<PAGE> 1
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) October 9, 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
-------------------------
<PAGE> 2
Item 5. Other Events
On October 9, 1997 Wave Systems Corp. (the "Company") issued 112,500
shares of newly created Series F Convertible Preferred Stock, par value $.01
("Series F Convertible Preferred Stock"), at a price of $20 per share, for an
aggregate of $2,250,000. The shares were sold to one (1) accredited investor
pursuant to Regulation D promulgated under the Securities Act of 1933. The
Series F Convertible Preferred Stock is convertible into the Class A Common
Stock, par value $.01 ("Class A Common Stock"), of the Company at an effective
conversion price of the lower of (a) $1.05 and (b) 80% of the average of the
five (5) lowest trading prices of the Class A Common Stock during (x) a day on
which the Class A Common Stock is traded on The Nasdaq National Market or The
Nasdaq SmallCap Market or principal national securities exchange or market on
which the Class A Common Stock has been listed, or (y) if the Class A Common
Stock is not listed on The Nasdaq National Market or The 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
(z) 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) ("Trading
Days"), as reported by Bloomberg Information Services, Inc. during the ten (10)
Trading Days immediately preceding the Conversion Date, as defined in the
Certificate of Designation of the Series F Convertible Preferred Stock attached
hereto as Exhibit 3.1.
Item 7. Financial Statements and Exhibits
2
<PAGE> 3
<TABLE>
<S> <C>
Exhibit 3.1 Certificate of Designation of Series F Preferred Stock of Wave
Systems Corp. as filed with the Delaware Secretary of State on
October 9, 1997.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and Combination
Inc., dated as of October 9, 1997.
Exhibit 4.2 Registration Rights Agreement between Wave Systems Corp. and
Combination Inc., dated as of October 9, 1997.
Exhibit 99.1 Press Release dated October 14, 1997.
</TABLE>
3
<PAGE> 4
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: October 15, 1997 By: /s/ Peter J. Sprague
--------------------------------
Name: Peter J. Sprague
Title: Chairman and Chief Executive
Officer
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
-------- -----------
<S> <C>
Exhibit 3.1 Certificate of Designation of Series F Preferred Stock of Wave
Systems Corp. as filed with the Delaware Secretary of State on
October 9, 1997.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and Combination
Inc., dated as of October 9, 1997.
Exhibit 4.2 Registration Rights Agreement between Wave Systems Corp. and
Combination Inc., dated as of October 9, 1997.
Exhibit 99.1 Press Release dated October 14, 1997.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION OF
SERIES F CONVERTIBLE PREFERRED STOCK OF
WAVE SYSTEMS CORP.
The undersigned, Steven Sprague and Carla F. Jewett, hereby
certify that:
I. They are the duly elected and acting President and
Assistant 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.
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 October 8, 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 F Convertible Preferred
Stock (the "Preferred Stock"), and the number of shares so designated shall
be 112,500 (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
<PAGE> 2
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 6% per annum (the "Dividend Rate"), payable
quarterly in arrears on March 31, June 30, September 30 and December 31 in each
year, commencing on December 31, 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)(i)).
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
2
<PAGE> 3
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 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
3
<PAGE> 4
"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(a)(ii) and 5(b), 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 and as
payment of dividends thereon, 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 in Section 7), 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 Company shall have the option to either (1) use its best effort
to, as promptly as possible, but in no event later than 60 days after the
triggering 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 the terms and conditions of this Section
5(a)(ii). If the Company fails for any reason to obtain such Shareholder
Approval, the Company shall increase the Dividend Rate (as defined in Section
2(a)) from 6% per annum to 8% per annum effective retroactively to the
triggering Conversion Date. In the event that the Company has chosen to
redeem the balance of the Preferred Stock under paragraph (2) above, it shall
do so from funds legally available 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. If the Company has chosen to 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
4
<PAGE> 5
redemption price plus any accrued interest thereon is paid in full. The
entire redemption price, including interest thereon, shall be paid in cash.
