SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of April 30, 2003
among
WAVE SYSTEMS CORP.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase and Sale of Preferred Stock...............................1
Section 1.1 Purchase and Sale of Stock................................1
Section 1.2 The Conversion Shares.....................................1
Section 1.3 Purchase Price and Closing................................2
Section 1.4 Warrants..................................................2
ARTICLE II Representations and Warranties....................................2
Section 2.1 Representations and Warranties of the Company.............2
Section 2.2 Representations and Warranties of the Purchasers..........13
ARTICLE III Covenants........................................................15
Section 3.1 Securities Compliance.....................................15
Section 3.2 Registration and Listing..................................16
Section 3.3 Inspection Rights.........................................16
Section 3.4 Compliance with Laws......................................16
Section 3.5 Keeping of Records and Books of Account...................16
Section 3.6 Reporting Requirements....................................17
Section 3.7 Intentionally Omitted.....................................17
Section 3.8 Other Agreements..........................................17
Section 3.9 Intentionally Omitted.....................................17
Section 3.10 Intentionally Omitted.....................................17
Section 3.11 Intentionally Omitted.....................................17
Section 3.12 Future Financings; Right of First Offer and Refusal.......17
Section 3.13 Reservation of Shares.....................................19
Section 3.14 Transfer Agent Instructions...............................19
Section 3.15 Disposition of Assets.....................................20
Section 3.16 Stockholder Approval......................................20
ARTICLE IV Conditions........................................................22
Section 4.1 Conditions Precedent to the Obligation of
the Company to Sell the Shares..........................22
Section 4.2 Conditions Precedent to the Obligation of
the Purchasers to Purchase the Shares...................22
ARTICLE V Intentionally Omitted..............................................25
ARTICLE VI Stock Certificate Legend..........................................25
Section 6.1 Legend....................................................25
ARTICLE VII Intentionally Omitted............................................25
ARTICLE VIII Indemnification.................................................26
Section 8.1 General Indemnity.........................................26
Section 8.2 Indemnification Procedure.................................26
ARTICLE IX Miscellaneous 26
Section 9.1 Fees and Expenses.........................................27
Section 9.2 Specific Enforcement, Consent to Jurisdiction.............27
Section 9.3 Entire Agreement; Amendment...............................28
Section 9.4 Notices...................................................28
Section 9.5 Waivers...................................................29
Section 9.6 Headings..................................................30
Section 9.7 Successors and Assigns....................................30
Section 9.8 No Third Party Beneficiaries..............................30
Section 9.9 Governing Law.............................................30
Section 9.10 Survival..................................................30
Section 9.11 Counterparts..............................................30
Section 9.12 Publicity.................................................30
Section 9.13 Severability..............................................30
Section 9.14 Further Assurances........................................31
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of April 30, 2003 by and among Wave Systems Corp., a
Delaware corporation (the "Company"), and each of the Purchasers of shares of
Series H Convertible Preferred Stock of the Company whose names are set forth on
Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the number of shares of the
Company's Series H Convertible Preferred Stock, par value $.01 per share (the
"Preferred Shares"), at a purchase price of $10,000 per share, set forth with
respect to such Purchaser on Exhibit A hereto. Upon the following terms and
conditions, the Purchasers shall be issued Warrants, in substantially the form
attached hereto as Exhibit B (the "Warrants"), to purchase the Company's Class A
Common Stock, par value $.01 per share (the "Common Stock"). The aggregate
purchase price for the Preferred Shares and the Warrants shall be $5,355,000.
The designation, rights, preferences and other terms and provisions of the
Series H Convertible Preferred Stock are set forth in the Certificate of
Designation of the Relative Rights and Preferences of the Series H Convertible
Preferred Stock attached hereto as Exhibit C (the "Certificate of Designation").
The Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") or Section 4(2) of the
Securities Act. Concurrently with the issuance of the Preferred Shares and
Warrants to the Purchasers pursuant to this Agreement, the Company is issuing
Preferred Shares (the "Other Preferred Shares") and a Warrant (the "Other
Warrant") to a separate purchaser pursuant to a separate Series H Convertible
Preferred Stock Purchase Agreement (the "Other Purchase Agreement") dated as of
the date hereof between the Company and CD Investment Partners, Ltd., a
Cayman Island corporation (the "Other Purchaser").
