided above.
(v) Notice. All notices and other communications sent to the
Corporation shall be deemed given if delivered by common courier or sent via
facsimile (with confirmation of receipt), in accordance with the terms set forth
in this Section 5, at the following address (or at such other address specified
by notice delivered by common courier or via facsimile to the Holders at the
addresses of the Holders on the books of the Corporation):
Wave Systems Corp.
540 Madison Avenue
New York, New York 10022
Attention: Mr. James Stokes Hatch
Facsimile No. (212) 755-3436
(c) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of effecting the
conversion of the Series B Preferred Stock, such number of its shares of Class A
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding Series B Preferred Stock; and if at any time the number
of authorized but unissued shares of Class A Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series A
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Class A Common Stock
to such number of shares as shall be sufficient for such purpose.
(d) Automatic Conversion. Each share of Series B Preferred Stock
outstanding on the second anniversary of the Closing Date automatically shall be
converted into Class A Common Stock on such date at the Conversion Rate then in
effect (calculated in accordance with the formula in Section 5(a) above) and
such date shall be deemed the Date of Conversion with respect to such
conversion.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If at any time when the Series B Preferred Stock is issued
and outstanding, the number of outstanding shares of Class A Common Stock is
increased by a stock split, stock dividend, or other similar event, the Fixed
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Class A Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed
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Conversion Price shall be proportionately increased. In such event the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
(ii) Adjustment to Conversion Price. If, at any time when the
Series B Preferred Stock is issued and outstanding, the number of outstanding
shares of Class A Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any conversion of the Series B Preferred Stock, then the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior
to the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Class A Common Stock of the
Corporation shall be changed into the same or a different number of shares of
the same or another class or classes of stock or securities of the Corporation
or another entity, or other property, then the Holders shall, upon being given
at least 30 days advance written notice of such transaction, thereafter have the
right to purchase and receive upon conversion of Series B Preferred Stock, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Class A Common Stock immediately theretofore issuable upon conversion,
such shares of stock and/or securities or other property as may be issued or
payable with respect to or in exchange for the number of shares of Class A
Common Stock immediately theretofore purchasable and receivable upon the
conversion of Series B Preferred Stock held by such Holders had such merger,
consolidation, exchange of shares, recapitalization or reorganization not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion Rate
and of the number of shares issuable upon conversion of the Series B Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this subsection 5(e) unless (1) the Holder has been given at least 30 days
advance written notice of such transaction, and (2) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the Holders such shares of stock and/or securities or
other property as, in accordance with the foregoing provisions, the Holders may
be entitled to receive upon conversion of the Series B Preferred Stock.
(iv) No Fractional Shares. If any adjustment under this
Section 5(e) would create a fractional share of Class A Common Stock or a right
to acquire a fractional share of Class A Common Stock, such fractional share
shall be disregarded and the number of shares
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of Class A Common Stock issuable upon conversion shall be the next higher
integral number of shares.
(f) Mandatory Redemption. Notwithstanding anything contained
herein to the contrary, at any time beginning 90 days following the Closing
Date, the Corporation will redeem shares of Series B Preferred Stock pursuant to
this Section 5(f) only to the extent that the exercise of conversion rights by
the then current Holders pursuant to Section 5(a) above or in the event of
automatic conversion pursuant to Section 5(d) above would result in the issuance
of greater than 20% of the total number of shares of Class A Common Stock then
outstanding. If the Corporation redeems some, but not all, of the Series B
Preferred Stock submitted for conversion, the Corporation shall redeem from
among the Series B Preferred Stock submitted by the various shareholders for
conversion on the applicable date, a pro-rata amount from each such Holder so
submitting Series B Preferred Stock for conversion.
(i) Redemption Price. The redemption price per share of Series
B Preferred Stock under this Section 5(f) shall be calculated in accordance with
the following formula ("Redemption Rate"):
[[(.06)(N/365) (10,000)] + 10,000] x Closing Bid Price on Date of Conversion
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Conversion Price
where,
"N", "Closing Bid Price", "Date of Conversion", and "Conversion Price"
shall have the same meanings as defined in Section 5(a).
(ii) Mechanics of Redemption. The Corporation shall effect
each such redemption by giving notice, by facsimile, by 5 P.M. New York City
time the next business day following receipt of a Notice of Conversion from a
Holder, and the Corporation shall provide a copy of such redemption notice by
overnight or 2-day courier, to (A) the Holder of the Series B Preferred Stock
submitted for conversion at the address and facsimile number of such Holder
appearing in the Corporation's register for the Series B Preferred Stock and (B)
the Corporation's Transfer Agent. Such redemption notice shall indicate whether
the Corporation will redeem all or part of the Series B Preferred Stock
submitted for conversion and the applicable redemption price.
(iii) Corporation Must Have Immediately Available Funds or
Credit Facilities. The Corporation shall not be entitled to send any redemption
notice and begin the redemption procedure under this Section 5(f) unless it has:
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(a) the full amount of the redemption price in cash, available
in a demand or other immediately available account in a bank or similar
financial institution; or
(b) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial institution; or
(c) an agreement with a standby underwriter willing to
purchase from the Corporation a sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not converted prior to
redemption; or
(d) a combination of the items set forth in (i), (ii) and
(iii) above, aggregating the full amount of the redemption price.
(iv) Payment of Redemption Price. Each Holder submitting
Series B Preferred Stock being redeemed under this Section 5(f) shall send their
Series B Preferred Stock Certificates so redeemed to the Corporation or its
Transfer Agent, and the Corporation shall pay the applicable redemption price to
that Holder within three (3) business days of the date the Corporation sends the
redemption notice to the Holder.
Section 6. Voting Rights. The Holders shall have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
("Delaware Law"), and in this Section 6, and in Section 7 below.
