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 30, 1997
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.)
480 Pleasant Street, Lee, Massachusetts 01238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (413) 243-1600
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Item 5. Other Events
On May 30, 1997 Wave Systems Corp. (the "Company") issued 80,000 shares
of newly created Series D Convertible Preferred Stock, at a price of $20 per
share, for an aggregate of $1,600,000. The shares were sold to one (1)
accredited investor pursuant to Regulation D promulgated under the Securities
Act of 1933. The Series D Convertible Preferred Stock is convertible into the
Class A Common Stock of the Company at an effective conversion price of the
lower of (i) $1.35, or (ii) 80% 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 of the Series D Convertible Preferred Stock attached
hereto as Exhibit 3.1.
Item 7. Financial Statements and Exhibits
Exhibit 3.1 Certificate of Designation of Series D Preferred Stock
of Wave Systems Corp. as filed with the Delaware
Secretary of State on May 30, 1997.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and JNC
Opportunity Fund Ltd., dated as of May 30, 1997.
Exhibit 4.2 Registration Rights Agreement between Wave Systems
Corp. and JNC Opportunity Fund Ltd., dated as of May
30, 1997.
Exhibit 99.1 Press Release dated June 3, 1997.
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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: June 3, 1997 By: /s/ Peter J. Sprague
------------------------------
Name: Peter J. Sprague
Title: Chairman and Chief
Executive Officer
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EXHIBIT INDEX
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Item No. Description
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Exhibit 3.1 Certificate of Designation of Series D Preferred Stock
of Wave Systems Corp. as filed with the Delaware
Secretary of State on May 30, 1997.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and JNC
Opportunity Fund Ltd., dated as of May 30, 1997.
Exhibit 4.2 Registration Rights Agreement between Wave Systems
Corp. and JNC Opportunity Fund Ltd., dated as of May
30, 1997.
Exhibit 99.1 Press Release dated June 3, 1997.
Exhibit 3.1
CERTIFICATE OF DESIGNATION OF
SERIES D CONVERTIBLE PREFERRED STOCK OF
WAVE SYSTEMS CORP.
The undersigned, Peter J. Sprague and James Stokes Hatch,
hereby certify that:
I. They are the duly elected and acting Chairman and
Secretary, respectively, of Wave Systems Corp., a Delaware corporation (the
"Company").
II. The Restated Certificate of Incorporation of the
Company authorizes 2,000,000 shares of preferred stock, par value $.01 per
share, of which the following have been authorized and are issued and
outstanding: Series A Cumulative Redeemable Preferred Stock 360 authorized and
360 outstanding, Series B Preferred Stock 500 authorized and no shares
outstanding, and Series C Convertible Preferred Stock 150,000 authorized and
75,000 shares outstanding.
III. The following is a true and correct copy of
resolutions duly adopted by the Board of Directors of the Company (the "Board of
Directors") at a meeting duly held May 29, 1997, which constituted all requisite
action on the part of the Company for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors is authorized to provide for
the issuance of the shares of preferred stock in series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, preferences and relative, participating,
optional or other special rights of the shares of each such series, and the
qualifications or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock, set the
number of shares constituting such series and fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
1. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Series D Convertible Preferred Stock (the
"Preferred Stock"), and the number of shares so designated shall be 80,000
(which shall not be subject to increase). Each share of Preferred Stock shall
have a par value of $.01 per share and a stated value of $20 per share (the
"Stated Value").
2. Dividends.
(a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 6% per annum,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
in each year, commencing on June 30, 1997, in cash or (subject to the provisions
of Sections 2(b) and 5(a)(ii)) shares of Class A Common Stock (as defined in
Section 7) (determined based upon the Conversion Price (as defined in Section
5(c)) on such dividend payment date. Any arrears in the payment of dividends
hereunder shall be paid on the Conversion Date (as defined in Section 5(a)(ii)).
Commencing the Original Issue Date (as defined in Section 7), dividends on the
Preferred Stock shall accrue daily in each quarterly period based upon the
actual number of days elapsed in a 360-day year and shall be deemed to accrue on
such date whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Preferred Stock on an applicable record
date for any dividend payment will be entitled to receive such dividend payment
and any other accrued and unpaid dividends which accrued prior to such dividend
payment date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date but prior to the applicable dividend
payment date. Except as otherwise provided herein, if at any time the Company
pays less than the total amount of dividends then accrued on account of the
Preferred Stock, such payment shall be distributed ratably among the holders of
the Preferred Stock based upon the number of shares held by each holder. Payment
of dividends on the Preferred Stock is further subject to the provisions of
Section 5(c)(i).
(b) Notwithstanding anything to the contrary contained herein,
the Company may not issue shares of Class A Common Stock in payment of dividends
on the Preferred Stock if:
i) the number of shares of Class A Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to issue such dividends to be paid in shares of
Class A Common Stock;
ii) the shares of Class A Common Stock to be issued
in respect of such dividends are not registered for resale pursuant to an
effective registration statement that names the recipient of such dividend as a
selling stockholder thereunder;
iii) the shares of Class A Common Stock to be issued
in respect of such dividends are not listed on the Nasdaq National Market or
Nasdaq SmallCap Market, and any other exchange on which the Class A Common Stock
is then listed for trading; or
iv) the issuance of such shares would result in the
recipient thereof beneficially owning more than 4.9% of the issued and
outstanding shares of Class A Common Stock.
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 7), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid.
3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or (b) authorize
or create any class of stock ranking as to dividends or distribution of assets
upon a Liquidation (as defined in Section 4) senior to, prior to or pari passu
with the Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or winding-
up of the Company, whether voluntary or involuntary (a "Liquidation"), the
holders of Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of Preferred
Stock an amount equal to the Stated Value plus all accrued but unpaid dividends
per share, whether declared or not, before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which more
than 50% of the voting power of the Company is disposed of, or a consolidation
or merger of the Company with or into any other company or companies shall not
be treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
holder of Preferred Stock.
5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible
into shares of Class A Common Stock (subject to reduction pursuant to Section
5(a)(ii)) at the Conversion Ratio (as defined in Section 7) at the option of the
holder in whole or in part at any time after the expiration of the earlier to
occur of (A) 60 days after the Original Issue Date and (B) the date the
Securities and Exchange Commission (the "Commission") declares effective under
the Securities Act of 1933, as amended (the "Securities Act"), the registration
statement contemplated by the Registration Rights Agreement, dated the Original
Issue Date (the "Registration Rights Agreement"), by and between the Company and
the original holder of Preferred Stock, pursuant to which the Company is, among
other things, required to register the resale of the shares of Class A Common
Stock issuable upon conversion of the Preferred Stock (the "Underlying Shares
Registration Statement"). Holders of Preferred Stock shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice"). Each
Conversion Notice shall specify the number of shares of Preferred Stock to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date the holder delivers such Conversion Notice by
facsimile (the "Conversion Date"). If no Conversion Date is specified in a
Conversion Notice, the Conversion Date shall be the date that the Conversion
Notice is deemed delivered pursuant to Section 5(i). Subject to Sections 5(b)
and 5(a)(ii) and, as to the original holder (or its designee), subject to
Section 4.10 of the Purchase Agreement (as defined in Section 7), each
Conversion Notice, once given, shall be irrevocable. If the holder is converting
less than all shares of Preferred Stock represented by the certificate or
certificates tendered by the holder with the Conversion Notice, the Company
shall promptly deliver to such holder a certificate for such number of shares as
have not been converted.
