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) March 16, 1998
Wave Systems Corp.
(Exact name of registrant as specified in its charter)
Delaware 0-24752 13-3477246
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
480 Pleasant Street, Lee, Massachusetts 01238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (413) 243-1600
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Item 5. Other Events
On March 16, 1998, Wave Systems Corp. (the "Company") issued 150,000
shares of newly created Series G Convertible Preferred Stock, par value $.01
("Series G Convertible Preferred Stock"), at a price of $20 per share, for an
aggregate of $3,000,000. The shares were sold to one (1) accredited investor
pursuant to Regulation D promulgated under the Securities Act of 1933. The
Series G 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) $1.12 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
twenty-five (25) Trading Days immediately preceding the Conversion Date, as
defined in the Certificate of Designation of the Series G Convertible Preferred
Stock attached hereto as Exhibit 3.1.
Item 7. Financial Statements and Exhibits
Exhibit 3.1 Certificate of Designation of Series G Preferred
Stock of Wave Systems Corp. as filed with the
Delaware Secretary of State on March 5, 1998.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and
Combination Inc., dated as of March 6, 1998.
Exhibit 4.2 Registration Rights Agreement between Wave Systems
Corp. and Combination Inc., dated as of March 6,
1998.
Exhibit 99.1 Press Release dated March 16, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Wave Systems Corp.
Date: March 17, 1998 By: /s/ Peter J. Sprague
-------------------------
Name: Peter J.Sprague
Title: Chairman and Chief Executive
Officer
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EXHIBIT INDEX
Item No. Description
Exhibit 3.1 Certificate of Designation of Series G Preferred
Stock of Wave Systems Corp. as filed with the
Delaware Secretary of State on March 5, 1998.
Exhibit 4.1 Purchase Agreement between Wave Systems Corp. and
Combination Inc., dated as of March 6, 1998.
Exhibit 4.2 Registration Rights Agreement between Wave Systems
Corp. and Combination Inc., dated as of March 6,
1998.
Exhibit 99.1 Press Release dated March 16, 1998.
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION OF
SERIES G CONVERTIBLE PREFERRED STOCK OF
WAVE SYSTEMS CORP.
The undersigned, Steven Sprague and Peter J. Sprague, hereby certify
that:
I. They are the duly elected and acting President and Secretary,
respectively, of Wave Systems Corp., a Delaware corporation (the "Company").
II. The Restated Certificate of Incorporation of the Company
authorizes 2,000,000 shares of preferred stock, par value $.01 per share.
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 March 5, 1998 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 G Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 150,000
(which shall not be subject to increase). Each share of Preferred Stock shall
have a par value of $.01 per share and a stated value of $20 per share (the
"Stated Value").
2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available therefor, and
the Company shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 6% per annum (the "Dividend
Rate"), payable quarterly in arrears on March 31, June 30, September 30 and
December 31 in each year, commencing on June 30, 1998, 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 issuance of such shares would result in the
recipient thereof beneficially owning more than 4.9% of the issued and
outstanding shares of Class A Common Stock.
(c) So long as any Preferred Stock shall remain outstanding, neither the
Company nor any subsidiary thereof shall redeem, purchase or otherwise acquire
directly or indirectly any Junior Securities (as defined in Section 7), nor
shall the Company directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities unless all
dividends on the Preferred Stock for all past dividend periods shall have been
paid.