Notwithstanding the above, the Corporation shall provide the
Holders with notification of any meeting of the shareholders (and copies of
proxy materials and other information sent to shareholders) regarding any major
corporate events affecting the Corporation. In the event of any taking by the
Corporation of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation or recapitalization) any share of any
class or any other securities or property, or to receive any other right, or for
the purpose of determining shareholders who are entitled to vote in connection
with any proposed sale, lease or conveyance of all or substantially all of the
assets of the Corporation, or any proposed liquidation, dissolution or winding
up of the Corporation, the Corporation shall mail a notice to the Holders, at
least ten (10) days prior to the record date specified therein (or 30 days prior
to the consummation of the transaction or event, whichever is earlier), of the
date on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time.
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To the extent that under Delaware Law the vote of the Holders,
voting separately as a class or series as applicable, is required to authorize a
given action of the Corporation, the affirmative vote or consent of the Holders
of at least a majority of the shares of the Series B Preferred Stock represented
at a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series B Preferred Stock (except as otherwise may be
required under Delaware Law) shall constitute the approval of such action by the
class. To the extent that under Delaware Law the Holders are entitled to vote on
a matter with holders of Class A Common Stock, voting together as one class,
each share of Series B Preferred Stock shall be entitled to a number of votes
equal to the number of shares of Class A Common Stock into which it is then
convertible using the record date for the taking of such vote of stockholders as
the date as of which the Conversion Price is calculated. Holders of the Series B
Preferred Stock shall be entitled to notice of (and copies of proxy materials
and other information sent to shareholders in connection with) all shareholder
meetings or written consents with respect to which they would be entitled to
vote, which notice would be provided pursuant to the Corporation's by-laws and
applicable statutes.
Section 7. Protective Provision. So long as shares of Series B
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by Delaware Law)
of the Holders of at least 75% of the then outstanding shares of Series B
Preferred Stock, and at least 75% of the then outstanding Holders:
(a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock or any Senior Securities so as to affect adversely
the Series B Preferred Stock; provided, however, that no such change may be
approved at any time on or prior to the 40th day following the Closing Date
unless such change is unanimously approved by all Holders;
(b) create any new class or series of stock having a
preference over or ranking in parity with the Series B Preferred Stock with
respect to Distributions (as defined in Section 2 above) or increase the size of
the authorized number of Series B Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended) unless otherwise consented to by at least
75% of the then outstanding shares of Series B Preferred Stock and at least 75%
of the then outstanding Holders.
In the event Holders of at least 75% of the then outstanding shares of
Series B Preferred Stock and at least 75% of the then outstanding Holders agree
to allow the Corporation to alter or change the rights, preferences or
privileges of the shares of Series B
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Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and the Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the 40 day, 60 day, and 90 day holding requirements set forth
in Section 5(a) hereof), or continue to hold their shares of Series B Preferred
Stock, provided, however, that the Dissenting Holders may not convert anytime on
or before the fortieth (40th) day following the Closing Date.
Section 8. Status of Redeemed or Converted Stock. In the event any
shares of Series B Preferred Stock shall be redeemed or converted pursuant to
Section 5 hereof, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized but unissued preferred stock of no designated
series, and shall not be issuable by the Corporation as Series B Preferred
Stock.
Section 9. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Corporation from issuing one
or more series of preferred stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series B Preferred
Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed in its name and on its behalf and attested on this 24th day of May, 1996
by duly authorized officers of the Corporation.
Wave Systems Corp.
By: /s/ Peter J. Sprague
--------------------
Peter J. Sprague
Chairman and Chief Executive
Officer
ATTEST:
By: /s/ James Stokes Hatch
----------------------
James Stokes Hatch
Secretary
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series B
Preferred Stock, represented by stock certificates No(s). (the "Preferred Stock
Certificates") into shares of Class A common stock ("Class A Common Stock") of
Wave Systems Corp. (the "Corporation") according to the conditions of the
Certificate of Designation of Series B Preferred Stock (the "Certificate of
Designation"), as of the date written below. If shares are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto.
The undersigned represents and warrants (i) that all offers and sales by the
undersigned of the shares of Class A Common Stock issuable to the undersigned
upon conversion of the Series B Preferred Stock shall be made in compliance with
Regulation S, pursuant to registration of the Class A Common Stock under the
Securities Act of 1933, as amended (the "Act") or pursuant to an exemption from
registration under the Act and (ii) the representations and warranties made by
the undersigned pursuant to the Wave Systems Corp. Regulation S Subscription
Agreement dated May 29, 1996 (the "Subscription Agreement") are true and correct
as of the date hereof.
Date of Conversion:______________________
Applicable Conversion Price:_____________
Number of Shares of Class A
Common Stock to be Issued:_______________
Signature:_______________________________
Name:____________________________________
Address:_________________________________
*No shares of Common Stock will be issued until a facsimile of the Preferred
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Corporation. If the Corporation receives a facsimile of the Notice of
Conversion and such Preferred Stock Certificates on, or prior to, 6 o'clock P.M.
New York City time, the Corporation shall, within
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two (2) business days, issue and cause to be delivered to a common courier for
either overnight or two (2) day delivery to such Holder a certificate or
certificates for the number of shares of Class A Common Stock to which the
Holder shall be entitled as provided by the terms of the Certificate of
Designation. If the Corporation receives a facsimile of the Notice of Conversion
and such Preferred Stock Certificates after 6 o'clock P.M. New York City time,
but prior to midnight New York City time, the Corporation shall, within three
(3) business days, issue and cause to be delivered to a common courier for
either overnight or two (2) day delivery to such Holder, a certificate or
certificates for the number of shares of Class A Common Stock to which the
Holder shall be entitled as provided by the terms of the Certificate of
Designation. Late payments will be made pursuant to the terms of the
Subscription Agreement.