(ii) Certain Regulatory Approval. If on the Conversion
Date applicable to any conversion under this Section 5(a), (A) the Class A
Common Stock is then listed for trading on the Nasdaq National Market or, if the
rules of the Nasdaq Stock Market are hereafter amended to extend Rule 4460(i)
promulgated thereby to the Nasdaq SmallCap Market and the Company's Class A
Common Stock is then listed for trading on such market, (B) the Conversion Price
then in effect is such that the aggregate number of shares of Class A Common
Stock that would then be issuable upon conversion of all outstanding shares of
Preferred Stock, together with any shares of Class A Common Stock previously
issued upon conversion of Preferred Stock, would equal or exceed 20% of the
number of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained Shareholder
Approval (as defined below), then the Company shall issue to the converting
holder of the Preferred Stock the Issuable Maximum and, with respect to any
shares of Class A Common Stock that would be issuable to such holder in respect
of the Conversion Notice at issue in excess of the Issuable Maximum, the holder
shall have the option to require the Company to either (1) as promptly as
possible, but in no event later than 60 days after such Conversion Date, convene
a meeting of the holders of the Common Stock and obtain the Shareholder Approval
or (2) redeem, from funds legally available therefor at the time of such
redemption, the balance of the Preferred Stock subject to such Conversion Notice
at a price per share equal to the product of (i) the average Per Share Market
Value for the five Trading Days immediately preceding (A) the Conversion Date or
(B) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on (A) the
Conversion Date or (B) the date of payment by the Company of such redemption
price, whichever date yields a lower Conversion Price denominator for the
determination of the Conversion Ratio; provided, however, that if the holder has
requested that the Company obtain the Shareholder Approval under paragraph (1)
above and the Company fails for any reason to obtain such Shareholder Approval
within the time period set forth in (1) above, the Company shall be obligated to
redeem the Preferred Stock not converted as a result of the provisions of this
Section in accordance with the provisions of paragraph (2) above, and in such
case the interest contemplated by the immediately succeeding sentence shall be
deemed to accrue from the Conversion Date. If the holder has requested that the
Company redeem shares of Preferred Stock pursuant to this Section and fails for
any reason to pay the redemption price under (2) above within seven days after
the Conversion Date, the Company will pay interest on such redemption price at a
rate of 15% per annum to the converting holder of Preferred Stock, accruing from
the Conversion Date until the redemption price plus any accrued interest thereon
is paid in full. The entire redemption price, including interest thereon, shall
be paid in cash. "Shareholder Approval" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
shareholders of the Company held in accordance with the Company's articles of
organization and by-laws, of the issuance by the Company of shares of Class A
Common Stock exceeding the Issuable Maximum as a consequence of the conversion
of Preferred Stock into Class A Common Stock at a price less than the greater of
the book or market value on the Original Issue Date as and to the extent
required pursuant to Rule 4460(i) of the Nasdaq Stock Market (or any successor
or replacement provision thereof).
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those then required by law and as set forth in the Purchase Agreement)
representing the number of shares of Class A Common Stock being acquired upon
the conversion of shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(ii)) and (ii) one or more certificates representing the number of
shares of Preferred Stock not converted; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Class A
Common Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or Class
A Common Stock, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security reasonably acceptable to the Company) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the holder of the
Preferred Stock, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 5(b) electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If such certificate or certificates
are not delivered by the date required under this Section 5(b), the holder shall
be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion. If the
Company fails to deliver to the holder such certificate or certificates pursuant
to this Section, including for purposes hereof, any shares of Class A Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the fifth Trading Day after the Conversion Date,
the Company shall pay to such holder, in cash, as liquidated damages, $1,500 for
each day after such fifth Trading Day until such certificates are delivered. If
the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section prior to the 30th day after the Conversion Date, the
Company shall, at the holder's option (i) redeem, from funds legally available
therefor at the time of such redemption, such number of shares of Preferred
Stock then held by such holder, as requested by such holder, and (ii) pay all
accrued but unpaid dividends on account of the Preferred Stock for which the
Company shall have failed to issue Class A Common Stock certificates hereunder,
in cash. The redemption price per share shall be equal to the product of (A) the
average Per Share Market Value for the five Trading Days immediately preceding
(1) the Conversion Date or (2) the date of payment in full by the Company of
such redemption price, whichever is greater, and (B) the Conversion Ratio
calculated on (1) the Conversion Date or (2) the date of payment in full by the
Company of such redemption price, whichever date yields a lower Conversion Price
denominator for the determination of the Conversion Ratio. If the holder has
requested that the Company redeem shares of Preferred Stock pursuant to this
Section and the Company fails for any reason to pay the redemption price under
(2) above within seven days after such notice, the Company will pay interest on
the redemption price at a rate of 15% per annum, in cash to such holder,
accruing from such seventh day until the redemption price and any accrued
interest thereon is paid in full.
(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) $1.35 (the "Initial Conversion Price") and (b) 80% of the average
Per Share Market Value for the five (5) Trading Days immediately preceding the
Conversion Date; provided that, (a) if the Underlying Shares Registration
Statement is not filed on or prior to the 10th day after the Original Issue
Date, or (b) if the Underlying Shares Registration Statement is not declared
effective by the Commission on or prior to the 60th day after the Original Issue
Date, or (c) if an Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all of the then Underlying Shares at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Business Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (d) if trading in the Class A Common Stock shall be suspended
for any reason for more than three Trading Days, or (e) if the conversion rights
of the holders of Preferred Stock hereunder are suspended for any reason (any
such failure being referred to as an "Event," and for purposes of clauses (a),
(b) and (e) the date on which such Event occurs, or for purposes of clause (c)
the date which such 10 Business Day-period is exceeded, or for purposes of
clause (d) the date on which such three Trading Day period is exceeded, being
referred to as "Event Date"), the Conversion Price shall be decreased by 2.5%
each month (i.e., 77.5% as of the Event Date and 75% as of the one month
anniversary of the Event Date) until such time as a subsequent Underlying Shares
Registration Statement is declared effective by the Commission, or until any
Event contemplated by clause (d) or (e), as the case may be, is cured. Any
decrease in the Conversion Price pursuant to this Section 5(c)(i) shall continue
as long as shares of Preferred Stock remain outstanding. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
a larger number of shares, or (c) combine outstanding shares of Common Stock
into a smaller number of shares, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Initial Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Sections 5(c)(ii) and (iii) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the holders of a majority in interest of the shares of
Preferred Stock then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii) or (iv), the Company shall promptly mail to
each holder of Preferred Stock, a notice setting forth the Initial Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(vii) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person pursuant
to which the Company will not be the surviving entity, the sale or transfer of
all or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then outstanding shall have
the right thereafter to, at their option, (A) convert such shares only into the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of the
Preferred Stock shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the Company
into which such shares of Preferred Stock could have been converted immediately
prior to such reclassification, consolidation, merger, sale, transfer or share
exchange would have been entitled or (B) require the Company to redeem, from
funds legally available therefor at the time of such redemption, its shares of
Preferred Stock at a price per share equal to the product of (i) the average Per
Share Market Value for the five Trading Days immediately preceding (1) the
effective date or the date of the closing, as the case may be, of the
reclassification, consolidation, merger, sale, transfer or share exchange
triggering such redemption right or (2) the date of payment in full by the
Company of the redemption price hereunder, whichever is greater, and (ii) the
Conversion Ratio calculated on (1) the date of the closing or the date of the
closing, as the case may be, of the reclassification, consolidation, merger,
sale, transfer or share exchange triggering such redemption right or (2) the
date of payment in full by the Company of such redemption price, whichever date
yields a lower Conversion Price denominator for the determination of the
Conversion Ratio. The entire redemption price shall be paid in cash, and the
terms of payment of such redemption price shall be subject to the provisions set
forth in Section 6(c). The terms of any such consolidation, merger, sale,
transfer, reclassification or share exchange shall include such terms so as to
continue to give to the holder of Preferred Stock the right to receive the
securities, cash or property set forth in this Section 5(c)(vii) upon any
conversion or redemption following such consolidation, merger, sale, transfer,
reclassification or share exchange. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers,
reclassifications or share exchanges.
(viii) If:
A. the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the
granting to all holders of the Common
Stock rights or warrants to subscribe
for or purchase any shares of capital
stock of any class or of any rights;
or
D. the approval of any stockholders of the
Company shall be required (or shall
be sought) in connection with any
reclassification of the Common Stock,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, or any
compulsory share exchange whereby the
Common Stock is converted into other
securities, cash or property,
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 30 calendar days prior to the effective date of such
action, and an Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of shares of Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case the adjustment shall be
equal to the average of the adjustments recommended by each such Appraiser. The
Board of Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such adjustment of
the Conversion Price shall be made which in the opinion of the Appraiser(s)
giving the aforesaid opinion or opinions would result in an increase of the
Conversion Price to more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued Class A Common
Stock solely for the purpose of issuance upon conversion of Preferred Stock and
payment of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Preferred Stock, such number of shares of Class A
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(c)) upon the conversion of all outstanding shares of
Preferred Stock and payment of dividends hereunder. The Company covenants that
all shares of Class A Common Stock that shall be so issuable shall, upon issue,
be duly and validly authorized, issued and fully paid, nonassessable and freely
tradeable. If the Company shall not on any Conversion Date have sufficient
available shares of Class A Common Stock in accordance with this Section to
issue upon conversion of Preferred Stock and payments of dividends thereon, the
Company shall redeem, from funds legally available therefor, the shares of
Preferred Stock for which such shares of Class A Stock are not available at a
redemption price per share equal to the product of (i) the average Per Share
Market Value for the five Trading Days immediately preceding (A) the Conversion
Date or (B) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on (A) the
Conversion Date or (B) the date of payment in full by the Company of such
redemption price, whichever yields a lower Conversion Price denomenator for the
determination of the Conversion Ratio. If the Company fails for any reason to
pay the redemption price within seven days after such Conversion Date, the
Company shall pay interest on such redemption price at a rate of 15% per annum
to the converting holder, accruing from the Conversion Date until the entire
redemption price, plus any interest accrued thereon, is paid in full, in cash.