3. Voting Rights. Except as otherwise provided herein and
as otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or (b) authorize
or create any class of stock ranking as to dividends or distribution of assets
upon a Liquidation (as defined in Section 4) senior to, prior to or pari passu
with the Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed shall be distributed among the holders of Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible
into shares of Class A Common Stock at the Conversion Ratio (as defined in
Section 7) at the option of the holder in whole or in part at any time after the
expiration of the earlier to occur of (A) 60 days after the Original Issue Date
and (B) the date the Securities and Exchange Commission (the "Commission")
declares effective under the Securities Act of 1933, as amended (the "Securities
Act"), the registration statement contemplated by the Registration Rights
Agreement, dated the Original Issue Date (the "Registration Rights Agreement"),
by and between the Company and the original holder of Preferred Stock, pursuant
to which the Company is, among other things, required to register the resale of
the shares of Class A Common Stock issuable upon conversion of the Preferred
Stock (the "Underlying Shares Registration Statement"). Holders of Preferred
Stock shall effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with the form of conversion notice attached hereto as Exhibit A (the
"Conversion Notice"). Each Conversion Notice shall specify the number of shares
of Preferred Stock to be converted and the date on which such conversion is to
be effected, which date may not be prior to the date the holder delivers such
Conversion Notice by facsimile (the "Conversion Date"). If no Conversion Date is
specified in a Conversion Notice, the Conversion Date shall be the date that the
Conversion Notice is deemed delivered pursuant to Section 5(i). Subject to
Sections 5(a)(ii) and 5(b), as to the original holder (or its designee), and
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 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 twenty-five
Calendar Days immediately preceding (1) the Conversion Date or (2) the date of
payment in full by the Company of such redemption price, whichever is greater,
and (B) the Conversion Ratio calculated on (1) the Conversion Date or (2) the
date of payment in full by the Company of such redemption price, whichever date
yields a lower Conversion Price denominator for the determination of the
Conversion Ratio. If the holder has requested that the Company redeem shares of
Preferred Stock pursuant to this Section and the Company fails for any reason to
pay the redemption price under (2) above within seven days after such notice,
the Company will pay interest on the redemption price at a rate of 15% per
annum, in cash to such holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full.
(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) the average Per Share Market Value for the five Trading Days
immediately preceding the Original Issue Date (the "Initial Conversion Price")
and (b) 80% of the average of the five (5) lowest Trade Prices (as defined in
Section 7) during the twenty-five Calendar Days immediately preceding the
Conversion Date; provided that, (a) if the Underlying Shares Registration
Statement is not filed on or prior to the 30th 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 90th day after the Original Issue
Date, or (c) if an Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be effective as to
all of the then Underlying Shares at any time prior to the expiration of the
"Effectiveness Period" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Business Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (d) if trading in the Class A Common Stock shall be suspended
for any reason for more than three Trading Days, or (e) if the conversion rights
of the holders of Preferred Stock hereunder are suspended for any reason (any
such failure being referred to as an "Event," and for purposes of clauses (a),
(b) and (e) the date on which such Event occurs, or for purposes of clause (c)
the date which such 10 Business Day-period is exceeded, or for purposes of
clause (d) the date on which such three Trading Day period is exceeded, being
referred to as "Event Date"), the Conversion Price shall be decreased by 2.5%
each month (i.e., 77.5% as of the Event Date and 75% as of the one month
anniversary of the Event Date) until such time as a subsequent Underlying Shares
Registration Statement is declared effective by the Commission, or until any
Event contemplated by clause (d) or (e), as the case may be, is cured. Any
decrease in the Conversion Price pursuant to this Section 5(c)(i) shall continue
as long as shares of Preferred Stock remain outstanding. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Registration Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities payable
in shares of Common Stock, (b) subdivide outstanding shares of Common Stock into
a larger number of shares, or (c) combine outstanding shares of Common Stock
into a smaller number of shares, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Initial Conversion Price shall be
multiplied by a fraction, of which the denominator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Value. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common Stock
(and not to holders of Preferred Stock) evidences of its indebtedness or assets
or rights or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 5(c)(ii) and (iii) above), then in each such case the
Initial Conversion Price at which each share of Preferred Stock shall thereafter
be convertible shall be determined by multiplying the Initial Conversion Price
in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as of
the record date mentioned above, and of which the numerator shall be such Per
Share Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net assets of
the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the holders of a majority in interest of the shares of
Preferred Stock then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to the holders of
Preferred Stock of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(c)(ii),(iii) or (iv), the Company shall promptly mail
toeach holder of Preferred Stock, a notice setting forth the Initial
ConversionPrice 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 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.