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Preferred Shares and the Other Preferred Shares and exercise of
the Warrants and the Other Warrant then outstanding; provided that the number of
1
shares of Common Stock so reserved shall at no time be less than 120% of its
authorized but unissued shares of its Common Stock, to effect the conversion of
the Preferred Shares and the Other Preferred Shares and exercise of the Warrants
and the Other Warrant. Any shares of Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants (and such shares when issued)
are herein referred to as the "Conversion Shares" and the "Warrant Shares",
respectively. The Preferred Shares, the Conversion Shares and the Warrant Shares
are sometimes collectively referred to as the "Shares".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Preferred Shares and Warrants set forth opposite their respective names on
Exhibit A. The aggregate purchase price of the Preferred Shares and Warrants
being acquired by each Purchaser is set forth opposite such Purchaser's name on
Exhibit A (for each such purchaser, the "Purchase Price" and collectively
referred to as the "Purchase Prices"). The closing of the purchase and sale of
the Preferred Shares and Warrants shall take place at the offices of Jenkens &
Xxxxxxxxx Xxxxxx Xxxxxx LLP, The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 (the "Closing") at 1:00 p.m. (eastern time) upon the
satisfaction of each of the conditions set forth in Article IV hereof (the
"Closing Date"). Funding with respect to the Closing shall take place by wire
transfer of immediately available funds on or prior to the Closing Date. Section
1.4 Warrants. The Company agrees to issue to each of the Purchasers
Warrants to purchase the number of shares of Common Stock set forth opposite
such Purchaser's name on Exhibit A hereto. The Warrants shall be exercisable for
five (5) years from the date of issuance and shall have an exercise price equal
to the Warrant Price (as defined in the Warrants).
ARTICLE II
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. As of the
Closing Date, the Company hereby makes the following representations and
warranties to the Purchasers, except as set forth in the Company's disclosure
schedule delivered with this Agreement as follows:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof).
2
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement attached hereto as Exhibit D (the "Registration Rights
Agreement"), the Irrevocable Transfer Agent Instructions (as defined in
Section 3.14), the Certificate of Designation, and the Warrants (collectively,
the "Transaction Documents") and to issue and sell the Shares and the Warrants
in accordance with the terms hereof. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a 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, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of April 15, 2003 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and Series H Convertible Preferred Stock have been duly and validly
authorized. Except as set forth in this Agreement and the Registration Rights
Agreement and as set on Schedule 2.1(c) hereto, no shares of Common Stock are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and the Registration Rights Agreement or
on Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as on Schedule 2.1 (c) hereto, the
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. The
Company is not a party to any agreement restricting the voting or transfer of
any shares of the capital stock of the Company. Except as set forth on Schedule
2.1(c) hereto, the offer and sale of all capital stock, convertible securities,
rights, warrants, or options of the Company issued prior to the Closing complied
with all applicable Federal and state securities laws, and no stockholder has a
right of rescission or claim for damages with respect thereto which would have a
Material Adverse Effect (as defined below) on the Company's financial condition
or operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Certificate"), and the Company's Bylaws as
in effect on the date hereof (the "Bylaws"). For the purposes of this Agreement,
3
"Material Adverse Effect" means (a) any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and its
subsidiaries, taken as a whole, and/or (b) any condition, circumstance, or
situation that would prohibit or otherwise materially interfere with the ability
of the Company to perform any of its obligations under this Agreement in any
material respect.
(d) Issuance of Shares. The Preferred Shares and the Warrants to be issued
at the Closing have been duly authorized by all necessary corporate action and
the Preferred Shares, when paid for and issued in accordance with the terms
hereof, shall be validly issued and outstanding, fully paid and nonassessable
and entitled to the rights and preferences set forth in the Certificate of
Designation. When the Conversion Shares and the Warrant Shares are issued in
accordance with the terms of the Certificate of Designation and the Warrants,
respectively, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, and the
holders shall be entitled to all rights accorded to a holder of Common Stock.