(f) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Class A
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
of a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Class A Common Stock.
(g) The issuance of certificates for shares of Class A
Common Stock on conversion of Preferred Stock shall be made without charge to
the holders thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided that
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Class A
Common Stock shall be canceled and shall have the status of authorized but
unissued shares of undesignated stock.
(i) Any and all notices or other communications or
deliveries to be provided by the holders of the Preferred Stock hereunder,
including, without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to the attention of the Secretary of the Company at the facsimile
telephone number or address of the principal place of business of the Company.
Any and all notices or other communications or deliveries to be provided by the
Company hereunder shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to each holder of Preferred Stock
at the facsimile telephone number or address of such holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern Standard Time), (ii) the date after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 4:30 p.m.
(Eastern Standard Time) on any date and earlier than 11:59 p.m. (Easter Standard
Time) on such date, (iii) four days after deposit in the United States mails,
(iv) the Business Day following the date of mailing, if send by nationally
recognized overnight courier service, or (v) upon actual receipt by the party to
whom such notice is required to be given.
6. Redemptions.
(a) The Company shall have the right, exercisable at any time
upon 20 Trading Days notice to the holders of the Preferred Stock given at any
time after the Original Issue Date, to redeem, from funds legally available
therefor at the time of such redemption, all or any portion of the shares of
Preferred Stock which have not previously been converted or redeemed, at a price
per share equal to the product of (i) the average Per Share Market Value for the
five Trading Days immediately preceding (1) the date of the redemption notice
referenced above or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (ii) the Conversion Ratio
calculated on (1) the date of such redemption notice or (2) the date of payment
in full by the Company of such redemption price, whichever date yields a lower
Conversion Price denominator for the determination of the Conversion Ratio. The
entire redemption price shall be paid in cash. Holders of Preferred Stock may
convert any shares of Preferred Stock, including shares subject to a redemption
notice given under this Section, during the period from the date of such
redemption notice through the 20th Trading Day thereafter.
(b) If any portion of the redemption price under Section 6(a)
shall not be paid by the Company within 7 calendar days after the date due under
such Section, such redemption price shall be increased by 15% per annum until
paid (which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of such redemption price remains unpaid for more than 7
calendar days after the date due, the holder of the Preferred Stock subject to
such redemption may elect, by written notice to the Company given within 45 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Preferred Stock for which such redemption price, plus accrued liquidated
damages thereof, has not been paid in full (the "Unpaid Redemption Shares"), in
which event the Per Share Market Price for such shares shall be the lower of the
Per Share Market Price calculated on the date such redemption price was
originally due and the Per Share Market Price as of the holder's written demand
for conversion, or (ii) invalidate ab initio such redemption, notwithstanding
anything herein contained to the contrary. If the holder elects option (i)
above, the Company shall within five Trading Days of its receipt of such
election deliver to the holder the shares of Class A Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than five Trading Days from receipt of holder's notice of such
election, return to the holder all of the Unpaid Redemption Shares.
7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New York, New York.
"Class A Common Stock" means the Company's Class A Common
Stock, par value $.01 per share.
"Class B Common Stock" means the Company's Class B Common
Stock, par value $.01 per share.
"Common Stock" means Class A Common Stock, Class B Common
Stock, stock of any other class into which such shares may hereafter have been
reclassified or changed and any other securities hereafter designated as common
stock of the Company.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon), and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company, except Series A Cumulative Redeemable
Preferred Stock, Series B Preferred Stock, and Series C Convertible Preferred
Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number transfers
of any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Class A Common Stock on such date on The
Nasdaq National Market, Nasdaq Small Cap Market or other stock exchange on which
the Class A Common Stock has been listed or if there is no such price on such
date, then the closing bid price on such exchange on the date nearest preceding
such date, or (b) if the Class A Common Stock is not listed on The Nasdaq
National Market, Nasdaq Small Cap Market or any stock exchange, the closing bid
price for a share of Class A Common Stock in the over-the-counter market, as
reported by the Nasdaq Stock Market at the close of business on such date, or
(c) if the Class A Common Stock is not quoted on the Nasdaq Stock Market or
Nasdaq Small Cap Market, the closing bid price for a share of Class A Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or similar organization or agency succeeding to its
functions of reporting prices), or (d) if the Class A Common Stock is not
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), then the average of
the "Pink Sheet" quotes for the relevant conversion period, as determined in
good faith by the holder, or (e) if the Class A Common Stock is not publicly
traded the fair market value of a share of Class A Common Stock as determined by
an Appraiser selected in good faith by the holders of a majority in interest of
the shares of the Preferred Stock; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original Holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Class A Common
Stock is traded on the Nasdaq National Market or Nasdaq SmallCap Market or
principal national securities exchange or market on which the Class A Common
Stock has been listed, or (b) if the Class A Common Stock is not listed on the
Nasdaq National Market or Nasdaq SmallCap Market or any stock exchange or
market, a day on which the Class A Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Class A Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Class A Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices).
RESOLVED FURTHER, that the Chairman and Secretary of the
Company be, and they hereby are, authorized and directed to prepare, execute,
verify, and file with the
<PAGE>
Secretary of State of Delaware, a Certificate of Designation in accordance with
these resolutions and as required by law.
IN WITNESS WHEREOF, Wave Systems Corp. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by Peter
J. Sprague, its Chairman, and attested by James Stokes Hatch, its Secretary,
this 29th day of May, 1997.
WAVE SYSTEMS CORP.
By: /s/ Peter J. Sprague
--------------------------------
Name: Peter J. Sprague
Title: Chairman
Attest:
By: /s/ James Stokes Hatch
------------------------------
Name: James Stokes Hatch
Title: Secretary
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series D Convertible Preferred Stock indicated below, into shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), of Wave
Systems Corp. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Number of shares of Preferred Stock to be Converted
----------------------------------------------------
Number of shares of Class A Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Signature
----------------------------------------------------
Name:
----------------------------------------------------
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Class A
Common Stock outstanding on such date and the number of shares of Class A Common
Stock which would be issuable to the holder if the conversion requested in this
conversion notice were effected in full, whereupon, the holder hereby consents
to the revocation of the conversion requested hereby to the extent that it
determines that such conversion would result in it owning in excess of 4.9% of
the outstanding shares of Class A Common Stock on such date, and the Company
shall issue to the holder one or more certificates representing shares of
Preferred Stock which have not been converted as a result of this provision.
Exhibit 4.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
WAVE SYSTEMS CORP.
and
JNC OPPORTUNITY FUND LTD.
------------------------------
Dated as of May 30, 1997
------------------------------
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
May 30, 1997 (this "Agreement"), between Wave Systems Corp., a Delaware
corporation (the "Company"), and JNC Opportunity Fund Ltd., a corporation
organized and existing under the laws of the Cayman Islands (the "Purchaser").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the Company's Series D
Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement,
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
City of New York are authorized or required by law or other government actions
to close.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section
2.1(b).
"Certificate of Designation" shall have the meaning set forth
in Section 2.1(a).
"Class A Common Stock" means the Company's Class A Common
Stock, par value $.01 per share.
"Class B Common Stock" means the Company's Class B Common
Stock, par value $.01 per share.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, collectively, the Class A Common Stock,
Class B Common Stock, any stock into which such shares may hereafter be
reclassified, and any other class of equity securities of the Company hereafter
designated as Common Stock.
"Disclosure Materials" means, collectively, the SEC Documents
and the Schedules to this Agreement furnished by or on behalf of the Company
pursuant to Section 3.1.