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<PAGE> 1
EXHIBIT 4.1
WAVE SYSTEMS CORP.
REGULATION S SECURITIES SUBSCRIPTION AGREEMENT
THE PREFERRED STOCK BEING SUBSCRIBED FOR HEREIN AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THE PREFERRED STOCK HAVE NOT BEEN REGISTERED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION ("THE COMMISSION") UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF
ANY STATE UNDER ANY STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO A
SAFE HARBOR FROM REGISTRATION UNDER REGULATION S ("REGULATION S") PROMULGATED
UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION
S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY
ANY U.S. FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON, CONFIRMED
OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY INFORMATION
PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE> 2
This Securities Subscription Agreement (this "Agreement") is executed
by the undersigned (the "Subscriber") in connection with the offering and
subscription by the undersigned for Series B Preferred Stock, $.01 par value
(the "Preferred Stock"), of Wave Systems Corp. (the "Company"). The Preferred
Stock is being offered in minimum subscription amounts of at least 10 shares and
increments of one (1) share in excess thereof at a purchase price of $10,000 per
share of Preferred Stock. The offering is 350 shares of Preferred Stock (the
"Offering Amount") or $3,500,000 (the "Offering"). The terms of the Preferred
Stock, including the terms on which the Preferred Stock may be converted into
Class A Common Stock, $.01 par value (the "Common Stock"), of the Company are
set forth in the Certificate of Designation of Series B Preferred Stock (the
"Certificate of Designation") in substantially the form attached hereto as
Exhibit A. The solicitation of this subscription and, if accepted by the
Company, the offer and sale of the Preferred Stock, are being made in reliance
upon the provisions of Regulation S promulgated under the Act. The Preferred
Stock, and the Common Stock issuable upon conversion thereof (the "Conversion
Shares"), are sometimes referred to herein collectively as the "Securities". The
Subscriber wishes to subscribe for Preferred Stock in accordance with the terms
and conditions of this Agreement.
It is agreed as follows:
1. Offer to Subscribe; Purchase Price; Closing; Placement Fees; and
Conditions to Subscriber's Obligations.
1.1 Offer to Subscriber; Purchase Price. The Subscriber hereby
subscribes for and agrees to purchase Preferred Stock for the aggregate
purchase price set forth in Section 19 of this Agreement.
1.2 Closing. The closing of the sale and purchase of the Preferred
Stock ("Closing") will occur upon (i) the satisfaction of all
conditions described in this Agreement, (ii) sale in this Offering of
the Offering Amount of Preferred Stock, and (iii) the satisfaction of
all conditions required by the Escrow Agreement ("Escrow Agreement,"
defined as the agreement between the Company, Tail Wind Fund Ltd.
("Placement Agent"), and Fitzpatrick Eilenberg & Zivian ("Escrow
Agent") regarding this Offering). As soon as the subscriptions for the
Offering Amount have been accepted by the Company, according to the
terms of this Agreement, the Company shall close on the Offering
Amount.
1.3 Placement Fees. The parties hereto acknowledge that the Placement
Agent for this Offering will be compensated by the Company in cash. The
Placement Agent has acted solely as placement agent in connection with
the Offering by the Company of the Preferred Stock pursuant to this
Agreement. The information and data contained in this Agreement have
not been subjected to independent verification by Placement
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<PAGE> 3
Agent, and no representation or warranty is made by Placement Agent as
to the accuracy or completeness of the information contained in this
Agreement.
1.4 Conditions to Subscriber's Obligations. The Subscriber's
obligations hereunder are further conditioned upon the following:
(i) the Common Stock is listed on the National
Association of Securities Dealers, Inc.'s National
Market System;
(ii) the representations and warranties of the Company are
true and correct in all material respects on the
Closing Date as if made on such date; and
(iii) there have been no material adverse changes in the
Company's business prospects or financial condition
since the date of the Company's balance sheet dated
March 31, 1996.
2. Representations and Covenants; Access to Information; Independent
Information; Independent Investigation.
2.1 Offshore Transaction. The Subscriber represents and warrants
to the Company that (i) the Subscriber is not a U.S. person
("U.S. person") as that term is defined in Rule 902(o) of
Regulation S and which definition includes, without
limitation, a corporation or partnership that is organized
under the laws of a jurisdiction other than the United States
if it is formed by a U.S. person principally for the purpose
of investing in securities not registered under the Act,
unless it was organized or incorporated, and is owned, by
accredited investors (as defined in Rule 501(a) of Regulation
D under the Act) who are not natural persons, estates or
trusts; (ii) the Securities were not offered to the Subscriber
in the United States and at the time of execution of this
Subscription Agreement and the time of any offer to the
Subscriber to purchase the Securities hereunder, the
Subscriber was physically outside the United States; (iii) the
Subscriber is purchasing the Securities for its own account
and not on behalf of or for the benefit of any U.S. person and
the sale and resale of the Securities have not been
prearranged with any U.S. person or buyer in the United
States; (iv) the Subscriber agrees, and to the knowledge of
the Subscriber, without any independent investigation, each
distributor, if any, participating in the offering of the
Securities, has agreed, that all offers and sales of the
Securities prior to the expiration of a period commencing on
the date of the Closing and ending forty days thereafter (the
"Restricted Period") shall not be made to U.S. persons or for
the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S;
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<PAGE> 4
and (v) Subscriber is not an underwriter, dealer, distributor
or other person who is participating, pursuant to a
contractual arrangement, in the distribution of the Securities
offered or sold in reliance on Regulation S.