C. 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 Common Stock is
converted into other securities, cash or property,
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 Calendar Days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(d) If at any time conditions shall arise by reason of action taken by the
Company which in the opinion of the Board of Directors are not adequately
covered by the other provisions hereof and which might materially and adversely
affect the rights of the holders of Preferred Stock (different than or
distinguished from the effect generally on rights of holders of any class of the
Company's capital stock) or if at any time any such conditions are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 30 Calendar Days prior to the effective date of such
action, and an Appraiser selected by the holders of majority in interest of the
Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the securities
into which shares of Preferred Stock may thereafter be convertible) and any
distribution which is or would be required to preserve without diluting the
rights of the holders of shares of Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which case the adjustment shall be
equal to the average of the adjustments recommended by each such Appraiser. The
Board of Directors shall make the adjustment recommended forthwith upon the
receipt of such opinion or opinions or the taking of any such action
contemplated, as the case may be; provided, however, that no such adjustment of
the Conversion Price shall be made which in the opinion of the Appraiser(s)
giving the aforesaid opinion or opinions would result in an increase of the
Conversion Price to more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times reserve and keep
availableout 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 of Preferred Stock.
(f) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Class A Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the Company
elects not, or is unable, to make such a cash payment, the holder of a share of
Preferred Stock shall be entitled to receive, in lieu of the final fraction of a
share, one whole share of Class A Common Stock.
(g) The issuance of certificates for shares of Class A Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Class A Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(i) Any and all notices or other communications or deliveries to be
provided by the holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the attention of
the Secretary of the Company at the facsimile telephone number or address of the
principal place of business of the Company. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each holder of Preferred Stock at the facsimile telephone
number or address of such holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Eastern
Standard Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern Standard Time) on any
date and earlier than 11:59 p.m. (Easter Standard Time) on such date, (iii) four
days after deposit in the United States mails, (iv) the Business Day following
the date of mailing, if send by nationally recognized overnight courier service,
or (v) upon actual receipt by the party to whom such notice is required to be
given.
6. Redemptions.
(a) The Company shall have the right, exercisable at any time upon 20
Trading Days notice to the holders of the Preferred Stock given at any time
after the Original Issue Date, to redeem, from funds legally available therefor
at the time of such redemption, all or any portion of the shares of Preferred
Stock which have not previously been converted or redeemed, at a price per share
equal to the product of (i) the average Per Share Market Value for the
twenty-five Calendar 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 seven 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
seven Calendar Days after the date due, the holder of the Preferred Stock
subject to such redemption may elect, by written notice to the Company given
within 45 days after the date due, to either (i) demand conversion in accordance
with the formula and the time frame therefor set forth in Section 5 of all of
the shares of Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such redemption price
was originally due and the Per Share Market Price as of the holder's written
demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the holder elects
option (i) above, the Company shall within five Trading Days of its receipt of
such election deliver to the holder the shares of Class A Common Stock issuable
upon conversion of the Unpaid Redemption Shares subject to such holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto; or, if the holder elects option (ii) above, the Company shall promptly,
and in any event not later than five Trading Days from receipt of holder's
notice of such election, return to the holder all of the Unpaid Redemption
Shares.
7. Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Business Day" means any day of the year on which commercial banks are not
required or authorized to be closed in New York, New York.
"Calendar Day" means any day of the year.
"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,
Series D Convertible Preferred Stock, Series E Convertible Preferred Stock and
Series F Convertible Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Class A Common Stock on such date on The Nasdaq National
Market, Nasdaq Small Cap Market or other stock exchange on which the Class A
Common Stock has been listed or if there is no such price on such date, then the
closing bid price on such exchange on the date nearest preceding such date, or
(b) if the Class A Common Stock is not listed on The Nasdaq National Market,
Nasdaq Small Cap Market or any stock exchange, the closing bid price for a share
of Class A Common Stock in the over-the-counter market, as reported by the
Nasdaq Stock Market at the close of business on such date, or (c) if the Class A
Common Stock is not quoted on the Nasdaq Stock Market or Nasdaq Small Cap
Market, the closing bid price for a share of Class A Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (d) if the Class A Common Stock is not reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the holder, or (e) if the Class A Common Stock is not publicly traded the fair
market value of a share of Class A Common Stock as determined by an Appraiser
selected in good faith by the holders of a majority in interest of the shares of
the Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, between the Company
and the original holder of the Preferred Stock.
"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 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 Secretary of the Company be, and
they hereby are, authorized and directed to prepare, execute, verify, and file
with the 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 Peter J. Sprague, its Secretary, this 6th day of
March, 1998.
WAVE SYSTEMS CORP.