"Escrow Agent" means Robinson Silverman Pearce Aronsohn &
Berman LLP.
"Escrow Agreement" means the escrow agreement, dated as of the
date hereof, by and between the Company, the Purchaser and the Escrow Agent,
substantially in the form of Exhibit E, as the same may be amended, supplemented
or otherwise modified in accordance with its terms.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, right of first refusal, charge or security interest of any
kind in or on such asset or the revenues or income thereon or therefrom.
"March Quarterly Report" shall have the meaning set forth in
Section 3.1(e).
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"Original Issue Date" shall mean the first issuance of any
Shares, regardless of the number of transfers of any particular Share and
regardless of the number of certificates which may be issued to evidence any
particular Share.
"Per Share Market Value" shall have the meaning set forth in
the Certificate of Designation.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" shall have the meaning set forth in the
recitals hereto.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof, by and between the Company and the
Purchaser, substantially in the form of Exhibit B, as the same may be amended,
supplemented or otherwise modified in accordance with its terms.
"SEC Documents" shall have the meaning set forth in Section
3.1(l).
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Securities" shall have the meaning set forth in
Section 3.1(m).
"Shares" means the shares of Preferred Stock to be purchased
by the Purchaser pursuant to this Agreement.
"Side Letter Agreement" means the Agreement, dated as of the
date hereof, between the Company and the Purchaser in the form attached hereto
as Exhibit G.
"Subsequent Financing Notice" shall have the meaning set forth
in Section 4.9.
"Subsequent Sale" shall have the meaning set forth in Section
4.9.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
"Trading Day" shall have the meaning set forth in the
Certificate of Designation.
"Transaction Documents" shall have the meaning set forth in
Section 3.1(b).
"Underlying Shares" means the shares of Class A Common Stock
issuable upon conversion of Shares in accordance with the terms hereof and the
Certificate of Designation and upon exercise of the Warrant in accordance with
the terms thereof.
"Underlying Shares Registration Statement" shall have the
meaning set forth in Section 3.1(f).
"Warrant" means the Class A Common Stock purchase Warrant of
the Company to be issued to the Purchaser on the Closing Date, substantially in
the form of Exhibit F, entitling the Purchaser to purchase up to 80,000 shares
of Class A Common Stock.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; Closing.
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 80,000 Shares, which shall have the
respective rights, preferences and privileges set forth in Exhibit A (the
"Certificate of Designation"), at a price per Share of $20. The "Purchase Price"
for the Shares is $1,600,000.
(b) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Escrow Agent, 1290 Avenue of
the Americas, New York, New York 10104, immediately following the execution
hereof, or at such other time and/or place as the Purchaser and the Company may
agree, but not until the conditions listed in Article V have been satisfied or
waived by the appropriate party. The date of the Closing is referred to herein
as the "Closing Date".
(c) At the Closing, the Escrow Agent, in accordance with and
subject to the terms and conditions of the Escrow Agreement, shall, pursuant to
instructions delivered with respect thereto by the Company and the Purchaser,
deliver (i) to the Purchaser (A) one or more stock certificates representing the
Shares purchased hereunder, and (B) the Warrant, each registered in the name of
the Purchaser, (ii) to the Company the Purchase Price, less the legal fees and
disbursements contemplated in Section 7.1, in United States dollars in
immediately available funds by wire transfer to an account designated in writing
by the Company prior to the Closing and (iii) to the party entitled thereto, all
documents, instruments and writings required to have been delivered at or prior
to Closing by either the Company or the Purchaser pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no material subsidiaries other
than as set forth in the SEC Documents (collectively, the "Subsidiaries"). Each
of the Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
full corporate power and authority to own and use its properties and assets and
to carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have a material adverse effect on
the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation, the Warrant and the Side Letter
Agreement (collectively with this Agreement, the "Transaction Documents") and to
otherwise carry out its obligations hereunder and thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. Each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate of incorporation, bylaws or other
charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in Schedule 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares and the Warrant, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as disclosed in the Disclosure Materials,
no Person beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with the
Company in excess of 5% of the Common Stock.
(d) Issuance of Shares and Underlying Shares. The Shares are
duly authorized and, when paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of any Liens. The
Company has and at all times while the Shares and the Warrant are outstanding
will maintain a reserve of shares of Common Stock to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Certificate
of Designation and the Warrant, which reserve shall be no less than 2,090,000
shares of Class A Common Stock. When issued in accordance with the terms hereof,
the Certificate of Designation and the Warrant (as the case may be), the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation or bylaws (each as
amended through the date hereof) or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or (iii) to the knowledge of the Company result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which any
property or asset of the Company is bound or affected, except in the case of
each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could not,
individually or in the aggregate, (x) adversely affect the legality, validity or
enforceability of any of the Transaction Documents, (y) have a Material Adverse
Effect or (z) adversely impair the Company's ability to perform fully on a
timely basis its obligations under the Transaction Documents. The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other Federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
except for (i) the filing of the Certificate of Designation with respect to the
Shares with the Secretary of State of Delaware, which filing shall be effected
on or prior to the Closing Date, (ii) the filing of the registration statement
covering the Underlying Shares (the "Underlying Shares Registration Statement")
with the Commission and the making of the applicable blue-sky filings under
state securities laws, each as contemplated by the Registration Rights
Agreement, and (iii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under the Transaction Documents.
(g) Litigation; Proceedings. There is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of the Transaction Documents, Shares or Underlying
Shares, (ii) could, individually or in the aggregate, have a Material Adverse
Effect or (iii) could, individually or in the aggregate, adversely impair the
Company's ability to perform fully on a timely basis its obligations under the
Transaction Documents. The Company has provided to the Purchaser true and
complete copies of all notices received since December 27, 1997 from any stock
exchange or market on which the Common Stock is listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or quotation system, as well as true and
complete copies of the responses thereto by or on behalf of the Company.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could not,
in any case of (i) above, individually or in the aggregate, (x) adversely affect
the legality, validity or enforceability of any of the Transaction Documents,
(y) have a Material Adverse Effect or (z) adversely impair the Company's ability
to perform fully on a timely basis its obligations under the Transaction
Documents.
(i) Certain Fees. Except for fees payable by the Company to
Wharton Capital Partners, Ltd. and to The Shemano Group, Inc., no fees or
commissions will be payable by the Company to any broker, finder, investment
banker or bank with respect to the consummation of the transactions contemplated
hereby. The Purchaser shall have no obligation with respect to such fees or with
respect to any claims made by other Persons for fees due in connection with this
transaction.
(j) Disclosure Materials. The Disclosure Materials (other than
the SEC Documents) do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(k) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Shares under the Securities Act) which might subject the offering, issuance or
sale of the Shares to the registration requirements of Section 5 of the
Securities Act.
(l) SEC Documents. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC Documents") on a
timely basis, or has received a valid extension of such time of filing. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the published
rules and regulations of the Commission promulgated thereunder, and none of the
SEC Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved, except as may be otherwise indicated in such financial
statements or the notes thereto, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Since the date of the financial statements included
in the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 30, 1997 (the "March Quarterly Report"), there has been no event,
occurrence or development that could have had a Material Adverse Effect which is
not specifically disclosed in the Disclosure Materials.
(m) Seniority. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise other than the Company's Series A Cumulative Redeemable Preferred
Stock, par value $.01 per share, of which, on the date hereof, 360 shares are
outstanding, the Company's Series B Preferred Stock, par value $.01 per share of
which, on the date hereof, no shares are outstanding, and the Company's Series C
Convertible Preferred Stock, par value $.01 par share, of which, on the date
hereof, 75,000 shares are outstanding (collectively, the "Senior Securities").
(n) Form S-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form S-3 promulgated under the Securities Act.
(o) Investment Company. The Company is not and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(p) Class B Common Stock. The issued and outstanding shares of
the Class B Common Stock are restricted securities subject to Rule 144
promulgated under the Exchange Act, and the holders of such shares have no
registration rights or preemptive rights arising out of their ownership of such
shares.
Section 3.2. Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement, Side Letter Agreement and the Escrow
Agreement and otherwise to carry out its obligations hereunder and thereunder.