2.2 Subscriber's Independent Investigation. The Subscriber, in
offering to subscribe for the Securities hereunder, has relied
solely upon an independent investigation made by it and its
representatives, if any, and has, prior to the date hereof,
been given access to and the opportunity to examine all books
and records of the Company, and all material contracts and
documents of the Company which have been filed as exhibits to
the Company's filings made under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In
making its investment decision to purchase the Preferred
Stock, the Subscriber is not relying on any oral or written
representations or assurances from the Company or any other
person other than as set forth in this Agreement, or on any
information other than that contained or incorporated by
reference in the Company's (i) Annual Report on Form 10-K for
the year ended December 31, 1995 (the "Company's 10-K"), (ii)
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 and (iii) the Company's two press releases, dated May 15,
1996 (collectively, the "Disclosure Documents"). The
Subscriber has such experience in business and financial
matters that it is capable of evaluating the risk of its
investment and determining the suitability of its investment.
The Subscriber is an accredited investor as defined in Rule
501 of Regulation D. The Subscriber assumes, without any
independent investigation, that neither the Company nor
Placement Agent has offered the Preferred Stock to any
prospective investors in the U.S. or to any U.S. person unless
such U.S. person is a professional fiduciary of a non-U.S.
person (as defined in Section (o)(2) through (o)(4) of Rule
902 of Regulation S).
2.3 Subscriber's Economic Risk. The Subscriber understands and
acknowledges that an investment in the Securities involves a
high degree of risk. Subscriber acknowledges that there are
limitations on the liquidity of the Securities. The Subscriber
represents that the Subscriber is able to bear the economic
risk of an investment in the Securities, including a possible
total loss of investment. In making this statement the
Subscriber hereby represents and warrants to the Company that
the Subscriber has adequate means of providing for the
Subscriber's current needs and contingencies; that Subscriber
is able to afford to hold the Securities for an indefinite
period; and that Subscriber has such knowledge and experience
in financial and business matters that the Subscriber is
capable of evaluating the merits and risks of the investment
in the Securities. Further, the Subscriber represents, as of
the date of signing this Agreement, that
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<PAGE> 5
the Subscriber has no present need for liquidity in the
Securities and the Subscriber is willing to accept such
investment risks.
2.4 No Government Recommendation or Approval. The Subscriber
understands that no United States federal or state agency, or
similar agency of any other country, has reviewed, approved,
passed upon or made any recommendation or endorsement of the
Company, the Offering or the subscription for the Securities.
2.5 No Directed Selling Efforts in Regard to This Transaction. To
the knowledge of the Subscriber, without any independent
investigation, neither the Company, Placement Agent nor any
other distributor participating in the Offering (if any), nor
any person acting for the Company, Placement Agent or any such
distributor, has conducted any "directed selling efforts" in
the United States as the term "directed selling efforts" is
defined in Rule 902(b) of Regulation S, which in general,
means any activity undertaken for the purpose of, or that
could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the
Securities being offered in reliance on Regulation S. Such
activity includes, without limitation, the mailing of printed
material to investors residing in the United States, the
holding of promotional seminars in the United States, and the
placement of advertisements with radio or television stations
broadcasting in the United States or in publications with a
general circulation in the United States, that refers to the
offering of the Securities in reliance on Regulation S.
2.6 Company's Reliance on Representations of Subscribers. This
Agreement is made by the Company with each Subscriber in
reliance upon such Subscriber's representations and covenants
made in this Section 2, which reliance by his, her or its
execution of this Agreement the Subscriber hereby confirms.
2.7 Securities Not Registered Under the Act or Any State Act.
Subscriber understands that the Preferred Stock and the
Conversion Shares have not been registered under the Act or
any state securities laws ("State Acts") and are being offered
and sold pursuant to Regulation S based in part upon the
representations of Subscriber contained herein.
2.8 No Public Solicitation. Subscriber knows of no public
solicitation or advertisement of an offer in connection with
the proposed issuance and sale of the Securities.
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<PAGE> 6
2.9 Investment Intent. Subscriber is acquiring the Preferred Stock
to be issued and sold hereunder (and the Conversion Shares)
for his, her or its own account (or a trust account if such
Subscriber is a trustee) for investment and not as a nominee
and not with a view to the distribution thereof. Subscriber
understands that Subscriber must bear the economic risk of
this investment indefinitely unless such Preferred Stock or
such Conversion Shares are registered pursuant to the Act and
any applicable State Acts, or an exemption from such
registration is available, and that the Company has no present
intention of registering any such sale of the Preferred Stock
or Conversion Shares. Subscriber represents and warrants to
the Company, as of the date of this Agreement, that Subscriber
has no present plan or intention to sell the Preferred Stock
or the Conversion Shares in the United States at any
predetermined time, and has made no predetermined arrangements
to sell the Preferred Stock or the Conversion Shares.
Subscriber covenants that neither Subscriber nor its
affiliates nor any person acting on its or their behalf has
entered into, has the intention of entering into, or will
enter into any put option, short position or other similar
instrument, contract, arrangements or position with respect to
the Preferred Stock or Common Stock anytime after the earlier
of (i) the time Subscriber first received the term sheet (the
"Term Sheet") concerning this Offering and (ii) the time that
Subscriber was first notified by Placement Agent of the
existence of the Offering (the earlier of which is referred to
as the "Time of Notification of the Offering") until the end
of the Restricted Period, or for the intended purpose of
lowering the price at which the Preferred Stock is convertible
into Conversion Shares; and neither Subscriber nor any of its
affiliates nor any person acting on its or their behalf will
at any time use Conversion Shares to settle/cover any put
option, short position or other similar instrument, contract,
arrangements or position entered into after the Time of
Notification of the Offering (except that transactions
constituting "short exempt" transactions under SEC rules shall
be permissible).
2.10 Subscriber Not to Sell or Transfer Securities in Violation of
the Securities Laws. Subscriber covenants that he, she or it
will not knowingly make any sale, transfer or other
disposition of the Preferred Stock or the Conversion Shares in
violation of the Act (including Regulation S), the Exchange
Act, any applicable State Acts or the rules and regulations of
the Commission or of any state securities commissions or
similar state authorities promulgated under any of the
foregoing.