By: /s/ Steven Sprague
----------------------------
Name: Steven Sprague
Title: President
Attest:
By: /s/ Peter J. Sprague
---------------------------
Name: Peter J. Sprague
Title: Secretary
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series G Convertible Preferred Stock indicated below, into shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"), of Wave
Systems Corp. (the "Company") according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations: ______________________________
Date to Effect Conversion
______________________________
Number of shares of Preferred
Stock to be Converted
Number of shares of Class A
Common Stock to be Issued
_______________________________
Applicable Conversion Price
_______________________________
Signature
______________________________
Name:
______________________________
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Class A
Common Stock outstanding on such date and the number of shares of Class A Common
Stock which would be issuable to the holder if the conversion requested in this
conversion notice were effected in full, whereupon, the holder hereby consents
to the revocation of the conversion requested hereby to the extent that it
determines that such conversion would result in it owning in excess of 4.9% of
the outstanding shares of Class A Common Stock on such date, and the Company
shall issue to the holder one or more certificates representing shares of
Preferred Stock which have not been converted as a result of this provision.
EXHIBIT 4.1
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
WAVE SYSTEMS CORP.
and
COMBINATION INC.
------------------------------
Dated as of March 6, 1998
------------------------------
================================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
March 6, 1998 (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 G
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:
CERTAIN DEFINITIONS
Certain Definitions. As used in this Agreement, unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the City of
New York are authorized or required by law or other government actions to close.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section 2.1(b).
"Certificate of Designation" shall have the meaning set forth in Section
2.1(a).
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share.
"Class B Common Stock" means the Company's Class B Common Stock, par value
$.01 per share.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, collectively, the Class A Common Stock, Class B
Common Stock, any stock into which such shares may hereafter be reclassified,
and any other class of equity securities of the Company hereafter designated as
Common Stock.
"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.
"Legal Opinion" means the legal opinion letter of Curtis, Mallet-Prevost,
Colt & Mosle, outside counsel to the Company, addressed to the Purchaser, dated
the Closing Date and in form and substance acceptable to Purchaser.
"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.
"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).
"September Quarterly Report" shall have the meaning set
forth in Section 3.1(l).
"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
Exhibit F, entitling the Purchaser to purchase up to 150,000 shares of Class A
Common Stock.
PURCHASE OF SHARES
Purchase of Shares; Closing; Escrow.
(a) Subject to the terms and conditions set forth in this Agreement, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 150,000 Shares, which shall have the
respective rights, preferences and privileges set forth in Exhibit A (the
"Certificate of Designation"), at a price per Share of $20. The "Purchase Price"
for the Shares is $3,000,000.
(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.
The date of the Closing is referred to herein as the "Closing Date".
(c) Prior to the Closing, the parties shall deliver to the Escrow Agent
such items as are required to be delivered by them in accordance with and
subject to the terms and conditions of the Escrow Agreement, including the
following: (i) the Company shall deliver or cause to be delivered (A) one or
more stock certificates representing the Shares, registered in the name of the
Purchaser, (B) the Warrant and (C) the Legal Opinion addressed to the Purchaser,
(ii) the Purchaser shall deliver the Purchase Price, and (iii) each party hereto
shall deliver or cause to be delivered all other executed instruments,
agreements and certificates as are required to be delivered by or on their
behalf at the Closing.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no material subsidiaries other than as
set forth in the SEC Documents (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have a material adverse effect on
the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation 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. Except as set
forth in the Disclosure Materials, 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.
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
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 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. Except as specifically disclosed in the
Disclosure Materials, 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.
(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.
(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
September 30, 1997 (the "September 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, no shares are
outstanding, the Company's Series D Convertible Preferred Stock, par value $.01
per share, no shares are outstanding, the Company's Series E Convertible
Preferred Stock, no shares are outstanding and the Company's Series F
Convertible Preferred Stock, par value $.01 per share, no shares are outstanding
(collectively, the "Senior Securities").
(n) Form S-1 Eligibility. The Company is eligible to register securities
for resale with the Commission under Form S-1 promulgated under the Securities
Act.
(o) Investment Company. The Company is not and is not an Affiliate of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(p) Class B Common Stock. The issued and outstanding shares of the Class B
Common Stock are restricted securities subject to Rule 144 promulgated under the
Exchange Act, and the holders of such shares have no registration rights or
preemptive rights arising out of their ownership of such shares.