The purchase of the Shares and the Warrant (and upon conversion or exercise
thereof (as the case may be), the Underlying Shares) by the Purchaser has been
duly authorized by all necessary action on the part of the Purchaser. Each of
this Agreement, the Registration Rights Agreement and the Escrow Agreement has
been duly executed and delivered by the Purchaser or on its behalf and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Shares,
the Warrant and the Underlying Shares for its own account for investment
purposes only and not with a view to or for distributing or reselling such
Shares, Warrant or Underlying Shares or any part thereof or interest therein,
without prejudice, however, to the Purchaser's right, subject to the provisions
of this Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Shares, Warrant or Underlying
Shares under an effective registration statement under the Securities Act and in
compliance with applicable State securities laws or under an exemption from such
registration.
(c) Purchaser Status. At the time the Purchaser was offered
the Shares and the Warrant, it was, and at the date hereof, it is, and at the
Closing Date, it will be, an "accredited investor" as defined in Rule 501(a)
under the Securities Act.
(d) Experience of Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares and the
Warrant, and has so evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Shares and
the Warrant and, at the present time, is able to afford a complete loss of such
investment.
(f) Prohibited Transactions. Neither the Shares nor the
Warrant are being acquired, directly or indirectly, with the assets of any
"employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it or its
representatives have been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Shares and
the Warrant and the merits and risks of investing in the Shares and the Warrant;
(ii) access to information about the Company and the Company's financial
condition, results of operations, business, properties and management sufficient
to enable it to evaluate its investment in the Shares and the Warrant; and (iii)
the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the Shares and
the Warrant and to verify the accuracy and completeness of the information
contained in the Disclosure Materials.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Shares and the Warrant are being offered and sold, and the Underlying
Shares are being offered, to it without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Transfer Restrictions. If the Purchaser should
decide to dispose of any of the Shares or any portion of the Warrant to be
purchased by it hereunder (and upon conversion or exercise (as the case may be)
thereof, any Underlying Shares), the Purchaser understands and agrees that it
may do so only pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements thereof. In connection with any transfer of any Shares or the
Warrant other than pursuant to an effective registration statement or to the
Company, the Company may require that the transferor of such Shares or Warrant
provide to the Company an opinion of counsel experienced in the area of United
States securities laws selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such Shares or Warrant under
the Securities Act or any state securities laws.
The Purchaser agrees to the imprinting, so long as is required
by the provisions of this Section 4.1, of the following legend on certificates
representing the Shares, the Warrant and the Underlying Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed upon the
conversion of Shares or the exercise of the Warrant (as the case may be)
represented by such certificate at any time after the Underlying Shares
Registration Statement has been declared effective under the Securities Act or,
if no Underlying Shares Registration Statement is then effective, if in the
opinion of counsel to the Company experienced in the area of United States
securities laws such legend is no longer required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The certificates representing the
Shares, the Warrant and the Underlying Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends shall be
removed when not required in accordance with this Section 4.1. The Company
agrees that it will provide the Purchaser, upon request, with a substitute stock
certificate or certificates or Warrant (as the case may be), free from such
legend at such time as such legend is no longer applicable. The Purchaser agrees
that, in connection with any transfer of Shares, the Warrant or Underlying
Shares by it pursuant to an effective registration statement under the
Securities Act, it will comply with all prospectus delivery requirements of the
Securities Act. The Company makes no representation, warranty or agreement as to
the availability of any exemption from registration under the Securities Act
with respect to any resale of Shares, the Warrant or Underlying Shares.
Section 4.2. Stop Transfer Instruction. The Purchaser agrees
that the Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in Section 4.1 above.
Section 4.3. Furnishing of Information. For so long as the
Purchaser owns Shares or Underlying Shares, the Company covenants to timely file
(or obtain valid extensions in respect thereof) all reports required to be filed
by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchaser with true and complete copies
of all such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser annual
and quarterly financial statements, together with a discussion and analysis of
such financial statements in form and substance substantially similar to those
that would otherwise be required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act in the time period that such filings would
have been required to have been made under the Exchange Act.
Section 4.4. Use of Disclosure Materials. The Company consents
to the use of the Disclosure Materials, and any amendments and supplements
thereto, by the Purchaser in connection with resales of the Shares or the
Underlying Shares other than pursuant to an effective registration statement.
Section 4.5. Issuance of Senior Securities. For so long
as the Purchaser shall own Shares, the Company shall not issue any Senior
Securities.
Section 4.6. Blue Sky Laws. In accordance with the
Registration Rights Agreement, the Company shall qualify the Shares and the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchaser may request and continue such qualification at all times through
the third anniversary of the Closing Date; provided, however, that neither the
Company nor its Subsidiaries shall be required in connection therewith to
qualify as a foreign corporation where they are not now so qualified.
Section 4.7. Integration. The Company shall not, and shall use
its best efforts to ensure that, no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares, the Warrant or the Underlying Shares in a manner
that would require the registration under the Securities Act of the sale of the
Shares, the Warrant or Underlying Shares to the Purchaser.
Section 4.8. Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Shares, the Warrant or Underlying Shares other than the Disclosure Materials
and any amendments and supplements thereto prepared in compliance herewith or
(ii) solicit any offer to buy or sell the Shares, the Warrant or Underlying
Shares by means of any form of general solicitation or advertising.
Section 4.9. Right of First Refusal; Subsequent Regulations;
Certain Corporate Actions. (a) The Company shall not, directly or indirectly,
without the prior written consent of the Purchaser, offer, sell, grant any
option to purchase, or otherwise dispose (or announce any offer, sale, grant any
option to purchase or other disposition) of any of its or its Affiliates equity
or equity-equivalent securities at a price which is, on the face thereof, or
implied therein, less than the market price or fair market value for such
securities (a "Subsequent Sale") for a period of 180 days after Closing Date,
except (i) the granting of options to employees, officers and directors, and the
issuance of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible preferred stock disclosed in Schedule 3.1(c),
and (iii) shares of Common Stock issued upon conversion of Shares or exercise of
the Warrant in accordance herewith and the Certificate of Designation or the
Warrant, as the case may be, unless (A) the Company delivers to the Purchaser a
written notice (the "Subsequent Financing Notice") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing and the amount
of proceeds intended to be raised thereunder and (B) the Purchaser shall not
have notified the Company by 5:00 p.m. (Eastern Time) on the third Business Day
after its receipt of the Subsequent Financing Notice of its willingness to enter
into good faith negotiations to provide as promptly as is commercially
practicable (or to cause its sole designee to provide) financing to the Company
on substantially the terms set forth in the Subsequent Financing Notice. If the
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, or if the Purchaser shall fail to actually
close such financing within 10 Business Days after such notice, the Company may
effect the Subsequent Financing substantially upon the terms and to the Persons
(or Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within 60
Business Days after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice. The provisions of this Section 4.9 shall not apply to any financing by
the Company with a strategic partner (including without limitation any company
which is involved in computer hardware, including peripherals, or software
manufacturing, design, development, marketing and sales, content providers,
Internet document transmission, data broadcast systems, and electronic commerce
applications), including without limitation Creative Technology Ltd. A strategic
partner does not include entities in the business of acquiring private placement
securities for investment purposes only.
(b) Except Underlying Shares to be registered in accordance
with the Registration Rights Agreement, the Company may not register for resale
any securities of the Company for a period of not less than 60 Trading Days
after the date that the Underlying Shares Registration Statement is declared
effective by the Commission. Any days that the Purchaser is unable to sell
Underlying Shares under the Underlying Shares Registration Statement shall be
added to such 60 Trading Day period.
(c) As long as there are Shares outstanding, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its certificate of incorporation, bylaws or other charter
documents so as to adversely affect any rights of the Purchaser; (ii) split,
combine or reclassify its outstanding capital stock; (iii) declare, authorize,
set aside or pay any dividend or other distribution with respect to the Common
Stock; (iv) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock; or (v) enter into any agreement with respect to any
of the foregoing.
Section 4.10. Purchaser Ownership of Common Stock. The
Purchaser may not use its ability to convert Shares hereunder or under the terms
of the Certificate of Designation or to exercise the Warrant to the extent that
such conversion or exercise would result in the Purchaser owning more than 4.9%
of the outstanding shares of the Common Stock. The Company shall, promptly upon
its receipt of a Conversion Notice tendered by the Purchaser (or its designee)
under the Certificate of Designation and upon an exercise of any portion of the
Warrant, notify the Purchaser of the number of shares of Common Stock
outstanding on such date and the number of Underlying Shares which would be
issuable to the Purchaser (or its designee, as the case may be) if the
conversion or exercise requested in such Conversion Notice or exercise notice
were effected in full, whereupon, notwithstanding anything to the contrary set
forth in the Certificate of Designation or the Warrant, the Purchaser shall
revoke such conversion or exercise to the extent that it determines that such
conversion or exercise would result in the Purchaser owning in excess of 4.9% of
such outstanding shares of Common Stock.