2.11 Subscriber's Power and Authority. Subscriber has the full
power and authority to execute, deliver and perform this
Agreement. This Agreement, when
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<PAGE> 7
executed and delivered by Subscriber, will constitute a valid
and legally binding obligation of Subscriber, enforceable in
accordance with its terms.
2.12 Signatory's Representation. The signatory to this Agreement
hereby represents and warrants that he, she or it is either:
(a) not a U.S. person (as defined in Regulation S), and
is not located in the U.S. at the time of singing
this Agreement, or
(b) a professional fiduciary of Subscriber (as described
in Section (o)(2) through (o)(4) of Rule 902 of
Regulation S), acting solely in his capacity as
holder of such account, as a fiduciary, executor,
administrator, or trustee.
2.13 No Tax Advice From Company or Its Agents. Subscriber has had
an opportunity to review with his, her or its own tax advisors
the foreign, U.S. federal, state and local tax consequences of
this investment, and the transactions contemplated by this
Agreement. Subscriber is relying solely on such advisors and
not on any statements or representations of the Company or any
of its agents and understands that Subscriber (and not the
Company) shall be responsible for the Subscriber's own tax
liability that may arise as a result of this investment or the
transactions contemplated by this Agreement.
2.14 No Legal Advice from Company or Its Agents. Subscriber
acknowledges that he, she or it has had the opportunity to
review this Agreement and the transactions contemplated by
this Agreement with his, her or its own legal counsel.
Subscriber is relying solely on such counsel and not on any
statements or representations of the Company or any of its
agents for legal advice with respect to this investment or the
transactions contemplated by this Agreement, except for
representations, warranties and covenants set forth herein and
in the opinion provided for in Section 7.3 herein.
2.15 Offering Material Statement. Subscriber acknowledges that all
offering materials and documents received by it in connection
with the offers and sales of the Securities included
statements to the effect of those contained in the first
legend set forth on the first page of this Agreement.
2.16 No Scheme to Evade Registration. Subscriber's acquisition of
the Preferred Stock is not a transaction (or any element of a
series of transactions) that is part of a plan or scheme to
evade the registration provisions of the Act.
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3. Resales of Securities by Subscriber.
Subscriber acknowledges, covenants and agrees that the Securities may
and will only be resold by it in the U.S. (a) in compliance with Regulation S
and applicable State Acts, if any; or (b) pursuant to an exemption from
registration under the Act and applicable State Acts after the Restricted
Period; or (c) pursuant to an effective and current Registration Statement under
the Act.
The Company will effect the transfer of Preferred Stock on the
Company's books and will issue and deliver new Preferred Stock in the
purchaser's name (and, in the case of a resale of the Preferred Stock or the
underlying Conversion Shares after the Restricted Period, free of any
restrictive legend restricting transfer under the Act) within three (3) business
days of receipt of a facsimile copy of the Preferred Stock or Conversion Shares
with a request for transfer or reissuance. The party requesting such issuance
shall promptly forward the original certificates to the Company.
4. Legends; Subsequent Sale of Securities.
4.1 Preferred Stock Legend. The Preferred Stock shall bear a
legend substantially in the form of the first legend set forth
on the first page of this Agreement (the "Regulation S
Restrictive Legend") and any other legend or legends as are
reasonably required to comply with the state, U.S. federal, or
foreign law.
4.2 The Shares Obtained Upon Conversion Shall Not Bear a
Restrictive Legend. Assuming that there are no changes in the
material facts set forth in Section 2 of this Agreement or
applicable law from the date hereof until the Date of
Conversion (as that term is defined in the Certificate of
Designation) the Conversion Shares obtained upon a conversion
after the Restricted Period shall not bear any restrictive
legend restricting transfer under the Act, nor shall any stop
order be placed on the books of the Transfer Agent (as defined
below).
4.3 Removal of Legend for Pledge With a Margin Account. Upon the
submission, at any time after the expiration of the Restricted
Period, by Subscriber of a written request for removal of the
Regulation S Restrictive Legend for the purpose of a bona fide
pledge or deposit of Preferred Stock with a margin account,
together with the Preferred Stock for which legend removal is
being requested, the Company shall immediately re-issue the
Preferred Stock without any restrictive legend restricting
transfer under the Act, or the Company shall instruct its
designated transfer agent ("Transfer Agent") to do so,
assuming that there are no changes in the material facts set
forth in Section 2 of this Agreement or applicable law from
the date hereof until the date of such
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submission. Except for the requirements otherwise set forth in
this Agreement, and assuming there are no changes after the
date hereof in the material facts set forth in Section 2 of
the Agreement or applicable law, no action other than as set
forth in this Section 4.3 shall be required of the Subscriber
to remove the Regulation S Restrictive Legend (unless such
pledge or deposit would constitute a violation of securities
law).
4.4 The Company's Instructions to Transfer Agent. The Company will
issue to its Transfer Agent an irrevocable instruction letter
(the "Irrevocable Instructions to Transfer Agent") to convert
the Subscriber's Preferred Stock to Common Stock (in
accordance with the Certificate of Designation and so long as
Section 4.2 is complied with, free of any restrictive legend
restricting transfer under the Act) upon receipt of a request
for Conversion from a Subscriber and a facsimile copy of the
Preferred Shares, all as provided in the Certificate of
Designation.
5. Issuance of Securities in the Near Future; Notice Requirements.
The Company shall not issue any debt or equity securities for cash in
private capital raising transactions ("Future Offerings") for a period
of one hundred and twenty (120) days after the Closing without
obtaining the prior written approval of Subscribers holding a majority
of the principal amount of Preferred Stock then outstanding, provided
that the preceding shall not limit the Company's right to (i) conduct a
public offering or (ii) issue stock which is restricted for at least
one (1) year and which cannot be registered during such restricted
period.