(e) No Conflicts. Except as disclosed on Schedule 2.1(e) hereto, the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the consummation by the Company of the transactions contemplated
herein and therein do not and will not (i) violate any provision of the
Company's Certificate or Bylaws, (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, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party or by which it or its properties or assets are bound, (iii) create or
impose a lien, mortgage, security interest, charge or encumbrance of any nature
on any property of the Company under any agreement or any commitment to which
the Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including Federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries or by which any property or asset of
the Company or any of its subsidiaries are bound or affected, except, in all
cases other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents, or issue and sell the
4
Preferred Shares, the Warrants, the Conversion Shares and the Warrant Shares in
accordance with the terms hereof or thereof (other than any filings which may be
required to be made by the Company with the Commission or state securities
administrators subsequent to the Closing, any registration statement which may
be filed pursuant hereto, and the Certificate of Designation); provided that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.
(f) Commission Documents, Financial Statements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, except as disclosed on Schedule
2.1(f) hereto, since December 31, 2002, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the Commission pursuant to the reporting requirements of the Exchange
Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "Commission Documents"). The Company has made
available, via XXXXX, to each of the Purchasers true and complete copies of the
Commission Documents filed with the Commission since December 31, 2002. The
Company has not provided to the Purchasers any material non-public information
or other information which, according to applicable law, rule or regulation, was
required to have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions contemplated by this
Agreement. As of their respective dates, the Company's Form 10-K for the year
ended December 31, 2002, including the accompanying financial statements (the
"Form 10-K"), and the Company's Form 10-Q for the fiscal quarters ended March
31, 2002, June 30, 2002, as amended, or September 30, 2002, as amended
(collectively, the "Form 10-Q"), complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and, as of their respective dates,
none of the Form 10-K and the Form 10-Q 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 Commission Documents (taken as a whole
and giving effect to amended filings) comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the Commission or other applicable rules and regulations with respect
thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its subsidiaries as of 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).
5
(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such subsidiary. For the purposes of this Agreement,
"subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other subsidiaries. All of the
outstanding shares of capital stock of each subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. Except as set forth on
Schedule 2.1(g), there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Except
as set forth on Schedule 2.1(g), neither the Company nor any subsidiary is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of the capital stock of any subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence. Except as set forth on Schedule 2.1(g), neither the Company
nor any subsidiary is party to any agreement restricting the voting or transfer
of any shares of the capital stock of any subsidiary.
(h) No Material Adverse Change. Since December 31, 2002, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto or set forth in the Form 10-K.
(i) No Undisclosed Liabilities. Except as on Schedule 2.1(i) hereto,
neither the Company nor any of its subsidiaries has any liabilities,
obligations, claims or losses (whether liquidated or unliquidated, secured or
unsecured, absolute, accrued, contingent or otherwise) other than those incurred
in the ordinary course of the Company's or its subsidiaries respective
businesses since December 31, 2002 and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company or its
subsidiaries.
(j) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires the filing of a Form
8-K by the Company but which has not been so announced or disclosed.
(k) Indebtedness. The Form 10-K, Form 10-Q or Schedule 2.1(k) hereto sets
forth as of a recent date all outstanding secured and unsecured Indebtedness of
the Company or any subsidiary, or for which the Company or any subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money in excess of $100,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
6
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Title to Assets. Each of the Company and the subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those indicated in the
Form 10-K, Form 10-Q or on Schedule 2.1(l) hereto or such that, individually or
in the aggregate, do not cause a Material Adverse Effect on the Company's
financial condition or operating results. All said leases of the Company and
each of its subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or any other proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary which questions the validity of this Agreement or any of the
other Transaction Documents or the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Form 10-K, Form 10-Q or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets which would reasonably be expected to have a
Material Adverse Effect. Except as set forth in the Form 10-K, Form 10-Q or
Schedule 2.1(m) hereto, there are no outstanding orders, judgments, injunctions,
awards or decrees of any court, arbitrator or governmental or regulatory body
against the Company or any subsidiary or any officers or directors of the
Company or subsidiary in their capacities as such which would reasonably be
expected to have a Material Adverse Effect. The term "knowledge" as used in this
Article II shall mean the actual knowledge of Xxxxxx Xxxxxxx and Xxxxxx X.