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.
(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.
OTHER AGREEMENTS OF THE PARTIES
Transfer Restrictions. If the Purchaser should decide to
dispose of any of the Shares or any portion of the Warrant to be purchased by it
hereunder (and upon conversion or exercise (as the case may be) thereof, any
Underlying Shares), the Purchaser understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act or
pursuant to an available exemption from the registration requirements thereof.
In connection with any transfer of any Shares or the Warrant other than pursuant
to an effective registration statement or to the Company, the Company may
require that the transferor of such Shares or Warrant provide to the Company an
opinion of counsel experienced in the area of United States securities laws
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such Shares or Warrant under the Securities Act or
any state securities laws.
The Purchaser agrees to the imprinting, so long as is required
by the provisions of this Section 4.1, of the following legend on certificates
representing the Shares, the Warrant and the Underlying Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[FOR SHARES ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON CONVERSION SET FORTH IN SECTION
4.10 OF THE CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF
MARCH 6, 1998, BETWEEN WAVE SYSTEMS CORP., (THE "COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
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.
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.
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.
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.
Issuance of Senior Securities. For so long as the Purchaser
shall own Shares, the Company shall not issue any Senior Securities.
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.
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.
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.
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
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) and (iii) shares of Common Stock issued upon conversion of
Shares or exercise of the Warrant in accordance herewith and the Certificate of
Designation or the Warrant, 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.
(a) Except for the Underlying Shares to be registered in accordance with
the Registration Rights Agreement and the shares specified in Schedule 8(b) of
the Registration Rights Agreement (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 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.
(b) 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.
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.
Listing of Underlying Shares. The Company shall, as
specifically required by such national securities exchange or trading facility
on which the Common Stock is then listed, (a) not later than the fifth Business
Day following the Closing Date prepare and file with the OTC Bulletin Board (as
well as any other national securities exchange, market or trading facility on
which the Common Stock is then listed) an additional shares listing application
covering at least the sum of (i) two times the number of Underlying Shares as
would be issuable upon a conversion in full of (and as payment of dividends in
respect of) the Shares, assuming such conversion occurred on the Original Issue
Date or the Filing Date (as defined in the Registration Rights Agreement)
(whichever yields a lower Conversion Price) and (ii) the Underlying Shares
issuable upon exercise in full of the Warrant (b) take all steps necessary to
cause the such shares to be approved for listing on the OTC Bulletin Board (as
well as on any other national securities exchange, market or trading facility on
which the Common Stock is then listed) as soon as possible thereafter, and (c)
provide to the Purchaser evidence of such listing, and the Company shall
maintain the listing of its Common Stock on such exchange or market. In
addition, if at any time the number of shares of Common Stock issuable on
conversion of all then outstanding Shares, on account of accrued and unpaid
dividends thereon and upon exercise in full of the Warrant is greater than the
number of shares of Common Stock theretofore listed with the OTC Bulletin Board
(and any such other national securities exchange, market or trading facility),
the Company shall promptly take such action (including the actions described in
the preceding sentence) to file an additional shares listing application with
the OTC Bulletin Board (and any such other national securities exchange, market
or trading facility) covering at least a number of shares equal to the sum of
(x) 200% of (A) the number of Underlying Shares as would then be issuable upon a
conversion in full of the Shares and (B) the number of Underlying Shares as
would be issuable as payment of dividends on the Shares and (y) the number of
Underlying Shares as would be issuable upon exercise in full of the Warrant.
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 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.
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.
V MISCELLANEOUS
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 and
Wharton Capital Partners, Ltd. shall reimburse Robinson Silverman Pearce
Aronsohn & Berman LLP $15,000 ($12,500 to be reimbursed by the Company and
$2,500 to be reimbursed by Wharton Capital Partners, Ltd.) 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.
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.
Notices . Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a Business Day during normal business hours where such notice is to be
received), or the first Business Day following such delivery (if delivered other
than on a Business Day during normal business hours where such notice is to be
received) or (b) on the second Business Day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company: Wave Systems Corp.
480 Pleasant Street
Lee, MA 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.
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.
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.
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.
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.
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.
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 V shall survive the Closing
(or any earlier termination of this Agreement) and any conversion of Shares or
exercise of the Warrant hereunder.