6. Representations and Warranties of Company.
Company represents and warrants to Subscriber as follows:
6.1 Organization, Good Standing, and Qualification. The Company is
a corporation duly organized, validly existing and in good
standing under the laws of state of Delaware and has all
requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on the business
or properties of the Company and its subsidiaries taken as a
whole. The Company, to its knowledge, is not the subject of
any pending or threatened investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing
authorities of any state or local jurisdiction, or the
Securities and Exchange Commission which could have a material
adverse
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effect and which have not been disclosed in the reports
referred in Section 2.2 above.
6.2 Corporate Condition. The Company's condition was, in all
material respects, as described in the Disclosure Documents at
the respective dates thereof. Except for normal year-end
adjustments that are not, in the aggregate, material, there
has been no material adverse change in the Company's business
or financial condition or prospects since March 31, 1996. The
Disclosure Documents are true and correct, in all material
respects, and the financial statements contained in the
Disclosure Documents have been prepared in accordance with
generally accepted accounting principles, consistently
applied, and fairly present the financial position and results
of operation and cash flows of the Company on a consolidated
basis, for the periods then ended. Without limiting the
foregoing, there are no material liabilities, contingent or
actual, that are not disclosed in the Disclosure Documents.
The Company has paid all material taxes which are due, except
for taxes which it reasonably disputes. There is no material
claim, litigation, or administrative proceeding pending, or to
the best of the Company's knowledge, threatened against the
Company, except as disclosed in the Disclosure Documents. This
Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state
any material fact required to be stated therein or herein or
necessary to make statements contained therein or herein not
misleading in the light of the circumstances under which they
were made.
6.3 Authorization. All corporate action on the part of the Company
by its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder and
the authorization, issuance (or reservation for issuance) and
delivery of the Preferred Stock being sold hereunder and
issuance of the Common Stock obtainable on conversion of the
Preferred Stock have been taken, and this Agreement
constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms. The Company
has obtained all consents and approvals required for it to
execute, deliver, and perform this Agreement. The Company is
not in violation or default of any provisions of its
Certificate of Incorporation or By-laws, as amended and in
effect on and as of the date of this Agreement, or of any
material provision of any instrument or contract to which it
is a party or by which it is bound or of any material
provision of any federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to
the Company except where such violation, default or conflict
would have no material adverse affect on the Company's
business prospects or financial condition, or on the
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transaction contemplated herein. The execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in any such
violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a
default under any such provision, instrument or contract or an
event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company.
6.4 Valid Issuance of Securities. The Preferred Stock, when
issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be validly issued
and binding obligations of the Company, enforceable in
accordance with their terms, and, based in part upon the
representations of the Subscriber in this Agreement, will be
issued in compliance with all applicable U.S. federal and
state securities laws. The Common Stock issuable upon
conversion of the Preferred Stock, when issued in accordance
with the terms of the Preferred Stock, shall be duly and
validly issued and outstanding, fully paid and nonassessable,
and based in part on the representations and warranties of
Subscriber of the Preferred Stock, will be issued in
compliance with all applicable U.S. federal securities laws
and State Acts. The Shares will be issued free of any
preemptive right. The Company currently has at least 2,150,000
shares reserved for issuance upon conversion of the Preferred
Stock.
6.5 Current Public Information. The Company represents and
warrants to the Subscriber that the Company is a "reporting
issuer" as defined in Rule 902(I) of Regulation S and it has a
class of securities registered under Section 12(b) or 12(g) of
the Exchange Act or is required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act, and has filed all the
materials required to be filed as reports pursuant to the
Exchange Act for a period of at least twelve months preceding
the date hereof (or for such shorter period as the Company was
required by law to file such material), and all such filings
have been made on a timely basis. The Company undertakes to
furnish the Subscriber with copies of such information as may
be reasonably requested by the Subscriber prior to
consummation of this Offering.
6.6 No Securities Offered in U.S. or to any U.S. Person. The
Company represents that it has not offered the Preferred Stock
to the Subscriber in the U.S. or to any person in the United
States or any U.S. person (as defined in Regulation S) unless
such U.S. person is a professional fiduciary of a non-U.S.
person (as defined in Section (o)(2) through (o)(4) of rule
902 of Regulation S).
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6.7 No Directed Selling Efforts in Regard to this Transaction.
Neither the Company, nor to the knowledge of the Company, the
Placement Agent, any other distributor participating in the
Offering (if any), or any person acting for the Company, the
Placement Agent or any such distributor, has conducted any
"directed selling efforts" in the United States, as the term
"directed selling efforts" is defined in Rule 902(b) of
Regulation S with respect to the Offering, which in general,
means any activity undertaken for the purpose of, or that
could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the
Securities being offered in reliance upon Regulation S. Such
activity includes, without limitation, the mailing of printed
material to investors residing in the United States, the
holding of promotional seminars in the United States, and the
placement of advertisements with radio or television stations
broadcasting in the United States or in the publications with
a general circulation in the United States, that refers to the
offering of the Securities.
6.8 Capitalization Structure of the Company. The capitalization of
Company, as of the date of the Closing, after giving effect to
the issuance of the Securities in this Offering, is as set
forth in Exhibit C.
6.9 Termination Date of Offering. In no event shall the Closing
occur later than June 15, 1996, which date can be extended by
up to 10 days upon written approval by the Company and the
Placement Agent.
6.10 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses)
for working capital and general corporate purposes, including
the funding of research and development and marketing.
6.11 Intellectual Property. As set forth in the Company's 10-K, the
Company holds valid and enforceable licenses for the use of
all patents necessary to conduct the business of the Company.