(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 permitted by 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 as set
forth in Sections 5(a)(ii) and 5(e) herein and Section 4.10 of the Purchase
Agreement) 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
5
<PAGE> 6
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) $1.05 (the "Initial Conversion Price") and (b) 80%
of the average of the five (5) lowest Trade Prices (as defined in Section 7)
during the ten (10) 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
6
<PAGE> 7
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")
7
<PAGE> 8
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)
A. In the case of any reclassification of the
Common Stock into other securities of the Company or any such compulsory
share exchange pursuant to which the Common Stock is converted into cash,
property or other securities of the Company, the Holders of the Preferred
Stock then outstanding shall have the right thereafter to 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 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 or share exchange would have been entitled.
B. In the case of any consolidation or merger of
the Company with or into another person or entity pursuant to which the
Company will not be the surviving entity, any sale or transfer of all or
substantially all of the assets of the Company, sale or transfer, or
compulsory share exchange pursuant to which the Common Stock is converted
into securities of any entity other than the Company, the Holders of the
Preferred Stock then outstanding shall have the option to either (1) convert
their shares in the manner contemplated in (vii)(A) above or (2) (x) shall be
issued shares of convertible preferred stock or convertible debentures of the
entity with which such consolidation, merger, sale or transfer, or share
exchange takes place, which newly issued shares or debentures (as the case
may be), shall have terms substantially similar in all material respects to
the terms of the Preferred Stock (including with respect to conversion, as
adjusted proportionately to reflect any differences between such entity's and
the Company's stock price) and shall be entitled to all of the rights and
privileges of a Holder of Preferred Stock set forth in this Certificate of
8
<PAGE> 9
Designation, the Registration Rights Agreement and the Purchase Agreement
(including, without limitation, as such rights relate to the acquisition,
transferability, registration and listing of such freely tradeable shares of
stock or other securities issuable upon conversion of such convertible
preferred stock or convertible debentures), and (y) simultaneously with such
issuance of convertible preferred stock or convertible debentures, shall have
the right to 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 consolidation, merger, sale or transfer, or
share exchange. In such case, the conversion price for such shares shall
retain the discounts present in the Certificate of Designation. The
conversion price for such newly issued shares shall be based upon the amount
of securities, cash or property that each share of Common Stock would receive
in such transaction, the Conversion Ratio immediately prior to the effective
or closing date for such transaction and the Conversion Price stated herein.
The terms of any such reclassification, consolidation,
merger, sale, transfer or share exchange under this Section 5(c)(vii) 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 reclassification,
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers 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
9
<PAGE> 10
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.
10
<PAGE> 11
(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 or 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 use its best efforts,
without limitation, including the filing of any proxy statements with the
Securities and Exchange Commission and the distribution of such proxy
statements to its sharesholders, to obtain, within 60 days from the
triggering Conversion Date, shareholder approval to increase the total number
of authorized shares of Class A Common Stock to a number reasonably
acceptable to both the Company and the Holders.
(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
11
<PAGE> 12
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
12
<PAGE> 13
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.
"Escrow Agreement" means the Escrow Agreement, dated the Original
Issue Date, by and among the Company, the original Holder of the Preferred
Stock and the Escrow Agent.
"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, Series C Convertible Preferred Stock, and
Series D 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
13
<PAGE> 14
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.
"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).the Company hereby agrees to
use its best efforts to seek shareholder approval to increase the amount of
authorized shares of Class A Common Stock. In the event that such
shareholder approval is not properly granted, and as a result the Company
does not have sufficient available shares of Class A Common Stock on a
certain Conversion Date.
"Trade Price" for any Trading Day shall mean the lowest trading
price of the Class A Common Stock during such Trading Day, as reported by
Bloomberg Information Services, Inc. ("Bloomberg") or similar organizations
or agencies succeeding to its functions of reporting prices; provided,
however the Class A Common Stock is no longer reported by
14
<PAGE> 15
Bloomberg or such organizations, then such prices shall be determined by
reference to "Pink Sheet" quotes for the relevant period as determined in good
faith by Holder.
"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 Assistant Secretary of
the Company be, and they hereby are, authorized and directed to prepare,
execute, verify, and file with the
15
<PAGE> 16
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 Steven
Sprague, its President, and attested by Carla F. Jewett, its Assistant
Secretary, this 8th day of October, 1997.
WAVE SYSTEMS CORP.
