EXHIBIT 4.1
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CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
WAVE SYSTEMS CORP.
and
COMBINATION INC.
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Dated as of March 6, 1998
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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 Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx 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 Xxxxxx, Xxxxxx-Xxxxxxx,
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, 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, 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 Xxxxxxx 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
Xxxxxxx Capital Partners, Ltd. shall reimburse Xxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx & Xxxxxx LLP $15,000 ($12,500 to be reimbursed by the Company and
$2,500 to be reimbursed by Xxxxxxx 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.
000 Xxxxxxxx Xxxxxx
Xxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx Xxxxxxx
With copies to: Xxxxxx, Xxxxxx-Xxxxxxx,
Colt & Mosle
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx
If to the Purchaser: Combination Inc.
x/x Xxxxx Xxxxxx
Xxxxxx Xxxxxxx 00
Xxxxx Xxx Xxxxxx
with copies to: Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx
& Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx
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]
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/ Xxxxx X. Xxxxxxx
----------------------------
Name: Xxxxx X.Xxxxxxx
Title: Chairman and Chief Executive
Officer
COMBINATION INC.
By: /s/ Xxxxx Xxxxxx
--------------------------
Name: Xxxxx Xxxxxx
Title: President