The Company has valid unrestricted, exclusive and enforceable
rights in copyrights, trademarks, trademark registrations,
trade names, trade secrets, know-how, technology and other
intellectual property necessary to conduct the business of the
Company. To the best of the Company's knowledge, the Company
is not infringing on the intellectual property rights of any
third party, nor is any third party infringing on the
Company's intellectual property rights. There are no
restrictions in any agreements, licenses, franchises, or other
instruments that are necessary for the conduct of the
Company's business as presently conducted or as planned to be
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<PAGE> 13
conducted in the future that materially interfere with the
conduct of such business.
7. Covenants of Company.
7.1 Independent Auditors. The Company shall, until at least May
22, 1999, maintain as its independent auditors an accounting
firm authorized to practice before the Commission.
7.2 Corporate Existence and Taxes. The Company shall, until at
least the earlier of May 22, 1999, or the conversion or
redemption of all the Preferred Shares purchased pursuant to
this Agreement, maintain its corporate existence in good
standing (provided, however, that the foregoing covenant shall
not prevent the Company from entering into any merger or
corporate reorganization as long as the surviving entity in
such transaction, if not the Company, assumes the Company's
obligations with respect to the Preferred Stock) and shall pay
all its material taxes when due except for taxes which the
Company reasonably disputes.
7.3 Opinion of Counsel. Subscriber shall, upon purchase of the
Preferred Stock, receive an opinion letter from outside
counsel to the Company, in the form attached hereto as Exhibit
D, to the effect that (i) the Company is duly incorporated and
validly existing under the laws of the state of Delaware; (ii)
this Agreement, the issuance of the Preferred Shares, and the
issuance of the Common Stock upon conversion of the Preferred
Shares have been duly authorized by all required corporate
action, and that all such Shares of Common Stock, upon
delivery, shall be validly issued and outstanding, fully paid
and nonassessable; (iii) this Agreement constitutes a valid
and binding obligation of the Company, enforceable in
accordance with its terms, except as enforceability of any
indemnification provisions may be limited by principles of
public policy, and subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors
and rules of laws governing specific performance and other
equitable remedies; (iv) the performance of this Agreement by
the Company will not violate any federal or state law or
regulation; and (v) the execution, delivery and performance of
this Agreement and the other agreements entered into in
connection herewith, does not conflict with or result in a
breach of the Company's Certificate of Incorporation, Bylaws,
or any agreement relating to the issuance of securities, or
the incurrence of funded indebtedness or registration rights,
to which the Company is a party or by which its property is
bound or any judgment, or decree to which it is subject that
is identified to such counsel by the Company.
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<PAGE> 14
7.4 Registration Rights. If there is in the opinion of counsel to
the Subscribers a material change in Regulation S which
adversely affects the Subscribers' ability to effect resales
of the Conversion Shares pursuant to Regulation S, then the
Company will upon written demand promptly, but in no event
later than thirty (30) days after such demand, file a
registration statement covering the Conversion Shares. The
Company will use its best efforts to cause such registration
statement to become effective within ninety (90) days after
filing and maintain the effectiveness of such registration
statement until such time as all such Conversion Shares are
sold.
7.5 Payments for Late Conversion. As set forth in the Certificate
of Designation, if the Company receives the notice of
conversion and a facsimile copy of the Preferred Stock
certificate to be converted by 6:00 P.M., the Company shall,
within two (2) business days, issue, and cause to be delivered
by 6:00 P.M. to a common courier for overnight or two (2) day
delivery to the holder of the Preferred Stock (the "Holder"),
at the address of the Holder on the books of the Company, a
certificate for the number of shares of Class A Common Stock
to which the Holder shall be entitled to under the terms of
the Certificate of Designation, the Preferred Stock, and this
Agreement. If the Company receives the notice of conversion
and a facsimile copy of the Preferred Stock certificate to be
converted after 6:00 P.M. but before midnight, the Company
shall, within three (3) business days, issue, and cause to be
delivered by 6:00 P.M. to a common courier for overnight or
two (2) day delivery to the Holder, at the address of the
Holder on the books of the Company, a certificate for the
number of shares of Class A Common Stock to which the Holder
shall be entitled under the terms of the Certificate of
Designation, the Preferred Stock, and this Agreement. Holder
shall cause the original Preferred Stock certificates to be
converted to be delivered to the Company within five (5)
business days from the date of such notice of conversion. The
Company understands that a delay in the issuance and delivery
of the shares of Class A Common Stock beyond the Deadline
could result in economic loss to the Holder. As compensation
to the Holder for such loss, the Company agrees to pay late
payments to the Holder for the late issuance of Conversion
Shares in accordance with the following schedule (where "No.
Business Days Late" is defined as the number of business days
beyond the deadlines established above):
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<PAGE> 15
<TABLE>
<CAPTION>
Late Payment For Each
$10,000 Of Principal
No. Business Days Late Amount Being Covered
---------------------- --------------------
<S> <C> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
[More than]10 $1,000 + 200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section
7.6(a) in immediately available funds within three (3)
business days from the date of issuance of the applicable
Common Stock. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to issue and
deliver Common Stock to the Holder pursuant to the terms of
the Preferred Stock. In addition, nothing herein shall limit
the Subscriber's right to pursue actual damages for the
Company's failure to maintain a sufficient number of
authorized shares of Common Stock.
8. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, U.S.A. applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters
arising under the Act or the Exchange Act which matters shall be
construed and interpreted in accordance with such laws.
9. Entire Agreement; Written Amendments Required.
This Agreement, the Escrow Agreement and the other documents delivered
pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor
any term hereof
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<PAGE> 16
may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any
such amendment, waiver, discharge or termination is sought.
10. Written Notices, Etc.
Any notice, demand or request required or permitted to be given by
either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile (with a hard copy to follow by either
overnight or two (2) day courier), addressed to the parties at the
addresses and/or facsimile telephone number of the parties set forth at
the end of this Agreement or such other address as a party may request
by notifying the other in writing.