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.
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.
Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance of the obligations of the Company under
this Agreement and the Company will be entitled to specific performance of the
obligations of the Purchaser hereunder with respect to the subsequent transfer
of Shares and the Underlying Shares. Each of the Company and the Purchaser
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
WAVE SYSTEMS CORP.
By: /s/ Peter J. Sprague
----------------------------
Name: Peter J.Sprague
Title: Chairman and Chief Executive
Officer
COMBINATION INC.
By: /s/ David Freund
--------------------------
Name: David Freund
Title: President
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of March 6, 1998, 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 90th day following the Filing Date.
"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 30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 6(c).
"Indemnifying Party" shall have the meaning set forth in Section 6(c).
"Losses" shall have the meaning set forth in Section 6(a).
"New York Courts" shall have the meaning set forth in Section 8(h).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series G 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 150,000 shares of Common
Stock on the terms and subject to the conditions set forth therein.
"Registrable Securities" means the shares of Common Stock issuable upon (a)
conversion of all shares of Preferred Stock 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.
"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-1 (or another appropriate
form approved by the Holders of a majority of the Registrable Securities that
permit registration of Registrable Securities for resale by the Holders in the
manner or manners designated by them (including, without limitation, public or
private sales and one or more Underwritten Offerings)). The Company shall (i)
not permit any securities other than the Registrable Securities, and the
securities specified in Section 8(c), to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as practicable after
the filing thereof, but in any event prior to the Effectiveness Date, and to
keep such Registration Statement continuously effective under the Securities Act
until the date which is three years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold pursuant to Rule 144 as determined by the counsel to the Company
pursuant to a written opinion letter, addressed to the Holders, to such effect
(the "Effectiveness Period"); provided, however, that the Company shall not be
deemed to have used its best efforts to keep the Registration Statement
effective during the Effectiveness Period if it voluntarily takes any action
that would result in the Holders not being able to sell the Registrable
Securities covered by such Registration Statement during the Effectiveness
Period, unless such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities so elect, an
offering of Registrable Securities pursuant to the Registration Statement may be
effected in the form of an Underwritten Offering. In such event, and if the
managing underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of such
managing underwriters can be sold, and such amount shall be allocated pro rata
among the Holders proposing to sell Registrable Securities in such Underwritten
Offering.
(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will administer the offering will be selected by the Holders of a majority
of the Registrable Securities included in such offering. No Holder may
participate in any Underwritten Offering hereunder unless such Person (i) agrees
to sell its Registrable Securities on the basis provided in any underwriting
agreements approved by the Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing Date a
Registration Statement on Form S-1 in accordance with the method or methods of
distribution thereof as specified by the Holders, and cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the opinion of respective
counsel to such Holders and such underwriters, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to all Registrable
Securities for the applicable time period and prepare and file with the
Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto;
and (iv) comply with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their Special
Counsel and any managing underwriters immediately (and, in the case of (i)(A)
below, not less than five (5) days prior to such filing) and (if requested by
any such Person) confirm such notice in writing no later than one (1) Business
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
and (B) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
provide to the Purchaser (a) notice of all oral or written comments received by
or on behalf of the Company from the Commission in connection with any
Registration Statement hereunder (and, if such comments are in writing, will
provide copies thereof to the Purchaser), and (b) copies of any response letters
submitted by or on its behalf in respect of such comments.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of the Registration
Statement or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a majority
of the Registrable Securities to be sold in connection with an Underwritten
Offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment to the Registration Statement such information as such managing
underwriters and such Holders reasonably agree, and which is reasonably
acceptable to the Company, should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
reasonably requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold, which certificates shall be free of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such managing underwriters or Holders may
request at least two Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as practicable, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the OTC Bulletin Board and any other
securities exchange, market or over-the-counter bulletin board, if any, on which
similar securities issued by the Company are then listed.