By: /s/ Steven Sprague
------------------------------
Name: Steven Sprague
Title: President
Attest:
By /s/ Carla F. Jewett
--------------------------------
Name: Carla F. Jewett
Title: Assistant Secretary
16
<PAGE> 17
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 F 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
17
<PAGE> 18
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.
18
<PAGE> 1
EXHIBIT 4.1
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
WAVE SYSTEMS CORP.
and
COMBINATION INC.
------------------------------
Dated as of October 9, 1997
------------------------------
================================================================================
<PAGE> 2
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
October 9, 1997 (this "Agreement"), between Wave Systems Corp., a Delaware
corporation (the "Company"), and Combination Inc., a corporation organized
and existing under the laws of the British Virgin 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 F
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.
<PAGE> 3
"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.
"Conversion Price" shall have the meaning set forth in the
Certificate of Designation.
"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.
"June Quarterly Report" shall have the meaning set forth in
Section 3.1(e).
"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.
"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.
"Permitted Third Party Financings" shall have the meaning set
forth in Section 4.9.
-2-
<PAGE> 4
"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.
"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 as payment of dividends thereon, 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
-3-
<PAGE> 5
Exhibit F, entitling the Purchaser to purchase up to 112,500 shares of Class A
Common Stock.
ARTICLE II
PURCHASE OF SHARES
Section 2.1. Purchase of Shares; Closing; Escrow.
(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 112,500 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 $2,250,000.
(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, and (ii) to the Company the Purchase
Price, less $15,000 for the legal fees and disbursement contemplated by
Section 7.1 in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the 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
-4-
<PAGE> 6
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 and the Warrant
(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 and
the Escrow
-5-
<PAGE> 7
Agreement, 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 Class A 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 the sum of (1) two times the number of shares of Class A Common
Stock issuable upon conversion in full of the Shares, assuming such conversion
occurred on the Original Issue Date, (2) such number of shares of Class A Common
Stock to permit the Company to pay dividends in respect of the Shares in shares
of Class A Common Stock for a period of one year from the Original Issue Date,
and (3) the number of shares of Class A Common Stock issuable upon exercise in
full of the Warrant. 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
-6-
<PAGE> 8
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. Other than with respect to the
notices referenced in the last sentence of this Section as having been
provided to the Purchaser prior to the date hereof, 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 May 30, 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., 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. The
Company shall indemnify and hold harmless each of the Purchaser, its
employees, officers, directors, agents, and partners, and their respective
Affiliates from and against all claims, losses, damages, costs (including the
costs of preparation and reasonable attorney's fees) and expenses suffered in
respect of any such claimed or existing fees.
(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.
-7-
<PAGE> 9
(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 (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 and has filed any such SEC Documents prior to the expiration of any
such extension. 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 June 30, 1997 (the "June 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, the Company's Series C Convertible Preferred Stock, par value
$.01 per share, and the Company's Series D Convertible Preferred Stock, par
value $.01 per share (collectively, the "Senior Securities").
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under
the Securities Act.
-8-
<PAGE> 10
(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 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 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. The Purchaser is 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.
-9-
<PAGE> 11
(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
-10-
<PAGE> 12
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.
-11-
<PAGE> 13
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 Registrations;
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
-12-
<PAGE> 14
securities (a "Subsequent Sale") for a period of 180 days after the Original
Issue 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), (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 and (iv) shares of the Company's preferred stock
issued in one or more transactions under Regulation D promulgated under the
Securities Act, the aggregate gross proceeds of which may not exceed $500,000,
the term of which shall be identical in all material respects to the terms of
the Transaction Documents (other than the Escrow Agreement), and the funding of
which to the Company shall occur on or prior to the Closing Date (such
transactions, "Permitted Third Party Financings"), 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). A strategic partner does not include entities in the business of
acquiring private placement securities for investment purposes only.