Section 4.11. Listing of Underlying Shares. The Company shall
take all steps necessary to cause the Underlying Shares to be approved for
listing in The Nasdaq National Market (and each other national securities
exchange or market on which the Common Stock is then listed) no later than the
first day after which shares may be converted hereunder by the Purchaser, and
shall provide to the Purchaser evidence of such listing and shall maintain the
listing of its Common Stock on such exchange.
Section 4.12. Purchaser's Rights if Trading in Common Stock is
Suspended. In the event that at any time within the three-year period after the
Closing Date trading in the shares of the Common Stock is suspended on the
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information) for more than
three days or if the shares of Common Stock are delisted from the Nasdaq
National Market, unless immediately therewith the Common Stock is listed for
trading in the Nasdaq SmallCap Market, in which event the provisions of this
Section 4.13 shall apply to a listing on the Nasdaq SmallCap Market, at the
Purchaser's option exercisable by written notice to the Company, the Company
shall repurchase all Shares and all Underlying Shares then held by such
Purchaser, at an aggregate purchase price equal to (A) the product of the
average Per Share Market Value for the five Trading Days immediately preceding
the day of such notice multiplied by the number of shares of Common Stock into
which the Shares to be purchased are then convertible (or in the case of
Underlying Shares, the number of Underlying Shares to be purchased), plus (B)
interest on such amount accruing from the 7th day after such notice at the rate
of 15% per annum.
Section 4.13. No Violation of Applicable Law. Notwithstanding
any provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under this Agreement, the Registration
Rights Agreement or the Certificate of Designation would be prohibited by the
relevant provisions of the Delaware General Corporation Law, such redemption
shall be effected as soon as it is permitted under such law; provided, however,
that, interest payable by the Company with respect to any such redemption shall
continue to accrue in accordance with Section 4.12 during any such period.
Section 4.14. Redemption Restrictions. Notwithstanding any
provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under this Agreement would be prohibited in
the absence of consent from any lender of the Company or of any Subsidiary, or
by the holders of any class of securities of the Company, the Company shall use
its best efforts to obtain such consent as promptly as practicable after the
redemption is required. Interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 4.12 until such
consent is obtained. Nothing contained in this Section shall be construed as a
waiver by the Purchaser of any rights it may have by virtue of any breach of any
representation or warranty of the Company herein as to the absence of any
requirement to obtain any such consent.
Section 4.15. Notice of Breaches. Each of the Company and the
Purchaser shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to the Closing Date, which could reasonably be
likely to cause any representation or warranty or other agreement of such party,
as the case may be, contained herein or therein to be incorrect or breached as
of such Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein or in the Registration Rights Agreement.
Neither the Company, any Subsidiary nor the Purchaser will take, or agree to
commit to take, any action that is intended to make any representation or
warranty of the Company or the Purchaser, as the case may be, contained herein
or in the Registration Rights Agreement inaccurate in any respect at the Closing
Date.
Notwithstanding the generality of the foregoing, the Company
shall promptly notify the Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by any of the Transaction
Documents violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly furnish by
facsimile to the holders of the Shares a copy of any written statement in
support of or relating to such claim or notice.
Section 4.16. Conversion Procedures. Exhibit D attached hereto
sets forth the procedures with respect to the conversion of the Shares,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of the
Purchaser. The obligation of the Purchaser to purchase the Shares and the
Warrant is subject to the satisfaction or waiver by the Purchaser, at or prior
to the Closing, of each of the following conditions:
(a) Legal Opinion. The Purchaser shall have received the
legal opinion, addressed to it and dated the Closing Date, of Curtis, Mallet-
Prevost, Colt & Mosle, counsel for the Company, substantially in the form of
Exhibit C;
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time;
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing;
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(e) No Material Adverse Effect. Since the date of the
financial statements included in the March Quarterly Report, no event which in
the judgment of the Purchaser has or could have a Material Adverse Effect and no
material adverse change in the financial condition or business of the Company
shall have occurred which is not disclosed in the Disclosure Materials;
(f) No Prohibitions. The purchase of and payment for the
Shares and the Warrant (and upon conversion thereof, the Underlying Shares)
hereunder (i) shall not be prohibited or enjoined (temporarily or permanently)
by any applicable law or governmental regulation and (ii) shall not subject the
Purchaser to any penalty, or in its judgment, other onerous condition under or
pursuant to any applicable law or governmental regulation that would materially
reduce the benefits to the Purchaser of the purchase of the Shares, the Warrant
or the Underlying Shares (provided, however, that such regulation, law or
onerous condition was not in effect in such form at the date of this Agreement);
(g) Company Certificates. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Restated Certificate of
Incorporation, as amended to the date thereof, (B) the Company's By-Laws, as
amended to the date thereof, and (C) resolutions duly adopted by the Board of
Directors of the Company authorizing the execution and delivery of the
Transaction Documents and the issuance and sale of the Shares, the Warrant and
the Underlying Shares and (ii) the incumbency of officers executing the
Transaction Documents;
(h) Registration Rights Agreement, Side Letter Agreement
and Escrow Agreement. The Company shall have executed and delivered to the
Escrow Agent the Registration Rights Agreement, Side Letter Agreement and the
Escrow Agreement;
(i) No Suspensions of Trading in Common Stock. Trading in the
Common Stock shall not have been suspended by the Commission or the Nasdaq
National Market or any other national securities exchange or market on which the
Common Stock is listed or quoted (except for any suspension of trading of
limited duration at the direction of the Company solely to permit dissemination
of material information regarding the Company);
(j) Listing of Common Stock. The Common Stock shall have
at all times between the date hereof and the Closing Date been, and on the
Closing Date be, listed for trading on the Nasdaq National Market;
(k) Delivery of Stock Certificates and the Warrant. The
Company shall have delivered to the Escrow Agent the stock certificate(s)
representing the Shares and the Warrant, each registered in the name of the
Purchaser, each in form satisfactory to the Escrow Agent and the Purchaser;
(l) Shares of Common Stock. On the Closing Date, the Company
shall have duly reserved for issuance to the Purchaser 2,090,000 Underlying
Shares;
(m) Certificate of Designation. The Certificate of Designation
shall have been duly filed by the Secretary of State of Delaware, and the
Company shall have delivered proof of such filing to the Escrow Agent,
reasonably satisfactory to it; and
(n) Form S-3 Eligibility. The Company shall be eligible to
register securities for resale under Form S-3 promulgated under the Securities
Act.
Section 5.2. Conditions Precedent to Obligations of the
Company. The obligation of the Company to issue and sell the Shares and the
Warrant hereunder is subject to the satisfaction or waiver by the Company, at or
prior to the Closing, of each of the following conditions:
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser contained herein
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time;
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement, the Side Letter Agreement and the Escrow Agreement to be performed,
satisfied or complied with by it at or prior to the Closing;
(c) No Prohibitions. The sale of the Shares and the Warrant
(and upon conversion or exercise (as the case may be) thereof, the Underlying
Shares) hereunder (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation and (ii) shall not
subject the Company to any penalty, or in its judgment, any other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the sale of Shares,
the Warrant or the Underlying Shares to the Purchaser (provided, however, that
such regulation, law or onerous condition was not in effect in such form at the
date of this Agreement); and
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
ARTICLE VI
TERMINATION
Section 6.1. Termination by Mutual Consent. This Agreement may
be terminated at any time prior to Closing by the mutual consent of the Company
and the Purchaser.
Section 6.2. Termination by the Company or the Purchaser. This
Agreement may be terminated prior to Closing by either the Company or the
Purchaser, by giving written notice of such termination to the other party, if:
(a) there shall be in effect any statute, rule, law or
regulation that prohibits the consummation of the Closing or if the consummation
of the Closing would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having competent
jurisdiction; or
(b) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the judgment of
the terminating party, would materially adversely affect the transactions
contemplated by the Transaction Documents.