Xxxxxx.
(n) Compliance with Law. The business of the Company and the subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Form 10-K, Form 10-Q, on Schedule 2.1(n) hereto or
such that, individually or in the aggregate, do not cause a Material Adverse
Effect. The Company and each of its subsidiaries have all franchises, permits,
licenses, consents and other governmental or regulatory authorizations and
approvals necessary for the conduct of its business as now being conducted by it
unless the failure to possess such franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
7
(o) Taxes. Except as set forth in the Form 10-K, Form 10-Q or on Schedule
2.1(o) hereto, the Company and each of the subsidiaries has accurately prepared
and filed all federal, state and other tax returns required by law to be filed
by it, has paid or made provisions for the payment of all taxes shown to be due
and all additional assessments, and adequate provisions have been and are
reflected in the financial statements of the Company and the subsidiaries for
all current taxes and other charges to which the Company or any subsidiary is
subject and which are not currently due and payable. Except as disclosed on
Schedule 2.1(o) hereto, none of the federal income tax returns of the Company or
any subsidiary have been audited by the Internal Revenue Service. The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any subsidiary for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth in this Agreement or on Schedule
2.1(p) hereto, no brokers, finders or financial advisory fees or commissions
will be payable by the Company or any subsidiary with respect to the
transactions contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. The Company and each of the subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in the Form 10-K, Form 10-Q
and on Schedule 2.1(r) hereto, and to the knowledge of the Company, all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Intentionally Omitted.
(t) Books and Record Internal Accounting Controls. The books and records of
the Company and its subsidiaries accurately reflect in all material respects the
information relating to the business of the Company and the subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
subsidiary. The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company, to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
8
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions is taken
with respect to any differences.
(u) Material Agreements. The Company and each of its subsidiaries has in
all material respects performed all the obligations required to be performed by
them to date under all of the contracts, instruments, agreements, commitments,
obligations, plans or arrangements that the Company would be required to file as
an exhibit to a registration statement on Form S-3 or applicable form
(collectively, "Material Agreements"), have received no notice of default and,
to the best of the Company's knowledge are not in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Company's Preferred Shares, other
Preferred Stock, if any, or its Common Stock (other than the Transaction
Documents, the Other Purchase Agreement and the Other Warrant).
(v) Transactions with Affiliates. Except as set forth in the Form 10-K,
Form 10-Q or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company or any subsidiary on the one
hand, and (b) on the other hand, any officer, employee, consultant or director
of the Company, or any of its subsidiaries, or to the knowledge of the Company,
any member of the immediate family of such officer, employee, consultant,
director or stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. Based in material part upon the representations
herein of the Purchasers, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Shares and the Warrants hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Shares, the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, or
has taken or will take any action so as to bring the issuance and sale of any of
the Shares and the Warrants under the registration provisions of the Securities
Act and applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Shares and the Warrants.
(x) Governmental Approvals. Except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a registration statement or statements pursuant
9
to the Registration Rights Agreement, and the filing of the Certificate of
Designation with the Secretary of State for the State of Delaware, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto. Except as
set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(y) hereto, neither the
Company nor any subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary. Since September 30, 2002,
other than Xxxxx X. Xxxxxxx, no officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.
(z) Absence of Certain Developments. Except as provided in the Form 10-K or
on Schedule 2.1(z) hereto, since December 31, 2002, neither the Company nor any
subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in the
ordinary course of business which are comparable in nature and amount to the
current liabilities incurred in the ordinary course of business during the
comparable portion of its prior fiscal year, as adjusted to reflect the current
nature and volume of the Company's or such subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current liabilities
paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock;
10
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of
business or to the Purchasers or their representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the loss
of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $100,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether or
not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would be material to the Company or its subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Preferred Shares
will be used by the Company for working capital and general corporate purposes.
(bb) Public Utility Holding Company Act and Investment Company Act Status.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon the Closing will not
11
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its subsidiaries
which is or would be materially adverse to the Company and its subsidiaries.
The execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not constitute a transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that
owns a beneficial interest in any of the Purchasers, is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a "party in interest" (within the meaning of Section 3(14)
of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(cc), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.