(l) Enter into such agreements (including, in the case of an Underwritten
Offering, an underwriting agreement in form, scope and substance as is customary
in Underwritten Offerings) and take all such other actions in connection
therewith (including those reasonably requested by any managing underwriters and
the Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and if an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) obtain and deliver copies thereof to each Holder and
the managing underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each selling Holder and each such underwriter, in
form, scope and substance reasonably satisfactory to any such managing
underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement at the time of delivery of any Registrable Securities sold pursuant
thereto, obtain and deliver copies to the Holders and the managing underwriters,
if any, of "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each selling Holder and each of the underwriters, if
any, in form and substance as are customary in connection with Underwritten
Offerings; (iv) if an underwriting agreement is entered into, the same shall
contain indemnification provisions and procedures no less favorable to the
selling Holders and the underwriters, if any, than those set forth in Section 7
(or such other provisions and procedures acceptable to the managing
underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering; and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any managing
underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the Commission and
make generally available to its security holders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 not later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts Underwritten Offering and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of the Registration
Statement, which statement shall cover said 12-month period, or end shorter
periods as is consistent with the requirements of Rule 158.
(o) Provide a CUSIP number for all Registrable Securities, not later than
the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the Company such
information regarding the distribution of such Registrable Securities as is
required by law to be disclosed in the Registration Statement and the Company
may exclude from such registration the Registrable Securities of any such Holder
who unreasonably fails to furnish such information within a reasonable time
after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (i) the inclusion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that the ownership by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such ownership does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) if such reference to such
Holder by name or otherwise is not required by the Securities Act or any similar
Federal statute then in force, the deletion of the reference to such Holder in
any amendment or supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each 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.
Intentionally Deleted.
4. Registration Expenses.
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by the Company whether or not the
Registration Statement is filed or becomes effective and whether or not any
Registrable Securities are sold pursuant to the Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
National Association of Securities Dealers, Inc. and (B) in compliance with
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the underwriters or Holders in connection with Blue
Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or Holders of a majority of
Registrable Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company as provided in Section 5(b) below, (v) fees and disbursements of all
independent certified public accountants referred to in Section 3(l)(iii)
(including, without limitation, the expenses of any special audit and "cold
comfort" letters required by or incident to such performance), (vi) Securities
Act liability insurance, if the Company so desires such insurance, and (vii)
fees and expenses of all other Persons retained by the Company in connection
with the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by
this Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed.
(b) In connection with the Registration Statement, the Company shall
reimburse the Holders for the reasonable fees and disbursements of one firm of
attorneys chosen by the Holders of a majority of the Registrable Securities, it
being expressly understood that such fees and disbursements shall not exceed
$5,000.
Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding
termination of this Agreement and without limitation as to time, indemnify and
hold harmless each Holder, the officers, directors, agents (including any
underwriters retained by such Holder in connection with the offer and sale of
Registrable Securities), brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that such untrue statements or omissions are based solely upon information
regarding such Holder furnished in writing to the Company by or on behalf of
such Holder expressly for use therein, which information was reasonably relied
on by the Company for use therein or to the extent that such information relates
to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto. The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
(b) Indemnification by Holders. In connection with the Registration
Statement, each Holder shall furnish to the Company in writing such information
as the Company reasonably requests for use in connection with the Registration
Statement or any Prospectus and agrees, severally and not jointly, to indemnify
and hold harmless the Company, their directors, officers, agents and employees,
each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 6(a) or 6(b)
is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section would
apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 6(c), any attorneys' or other fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), the Purchaser shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
5. 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.
6. 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 as set forth in Schedule 8(b)
annexed hereto, 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 set forth in Schedule
8(b) annexed hereto, 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 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 OTC Bulletin Board or
the Nasdaq SmallCap Market) such 60-day period shall be increased to include any
such days.
(c) No Piggyback on Registrations. Except for the shares set forth in
Schedule 8(b) annexed hereto to be registered in accordance with piggy back
rights granted thereon, neither of the Company nor any of its security holders
(other than the Holders in such capacity pursuant hereto) may include securities
of the Company in the Registration Statement other than the Common Stock to be
issued under the Purchase Agreement, and the Company shall not enter into any
agreement providing any such right to any of its securityholders.