Section 6.3. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement, the
Registration Rights Agreement or the Side Letter Agreement and such breach is
not cured within one business day following receipt by the Purchaser of notice
of such breach.
Section 6.4. Termination by the Purchaser. This Agreement may
be terminated prior to Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
(a) the Company has breached any representation, warranty,
covenant or agreement contained in this Agreement, the Registration Rights
Agreement or the Side Letter Agreement and such breach is not cured within one
business day following receipt by the Company of notice of such breach;
(b) there has occurred a material adverse change in the
business or financial condition of the Company or an event since the date of the
financial statements included in the March Quarterly Report which, in the
Purchaser's judgment has or could have a Material Adverse Effect and which is
not disclosed in the Disclosure Materials;
(c) trading in the Common Stock has been suspended by the
Commission or the Nasdaq National Market or other national securities exchange
or market on which the Common Stock is listed or quoted; or
(d) the Common Stock shall have failed to be listed for
trading on the Nasdaq National Market or on the Nasdaq SmallCap Market.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Fees and Expenses. Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement and except that the Company shall
reimburse the Purchaser $10,000 for its legal fees and disbursements. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Shares and the Warrant (and upon conversion or exercise
thereof (as the case may be), the Underlying Shares) pursuant hereto. The
Purchaser shall be responsible for its own tax liability that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement.
Section 7.1. Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, and each of the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
Section 7.2. Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Wave Systems Corp.
480 Pleasant Street
Lee, MA 01268
Facsimile No.: (413) 243-0045
Attn: James Stokes Hatch
With copies to: Curtis, Mallet-Prevost,
Colt & Mosle
101 Park Avenue, 35th Floor
New York, NY 10178
Facsimile No.: (212) 697-1559
Attn: Jeffrey N. Ostrager
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11
Bermuda
Facsimile No.: (441) 295-2305
Attn: Philip Pedro
with copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil Chau
- and -
Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.3. Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.4. Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
Section 7.5. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except that the Purchaser may assign its rights hereunder
and under the Registration Rights Agreement to an Affiliate or managed fund
thereof, provided, that such assignee demonstrates to the reasonable
satisfaction of the Company its satisfaction of the representations and
warranties set forth in Section 3.2 herein. The assignment by a party of this
Agreement or any rights hereunder shall not affect the obligations of such party
under this Agreement.
Section 7.6. No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
Section 7.7. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the internal laws of the State
of New York without regard to the principles of conflicts of law thereof.
Section 7.8. Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Shares or exercise of the Warrant hereunder.
Section 7.9. Counterpart Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
Section 7.10. Publicity. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
Section 7.11 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affecting or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.12. Remedies. In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Shares and the Underlying Shares. Each of
the Company and the Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
WAVE SYSTEMS CORP.
By: /s/ Peter J. Sprague
--------------------------------
Name: Peter J. Sprague
Title: Chairman
JNC OPPORTUNITY FUND LTD.
By: /s/ Philip C. Pedro
--------------------------------
Name: Philip C. Pedro
Title: Director
<PAGE>
Exhibit D
[To be provided by Company prior to the Closing]
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of May 30, 1997, between Wave Systems Corp., a Delaware
corporation (the "Company"), and JNC Opportunity Fund Ltd., a Cayman Islands
corporation (the "Purchaser").
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof by and among the Company
and the Purchaser (the "Purchase Agreement"). The execution of this Agreement is
a condition to the closing of the transactions contemplated by the Purchase
Agreement.
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
City of New York generally are authorized or required by law or other government
actions to close.
"Certificate of Designation" shall have the meaning set forth
in Section 4.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Class A Common Stock, par
value $.01 per share.
"Effectiveness Date" means the 60th day following the Closing
Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Event" shall have the meaning set forth in Section 4.
"Event Date" shall have the meaning set forth in Section 4.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 10th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 6(c).
"Indemnifying Party" shall have the meaning set forth in
Section 6(c).
"Losses" shall have the meaning set forth in Section 6(a).
"New York Courts" shall have the meaning set forth in Section
8(h).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series D Convertible
Preferred Stock, par value $.01 per share, of the Company issued to the
Purchaser pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Purchaser Warrant" means the Common Stock purchase warrant
issued to the Purchaser, entitling the Purchaser to purchase up to 80,000 shares
of Common Stock on the terms and subject to the conditions set forth therein.
"Registrable Securities" means the shares of Common Stock
issuable upon (a) conversion of all shares of Preferred Stock, (b) exercise in
full of the Purchaser Warrant, and (c) exercise in full of Common Stock purchase
warrants issued by the Company to Wharton Capital Partners, Ltd. and to The
Shemano Group in connection with the transactions contemplated by the Purchase
Agreement; provided, however that in order to account for the fact that the
number of shares of Common Stock that are issuable upon conversion of shares of
Preferred Stock is determined in part upon the market price of the Common Stock
at the time of conversion, Registrable Securities shall initially include a
number of shares of Common Stock equal to no less than 2,090,000 shares of
Common Stock or such other number of shares of Common Stock as agreed to by the
parties to the Purchase Agreement. Notwithstanding anything herein contained to
the contrary, if the actual number of shares of Common Stock issuable upon
conversion in full of the Preferred Stock exceeds 2,090,000, the term
"Registrable Securities" shall be deemed to include additional shares of Common
Stock equal to two times the number of shares of Common Stock as would then be
issuable upon conversion in full of the then outstanding shares of Preferred
Stock, plus the shares referenced in clauses (b) and (c) above and the Company
shall promptly file appropriate amendments to the Registration Statement to
evidence such increase or the Company shall file one or more additional
Registration Statements covering such additional shares of Common Stock, in
either case, in the time contemplated herein for filing of appropriate
amendments or additional Registration Statements in accordance with the terms
hereof.
"Registration Statement" means the registration statement,
contemplated by Section 2(a), including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre-and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (or another
appropriate form approved by the Holders of a majority of the Registrable
Securities that permit registration of Registrable Securities for resale by the
Holders in the manner or manners designated by them (including, without
limitation, public or private sales and one or more Underwritten Offerings)).
The Company shall (i) not permit any securities other than the Registrable
Securities, and the securities specified in Section 8(c), to be included in the
Registration Statement and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is three years after the
date that such Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold pursuant to Rule 144 as determined by
the counsel to the Company pursuant to a written opinion letter, addressed to
the Holders, to such effect (the "Effectiveness Period"); provided, however,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering. No Holder
may participate in any Underwritten Offering hereunder unless such Person (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date a Registration Statement on Form S-3 in accordance with the method
or methods of distribution thereof as specified by the Holders, and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to all
Registrable Securities for the applicable time period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto;
and (iv) comply with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; and (B) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
provide to the Purchaser (a) notice of all oral or written comments received by
or on behalf of the Company from the Commission in connection with any
Registration Statement hereunder (and, if such comments are in writing, will
provide copies thereof to the Purchaser), and (b) copies of any response letters
submitted by or on its behalf in respect of such comments.
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree, and which is reasonably
acceptable to the Company, should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter reasonably requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such managing underwriters or
Holders may request at least two Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market and any other securities exchange, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then
listed.
(l) Enter into such agreements (including, in the case of an
Underwritten Offering, an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and if an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings,
and confirm the same if and when requested; (ii) obtain and deliver copies
thereof to each Holder and the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each selling Holder and
each such underwriter, in form, scope and substance reasonably satisfactory to
any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement at the time of delivery of any Registrable Securities
sold pursuant thereto, obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the underwriters, if
any, in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 7
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) if such reference to such Holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force, the deletion of
the reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
Each Purchaser covenants and agrees that (i) it will not offer
or sell any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) the Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
4. Liquidated Damages. The Company acknowledges and agrees
that the Holders will suffer damages, and that it would not be feasible to
ascertain the extent of such damages with precision, if (a) a Registration
Statement is not filed with the Commission on or prior to the 10th day after the
date hereof, (b) a Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date, (c) a Registration Statement
is filed with and declared effective by the Commission but thereafter ceases to
be effective at any time prior to the expiration of the Effectiveness Period
with respect to all of the then Registerable Securities without being succeeded
within 10 Business Days by a subsequent Registration Statement filed with and
declared effective by the Commission, (d) trading in the Common Stock shall be
suspended for any reason for more than three Trading Days (as such term is
defined under the Certificate of Designation filed with the State of Delaware in
respect of the Preferred Stock (the "Certificate of Designation")) or (e) if the
conversion rights of the holders of the Preferred Stock as set forth in the
Certificate of Designation or the exercise rights of the Purchaser under the
Purchaser Warrant are suspended for any reason (any such failure being referred
to as an "Event," and for purposes of clause (a), (b) and (e) the date on which
such Event occurs, or for purposes of clause (c) the date which such 10 Business
Day-period is exceeded, or for purposes of clause (d) the date on which such
three Trading Day period is exceeded, being referred to as "Event Date"), then
the "Conversion Price" (as such term is defined in the Certificate of
Designation) shall be decreased by 2.5% each month (i.e. 77.5% for the first
month commencing the day after such Event Date and 75% as of the one month
anniversary of such Event Date) until such time as a subsequent Registration
Statement is declared effective by the Commission, or until any Event
contemplated by clause (d) or (e), as the case may be, is cured. Any decrease in
the Conversion Price pursuant to this Section shall continue as long as shares
of Preferred Stock remain outstanding.