11. Execution in Counterparts Permitted.
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument.
12. Representations and Warranties Survive the Closing; Agreement is
Severable.
The Subscriber's and the Company's representations and warranties shall
survive the closing of the transaction. In the event that any provision
of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall
to the extent permitted by law continue in full force and effect
without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this
Agreement to any party.
13. Titles and Subtitles; Gender.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement. The use in this Agreement of a masculine,
feminine or neuter pronoun shall be deemed to include a reference to
the others.
14. Exact Registered Name of Security Holder; Offshore Delivery
Instructions.
Subscriber agrees to provide Company with the exact name in which he,
she or it wishes the Securities to be registered by providing that
information on the accompanying signature page of this Agreement.
Additionally, Subscriber also agrees
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<PAGE> 17
to provide Company with detailed delivery instructions to an offshore
addressee and will also provide that information on the accompanying
signature page of this Agreement.
15. Limitations on Assignment of this Agreement.
Neither party to this Agreement may assign this Agreement without the
prior written consent of the other (which may be withheld for any
reason). This provision does not limit the Subscriber's right to
transfer the Securities pursuant to the terms of the Preferred Stock
and this Agreement.
16. Subscription and Writing Instructions; Irrevocability.
(a) Subscriber shall send a copy of its signed Subscription Agreement
by facsimile to the Company and shall send its subscription funds by
wire transfer to the Company pursuant to the Escrow Agreement.
(b) This Agreement shall be accepted by the Company when the Agreement
is countersigned by the Company and delivered to the Escrow Agent. The
Subscriber hereby confirms that the Company has full right in its sole
discretion to accept or reject the subscription of the Subscriber, in
whole or in part, provided that, if the Company decides to reject such
subscription, the Company must do so promptly and in writing. In the
case of rejection, the Company will promptly return any rejected
payments (together with any interest earned on such rejected funds in
the escrow account) and (if rejected in whole) copies of all executed
subscription documents (including without limitation this Agreement) to
Subscriber. The Company may terminate this Agreement prior to the
Closing if this Agreement is discovered to contain statements that are
materially inaccurate or to or omit statements of material fact.
17. Indemnification.
The Company shall indemnify and hold harmless the Subscriber, Placement
Agent and each of their officers, directors, employees, partners,
control persons and agents (a "Subscriber Indemnified Party") who is or
may be a party to any threatened, pending, or completed action, suit or
proceeding of any kind, against any losses, damages, liabilities and
expenses (including reasonable attorneys fees) suffered or incurred by
a Subscriber Indemnified Party and not otherwise reimbursed, arising
from or due to any material breach of a representation or warranty of
the Company contained in this Agreement. The Subscriber shall indemnify
and hold harmless the Company and each of their officers, directors,
employees, partners, control persons and agents (a
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<PAGE> 18
"Company Indemnified Party") who is or may be a party to any
threatened, pending, or completed action, suit or proceeding of any
kind, against any losses, damages, liabilities and expenses (including
reasonable attorneys fees) suffered or incurred by a Company
Indemnified Party and not otherwise reimbursed, arising form or due to
any material breach of a representation or warranty of the Subscriber
contained in this Agreement.
[Intentionally Left Blank]
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<PAGE> 19
19. Amount.
The undersigned hereby subscribes for ___________________ shares of
Preferred Stock, and pays herewith funds in the amount of
______________________ U.S. Dollars ($____________________U.S.) on the
terms and conditions of this Agreement.
The undersigned acknowledges that this Agreement and the subscription
represented hereby shall not be effective unless accepted by the
Company as indicated below and delivered to the Subscriber.
Dated this ____ day of _________, 1996.
_____________________________
Your Signature
EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
(PLEASE PRINT EXACT REGISTERED NAME)
_____________________________
Name: Please Print
OFFSHORE DELIVERY INSTRUCTIONS:
Please type or print address where your
security is to be delivered:
ATTN:
_____________________________
Title/Representative Capacity
__________________________________
Street Address
_____________________________
Name of Company You Represent
__________________________________
Street Address
_____________________________
Place of Execution of this Agreement
__________________________________
City, State or Province, Country
__________________________________
Offshore Postal Code
__________________________________
Phone Number (For Federal Express)
__________________________________
Facsimile Number (re: Notice)
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<PAGE> 20
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ____ DAY
OF ________________, 1996.
WAVE SYSTEMS CORP.
By:_____________________________
(Signature)
Print Name:_____________________
Title:__________________________
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<PAGE> 1
EXHIBIT 99.1
(BW) (WAVE-SYSTEMS) (WAVX) WAVE SYSTEMS CORP. COMPLETES $3.5
MILLION FINANCING
NEW YORK--(BUSINESS WIRE)--May 30, 1996--Wave Systems Corp. (NASDAQ:
WAVX) today announced that it has completed the sale of $3.5 million in 6%
Series B Convertible Preferred Shares through a private placement with five
foreign institutional investors, including two Canadian banks, pursuant to
Regulation S of the Securities Act of 1933. Proceeds of the offering will fund
working capital needs, including the Company's marketing efforts focused on the
consumer, entertainment and education markets.
The Shares have not been registered under the Securities Act of 1933
and may not be offered or sold within the United States absent registration or
an available exemption from such registration requirements.
This announcement does not constitute an offer to sell or the
solicitation of offers to buy any security and shall not constitute an offer,
solicitation or sale of any security in any jurisdiction in which such offer,
solicitation or sale would be unlawful.
CONTACT: James Stokes Hatch
Wave Systems Corp.
212/755-3282 or [email protected]
or
David C. Collins
Jaffoni & Collins Incorporated
212/505-3015 or [email protected]
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