(b) Except for the Underlying Shares to be registered in
accordance with the Registration Rights Agreement and the shares of Class A
Common Stock issuable upon conversion of the shares of Company's preferred
stock permitted to be sold pursuant to Permitted Third Party Financings
(which may be registered in the Underlying Shares Registration Statement),
the Company may not, without the prior written consent of the Purchaser, (i)
issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act where such
-13-
<PAGE> 15
securities may be converted or resold, or (ii) register for resale any
securities of the Company, in either case of (i) or (ii) above, 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 SmallCap 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. 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. 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
-14-
<PAGE> 16
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 4.13. 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 AND DISTRIBUTION
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, on or
prior to the Closing Date of each of the following conditions:
(a) Legal Opinion. The Purchaser shall have received the legal
opinion, addressed to the Purchaser 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 on or prior to the
Closing Date;
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court
-15-
<PAGE> 17
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 June 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 judgement, 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 and addressed to the Purchaser, signed by
the Chairman 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 and Escrow Agreement. The
Company shall have executed and delivered to the Escrow Agent the
Registration Rights 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
SmallCap 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. (1) The Common Stock shall have
at all times between the date hereof and the Closing Date been listed for
trading on the Nasdaq National Market or Nasdaq SmallCap Market and (2) the
Purchaser shall have received evidence satisfactory to it that the Class A
Common Stock will continue to be listed for trading on the Nasdaq National
Market or Nasdaq SmallCap Market for the foreseeable future;
(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
-16-
<PAGE> 18
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 the number of
Underlying Shares as is required pursuant to Section 3.1(d);
(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;
(n) Form S-3 Eligibility. The Company shall be eligible to
register securities for resale under Form S-3 promulgated under the
Securities Act;
(o) Effectiveness of Prior Registration Statements. The
registration statements on Form S-3 covering the resale of the shares of
Class A Common Stock issuable upon (i) conversion of the Company's Series C
and Series D Convertible Preferred Stock and (ii) exercise of the warrants
issued in connection with the purchase by the Purchaser of such securities,
shall have remained effective at all times since the respective effective
dates thereof and shall not be subject to any stop order and no stop order
shall be pending or threatened; and
(p) Certain Nasdaq Stock Market Regulations. A conversion in
full of the Shares at the Conversion Price in effect on the Original Issue
Date would not result in the Company issuing to the Purchaser in excess of
17% of the then outstanding shares of Class A Common Stock.
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, on
or prior to the Closing Date 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 and the Escrow Agreement to be performed,
satisfied or complied with by it on or prior to the Closing Date;
(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 any other
-17-
<PAGE> 19
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 the 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 transactions
contemplated by the Transaction Documents or if the consummation of the
transactions contemplated by the Transaction Documents 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 the 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 or the Registration Rights 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 the Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
-18-
<PAGE> 20
(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement or the
Registration Rights 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 June Quarterly Report
which 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;
(d) the Common Stock shall have failed to be listed for
trading on the Nasdaq National Market or on the Nasdaq SmallCap Market;
or
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 the Transaction
Documents, except as set forth in the Registration Rights Agreement and
except that the Company shall reimburse Robinson Silverman Pearce Aronsohn &
Berman LLP 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 7.2. 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 7.3. 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
-19-
<PAGE> 21
(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 01238
Facsimile No.: (413) 243-0045
Attn: Steven Sprague
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: Combination Inc.
c/o David Freund
Rechov Haetrog 85
Givat Zev Israel
with copies to: 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 7.4. 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 7.5. 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.
-20-
<PAGE> 22
Section 7.6. 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 7.7. 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 7.8. 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 7.9. 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 7.10. 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 7.11. 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 7.12. 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
-21-
<PAGE> 23
which shall be a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.
Section 7.13. 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]
-22-
<PAGE> 24
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:
----------------------------------
Name:
Title:
COMBINATION INC.
By:
----------------------------------
Name:
Title:
<PAGE> 25
Exhibit D
[To be provided by Company prior to the Closing]
<PAGE> 1
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of October 9, 1997, between Wave Systems Corp., a Delaware
corporation (the "Company"), and Combination Inc., a British Virgin 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.
"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 Filing Date.
<PAGE> 2
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"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).
"Permitted Third Party Financings" shall have the meaning set
forth in the Purchase Agreement.
"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 F 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 70,000
shares of Common Stock on the terms and subject to the conditions set forth
therein.