The Company shall notify each Holder within five days of each
Event and Event Date.
5. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
Holders of a majority of Registrable Securities may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company as provided in Section 5(b) below, (v)
fees and disbursements of all independent certified public accountants referred
to in Section 3(l)(iii) (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Company so desires
such insurance, and (vii) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange on which similar securities issued by the Company are then
listed.
(b) In connection with the Registration Statement, the Company
shall reimburse the Holders for the reasonable fees and disbursements of one
firm of attorneys chosen by the Holders of a majority of the Registrable
Securities, it being expressly understood that such fees and disbursements shall
not exceed $5,000.
6. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents
(including any underwriters retained by such Holder in connection with the offer
and sale of Registrable Securities), brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the
Registration Statement, each Holder shall furnish to the Company in writing such
information as the Company reasonably requests for use in connection with the
Registration Statement or any Prospectus and agrees, severally and not jointly,
to indemnify and hold harmless the Company, their directors, officers, agents
and employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
6(a) or 6(b) is unavailable to an Indemnified Party or is insufficient to hold
such Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 6(c), any attorneys' or other fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
7. Rule 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
8. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Except for 360,000 shares
(which have an exercise price of $6.50 per share) to be registered in accordance
with piggy-back rights granted to Dickinson & Co. for warrants under the Warrant
Agreement dated September 8, 1994, and other shares, not to exceed 50,000 shares
of Common Stock, to be registered in accordance with piggy-back rights granted
pursuant to other agreements, neither the Company nor any of its subsidiaries
has, as of the date hereof, nor shall the Company or any of its subsidiaries, on
or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. Except as
specified in the immediately preceding sentence, neither the Company nor any of
its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement. In addition, in any case, the Company may not
register for resale under the Securities Act the any securities of the Company
held by any Person prior to the expiration of the 60th day following the date
that the Registration Statement has been declared effective by the Commission,
provided that if the effectiveness of such Registration Statement is suspended
for any reason (or if the Underlying Shares are not listed for trading on the
Nasdaq National Market or the Nasdaq SmallCap Market) such 60-day period shall
be increased to include any such days.
(c) No Piggyback on Registrations. Except for 360,000 shares
(which have an exercise price of $6.50 per share) to be registered in accordance
with piggy-back rights granted to Dickinson & Co. for warrants under the Warrant
Agreement dated September 8, 1994, and other shares, not to exceed 50,000 shares
of Common Stock, to be registered in accordance with piggy-back rights granted
pursuant to other agreements, neither of the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the Common
Stock to be issued under the Purchase Agreement, and the Company shall not enter
into any agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such holder shall so request in writing, the Company shall include in such
registration statement all or any part of the Registrable Securities such holder
requests to be registered, except that if, in connection with any Underwritten
Offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the registration statement because, in such underwriter(s)'
judgment, such limitation is necessary to effect an orderly public distribution
of securities covered thereby, then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Securities for to which such holder has requested inclusion hereunder. Any
exclusion of Registrable Securities shall be made pro rata among the holders
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such holders; provided, however,
that the Company shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities the holders of which are not
entitled by right to inclusion of securities in such registration statement; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in such registration statement. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Wave Systems Corp.
480 Pleasant Street
Lee, MA 01268
Facsimile No.: (413) 243-0045
Attn: James Stokes Hatch
With copies to: Curtis Mallet-Prvost, Colt & Mosle
101 Park Avenue, 40th Floor
New York, NY 10178
Facsimile No.: (212) 697-1559
Attn: Jeffrey N. Ostrager
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Williams House
20 Reid Street
Hamilton HM11, Bermuda
Facsimile No.: (441) 295-2305
Attn: Philip Pedro
With copies to: Encore Capital Management, L.L.C.
12007 Sunrise Valley Drive
Suite 460
Reston, VA 20191
Facsimile No.: (703) 476-7711
Attn: Neil Chau
- and -
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. The rights of the Purchaser hereunder, including the right to have
the Company register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by the Purchaser to
any assignee or transferee of all or a portion of the shares of Preferred Stock,
the Warrant or the Registrable Securities if: (i) the Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to such registration
rights are being transferred or assigned, (iii) following such transfer or
assignment the further disposition of such securities by the transferee or
assignees restricted under the Securities Act and applicable state securities
laws, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this Section, the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions of this
Agreement, and (v) such transfer shall have been made in accordance with the
applicable requirements of the Purchase Agreement. The rights to assignment
shall apply to the Purchaser's (and to subsequent) successors and assigns.
(h) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(i) Governing Law; Submission to Jurisdiction. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law. The Company hereby
irrevocably submits to the jurisdiction of any New York state court sitting in
the Borough of Manhattan in the City of New York or any federal court sitting in
the Borough of Manhattan in the City of New York (collectively, the "New York")
in respect of any Proceeding arising out of or relating to this Agreement, and
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the New York Courts. The Company irrevocably
waives to the fullest extent it may effectively do so under applicable law any
objection that it may now or hereafter have to the laying of the venue of any
such Proceeding brought in any New York Court and any claim that any such
Proceeding brought in any New York Court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any Holder to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against the company in any other jurisdiction.
(j) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(l) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(m) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than the Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
WAVE SYSTEMS CORP.
By: /s/ Peter J. Sprague
-------------------------------
Name: Peter J. Sprague
Title: Chairman
JNC OPPORTUNITY FUND LTD.
By: /s/ Philip C. Pedro
-------------------------------
Name: Philip C. Pedro
Title: Director
Exhibit 99.1
NEWS ANNOUNCEMENT
Contact: James Stokes Hatch David C. Collins
Wave Systems Corp. Jaffoni & Collins Incorporated
413-243-1600 212-505-3015
[email protected] [email protected]
For Immediate Release
WAVE SYSTEMS CORP. COMPLETE FIRST TRANCHE
OF $3.0 MILLION PRIVATE PLACEMENT
June 3, 1997, Lee, MA - Wave Systems Corp. (Nasdaq: WAVX; http://wave.com)
today announced that it has signed an agreement with an investment fund for a
private placement of $3.0 million, of which it has completed the sale of $1.6
million in 6% Series D Convertible Preferred Shares pursuant to Regulation D of
the Securities Act of 1933.
Proceeds from the offering will fund working capital needs, including
research and development aimed at further enhancing the Company's proprietary
electronic commerce systems and to fund sales and marketing initiatives aimed at
building the customer base and transaction volume for Wave's WaveCommerce TM
Internet electronic content commerce system. The transaction was facilitated by
Wharton Capital, a New York based financial consulting firm.
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.
Safe Harbor for Forward-Looking Statements
Except for the statements of historical fact, the information presented
herein constitutes forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include general
economic and business conditions, the loss of market share, the ability to
finance the Company's operations, changes in consumer buying habits and other
factors over which Wave Systems Corp. has little or no control.
Wave, headquartered in Lee, MA, markets a distributed information metering
and transaction service, the Wave System, for use in consumer, entertainment and
education applications. Wave's information metering infrastructure provides
individual and corporate content owners with secure distribution as well as new
marketing and pricing options that include purchase and pay-per-use
transactions, and eventually rental and rent-to-own pricing models. Consumers
benefit from the convenience and control of obtaining content via broadband,
internet, satellite transmission and CD-ROM distribution channels. More
information about Wave is available through Wave's Internet web site:
http://wave.com.