(d) Piggy-Back Registrations. If at any time the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, the Company shall send to each holder of
Registrable Securities written notice of such determination and, if within
twenty (20) days after receipt of such notice, any such holder shall so request
in writing, the Company shall include in such registration statement all or any
part of the Registrable Securities such holder requests to be registered, except
that if, in connection with any Underwritten Offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the registration
statement because, in such underwriter(s)' judgment, such limitation is
necessary to effect an orderly public distribution of securities covered
thereby, then the Company shall be obligated to include in such registration
statement only such limited portion of the Registrable Securities for to which
such holder has requested inclusion hereunder. Any exclusion of Registrable
Securities shall be made pro rata among the holders seeking to include
Registrable Securities, in proportion to the number of Registrable Securities
sought to be included by such holders; provided, however, that the Company shall
not exclude any Registrable Securities unless the Company has first excluded all
outstanding securities the holders of which are not entitled by right to
inclusion of securities in such registration statement; and provided, further,
however, that, after giving effect to the immediately preceding proviso, any
exclusion of Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in such registration
statement. No right to registration of Registrable Securities under this Section
shall be construed to limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least a majority of the then outstanding Registrable Securities; provided,
however, that, for the purposes of this sentence, Registrable Securities that
are owned, directly or indirectly, by the Company, or an Affiliate of the
Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(f) Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company: Wave Systems Corp.
480 Pleasant Street
Lee, MA 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
GivatZev 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 registration
rights are being transferred or assigned, (iii) following such transfer or
assignment the further disposition of such securities by the transferee or
assignees restricted under the Securities Act and applicable state securities
laws, (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this Section, the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions of this
Agreement, and (v) such transfer shall have been made in accordance with the
applicable requirements of the Purchase Agreement. The rights to assignment
shall apply to the Purchaser's (and to subsequent) successors and assigns.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(i) Governing Law; Submission to Jurisdiction;. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of law. The Company hereby irrevocably
submits to the jurisdiction of any New York state court sitting in the Borough
of Manhattan in the City of New York or any federal court sitting in the Borough
of Manhattan in the City of New York (collectively, the "New York") in respect
of any Proceeding arising out of or relating to this Agreement, and irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, jurisdiction of the New York Courts. The Company irrevocably
waives to the fullest extent it may effectively do so under applicable law any
objection that it may now or hereafter have to the laying of the venue of any
such Proceeding brought in any New York Court and any claim that any such
Proceeding brought in any New York Court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any Holder to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against the company in any other jurisdiction.
(j) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(l) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(m) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than the Purchaser or transferees or successors or assigns thereof if
such Persons are deemed to be Affiliates solely by reason of their holdings of
such Registrable Securities) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
WAVE SYSTEMS CORP.
By: /s/ Peter J Sprague
--------------------------
Name: Peter J.Sprague
Title: Chairman and Chief Executive
Officer
COMBINATION INC.
By: /s/ David Freund
-----------------------
Name: David Freund
Title:President
Contact: Mark Marinovich David C. Collins, Kathy Holmes
WAVE SYSTEMS CORP. JAFFONI & COLLINS INCORPORATED
408-261-9510 212-835-8500
[email protected] [email protected]
For Immediate Release
March 16, 1998
WAVE COMPLETES $3.0 MILLION
PRIVATE PLACEMENT
Lee, MA -Wave Systems Corp. (OTC BB: WAVX; http://wave.com/company) today
announced that it has completed a private placement of $3.0 million in 6% Series
G Convertible Preferred Shares to one accredited investor pursuant to Regulation
D of the Securities Act of 1933.
Proceeds from the financing will fund Wave's working capital needs, including
accelerated sales and marketing efforts aimed at extending and supporting the
Company's relationships with leading computer hardware OEMs and electronic
content providers. The transaction was facilitated by Wharton Capital, a New
York based financial consulting firm.
This announcement does not constitute an offer to sell or the solicitation of
offers to buy any security and shall not constitute an offer, solicitation or
sale of any security in any jurisdiction in which such offer, solicitation or
sale would be unlawful.
Wave Systems Corp., formed in 1988 by Peter Sprague, former Chairman of National
Semiconductor, has developed a unique distributed information metering and
transaction processing service, called the Wave System, for use in the sale and
distribution of a wide range of electronic content for consumer entertainment
and education applications. The Wave System gives content providers security and
flexible transaction models and consumers the convenience and control of
obtaining content via the Internet through Wave's Great Stuff Network
(http://www.great-stuff.com), and planned CD-ROM and broadband delivery
channels. For more information, visit Wave's corporate web site at
http://www.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.
# # #