-2-
<PAGE> 3
"Registrable Securities" means the shares of Common Stock
issuable upon (a) conversion of all shares of Preferred Stock and as payment
of dividends in respect thereof to the extent such dividends are paid in
shares of Common 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. 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 the sum of (1) two times the number of shares of
Common Stock issuable upon conversion in full of the Preferred Stock,
assuming such conversion occurred on the Closing Date, (2) such number of
shares of Common Stock to permit the Company to pay dividends in respect of
the Preferred Stock in shares of Common Stock for a period of one year from
the Closing Date, and (3) such number of shares of Common Stock contemplated
by clauses (b) and (c) above, or such other number of shares of Common Stock
as agreed to by the parties to the Purchase Agreement (the "Initial
Minimum"). Notwithstanding anything herein contained to the contrary, if the
shares of Common Stock to be issued as required by the first sentence of this
definition exceeds the Initial Minimum, the term "Registrable Securities"
shall be deemed to include such additional shares of Common Stock as is 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.
-3-
<PAGE> 4
"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 the terms
hereof.
"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
-4-
<PAGE> 5
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
-5-
<PAGE> 6
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.
-6-
<PAGE> 7
(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
-7-
<PAGE> 8
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
-8-
<PAGE> 9
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)
-9-
<PAGE> 10
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 Holder 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. Intentionally Deleted.
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
-10-
<PAGE> 11
(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
-11-
<PAGE> 12
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
-12-
<PAGE> 13
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
-13-
<PAGE> 14
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 of
Common Stock (which have an exercise price of $6.50 per share) to be
registered in accordance with
-14-
<PAGE> 15
piggy-back rights granted to Dickinson & Co. for warrants under the Warrant
Agreement dated September 8, 1994, shares of Common Stock issuable upon
conversion of the Company's securities issued and sold in Permitted Third Party
Financings, 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
of Common Stock (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, shares of
Common Stock issuable upon conversion of the Company's securities issued and
sold in Permitted Third Party Financings, 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
-15-
<PAGE> 16
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:
-16-
<PAGE> 17
If to the Company: Wave Systems Corp.
480 Pleasant Street
Lee, MA 01238
Facsimile No.: (413) 243-0045
Attn: Steven Sprague
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: Combination Inc.
c/o David Freund
Rechov Haetrog 85
Givat Zev Israel
with copies to: 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
-17-
<PAGE> 18
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.
-18-
<PAGE> 19
(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.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
WAVE SYSTEMS CORP.
By:
-------------------------------
Name:
Title:
COMBINATION INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 99.1
Contact: David C. Collins/Kathleen M. Holmes Mark Marinovich
JAFFONI & COLLINS WAVE SYSTEMS CORP.
212-835-8500 408-261-9510
[email protected] [email protected]
FOR IMMEDIATE RELEASE
October 14, 1997
WAVE SYSTEMS CORP. COMPLETES
FINANCINGS TOTALING $3,050,000
MICHAEL SEEDMAN, FORMER U.S. ROBOTICS EXECUTIVE, AND
NICHOLAS NEGROPONTE, MIT MEDIA LAB DIRECTOR, AMONG INVESTORS;
SEEDMAN TO SERVE AS ADVISOR TO WAVE'S BOARD
LEE, MA -- Wave Systems Corp. (Nasdaq: WAVXC; wave.com/company) announced that
it has secured a total of $3,050,000 in financing to fund working capital
requirements. The funding includes $2.25 million in 6% Series F Convertible
Preferred Shares placed with an investment fund pursuant to Regulation D of the
Securities Act of 1933. In addition, the Company also completed an $800,000
private placement with a group of private investors including Michael Seedman
and Nicholas Negroponte. Seedman, former senior vice president and general
manager of U.S. Robotics(R)' (USR) Personal Communications Division, will also
serve as an advisor to Wave's board of directors.
The institutional placement was facilitated by Wharton Capital, a New York based
financial consulting firm.
The $800,000 private placement, which was completed over the past two weeks,
consists of restricted Class A Common Stock priced at $1.00 per share.
Additionally, warrants to purchase 20,000 shares of Wave Class A Common Stock at
$1.00 per share were granted for each $100,000 invested, amounting to warrants
for a total of 160,000 shares of Wave Class A Common Stock. The warrants become
exercisable six months after closing and expire in 24 months.
"I have been a Wave shareholder for approximately five years and am a strong
supporter
(more)
<PAGE> 2
WAVE SYSTEMS COMPLETES $3.05 MILLION IN FINANCING, 10/14/97 page 2
of the Wave technology," commented Mr. Seedman. "I welcome the opportunity to
participate in this round of financing and look forward to working closely with
the Wave Board of Directors"
Mr. Negroponte stated, "Wave is a company ahead of its time, but time in the
digital world moves so quickly that Wave will be timely tomorrow. Wave's unique
system enables micropayments which are at the core of electronic commerce.
Micropayments represent a new kind of digital payment system, one that enables
the buying and selling of products previously bundled in large,
take-it-or-leave-it packages. Wave's innovative approach is the basis for a
whole new form of entrepreneurism."
Steven Sprague, president of Wave, commented, "The participation of such highly
regarded technology industry figures in this private financing confirms the
growing base of support we are seeing for our electronic content commerce and
distribution solution. We are pleased these industry leaders share our vision
for Wave.
"Michael Seedman is a proven leader in the field of information access
technology and as such brings to Wave a broad array of industry relationships
and a wealth of experience, knowledge and business expertise. Nicholas
Negroponte resides in the Pantheon of technology industry visionaries. He has
been a supporter of Wave since its founding in 1988, and we value his continuing
support."
Seedman, 41, joined U.S. Robotics in 1993 and resigned in September to pursue
other interests. During his tenure, USR became the world's leading modem
manufacturer, developing numerous award-winning communications solutions. At
USR, Seedman had global responsibility for product management, engineering,
sales, marketing and technical support for all the Personal Communications
Division's product lines. Products developed under his guidance include the
Sportster line of modems and ISDN adapters.
Previously Seedman was founder, president and chief executive officer of
Practical Peripherals, the California-based modem manufacturer. He served as
president and chief executive officer from 1981 through 1993 when he sold the
company to Hayes
(more)
<PAGE> 3
WAVE SYSTEMS COMPLETES $3.05 MILLION IN FINANCING, 10/14/97 page 3
Microcomputer, Inc.
Negroponte, a founder of WIRED MAGAZINE, and founder and director of the
Massachusetts Institute of Technology's (MIT) Media Lab, an interdisciplinary,
multi-million dollar research center, is internationally recognized as one of
the world's leading authorities on how computers are revolutionizing the
electronic delivery of information and entertainment services. Negroponte's
book, "Being Digital" (Alfred A. Knopf, 1995), subtitled "The Road Map For
Survival On The Information Superhighway," has been heralded as an indispensable
guide for successfully negotiating the digital age.
Negroponte studied at MIT, where as a graduate student he specialized in the
then-new field of computer-aided design. He joined the Institute's faculty in
1966, and for several years divided his teaching time between MIT and visiting
professorships at Yale, the University of Michigan and the University of
California at Berkeley.
Negroponte travels extensively throughout the world as a lecturer and has
delivered hundreds of presentations, including the prestigious Murata "People
Talk" address in Kyoto in 1990. In addition, he consults to both government and
industry, serves as an active member on several boards and is a special general
partner in a venture capital fund dedicated to new technologies for information
and publishing. Negroponte is senior columnist for WIRED magazine (available
online through HotWired: www.hotwired.com).
Wave Systems Corp. produces a distributed information metering and transaction
service, the Wave System, for use in consumer entertainment and education
applications. This year Wave introduced the "Great Stuff Network" for individual
and corporate content creators to securely sell and distribute their products
through the Internet via the Wave System. The Wave System permits
microtransactions in increments as low as fractions of a penny. Wave is also
developing electronic commerce solutions that will provide electronic content
providers with secure distribution as well as new marketing and pricing options
that include rental, rent-to own, purchase and pay-per-use transactions. The
Wave System gives consumers the convenience and control of obtaining content via
the Internet, and eventually CD-ROM and broadband transmissions. For more
information about Wave please see Wave's home page at http://wave.com/company.
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 ability to fund operations, the loss of
market share, changes in consumer buying habits and other factors over which
Wave Systems Corp. has little or no control.
# # #