(dd) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares
and the Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with this Agreement and the Certificate of Designation and its obligations to
issue the Warrant Shares upon the exercise of the Warrants in accordance with
this Agreement and the Warrants, is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.
(ee) Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The decision of each Purchaser to
purchase Shares pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company further
acknowledges that nothing contained herein, or in any Transaction Document, and
no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
12
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
(ff) Form S-3 Eligibility. The Company meets the requirements for the use
of Form S-3 under the Securities Act to register for re-sale the shares of
Common Stock pursuant to the Registration Rights Agreement.
Section 2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers severally and not jointly hereby makes the following representations
and warranties to the Company with respect solely to itself and not with respect
to any other Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform this Agreement and to purchase the Preferred
Shares and Warrants being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Purchaser or its Board
of Directors, stockholders, or partners, as the case may be, is required. Each
of this Agreement and the Registration Rights Agreement has been duly
authorized, executed and delivered by such Purchaser and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with the terms
thereof.
(c) No Conflicts. The execution, delivery and performance of this Agreement
and the Registration Rights Agreement and the consummation by such Purchaser of
the transactions contemplated hereby and thereby or relating hereto do not and
will not (i) result in a violation of such Purchaser's charter documents or
bylaws 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 such Purchaser is a party, or result
in a violation of any law, rule, or regulation, or any order, judgment or decree
of any court or governmental agency applicable to such Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Purchaser). Such Purchaser is not required to obtain any consent, authorization
13
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or the Registration Rights Agreement or to purchase the
Preferred Shares or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Purchaser is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(d) Acquisition for Investment. Such Purchaser is acquiring the Preferred
Shares and the Warrants solely for its own account for the purpose of
investment and not with a view to or for sale in connection with distribution.
Such Purchaser does not have a present intention to sell the Preferred Shares or
the Warrants, nor a present arrangement (whether or not legally binding) or
intention to effect any distribution of the Preferred Shares or the Warrants to
or through any person or entity; provided, however, that by making the
representations herein and subject to Section 2.2(f) below, such Purchaser does
not agree to hold the Shares or the Warrants for any minimum or other specific
term and reserves the right to dispose of the Shares or the Warrants at any time
in accordance with Federal and state securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Warrants and
that it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation.
(e) Status of Purchasers. Such Purchaser is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act. Such Purchaser is
not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(f) Opportunities for Additional Information. Each Purchaser acknowledges
that such Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of such Purchaser's personal knowledge of
the Company's affairs, such Purchaser has asked such questions and received
answers to the full satisfaction of such Purchaser, and such Purchaser desires
to invest in the Company.
(g) No General Solicitation. Each Purchaser acknowledges that the
securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(h) Rule 144. Such Purchaser understands that the Shares must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Such Purchaser acknowledges that
14
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain limited circumstances. Such Purchaser understands that to the extent
that Rule 144 is not available, such Purchaser will be unable to sell any Shares
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(i) General. Such Purchaser understands that the Shares are being offered
and sold in reliance on a transactional exemption from the registration
requirement of Federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Shares.
(j) Independent Investment. No Purchaser has agreed to act with any other
Purchaser for the purpose of acquiring, holding, voting or disposing of the
Shares purchased hereunder for purposes of Section 13(d) under the Exchange Act,
and each Purchaser is acting independently with respect to its investment in the
Shares. (k) Compliance with Securities Laws. Each of the Purchasers have not
engaged in any securities transaction, derivative or otherwise, involving the
Company's securities that is not in compliance with U.S. securities laws.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).
Section 3.1 Securities Compliance.
(a) The Company shall notify the Commission in accordance with their rules
and regulations, of the transactions contemplated by any of the Transaction
Documents, including filing a Form D with respect to the Preferred Shares,
Warrants, Conversion Shares and Warrant Shares as required under Regulation D,
and shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares to the Purchasers or subsequent holders.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
15
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
(c) The Company covenants and agrees that at no time may a Purchaser of the
Preferred Shares and Warrants convert such Preferred Shares or Warrants if the
number of Conversion Shares to be issued pursuant to such conversion or the
number of Warrant Shares to be issued pursuant to such exercise would exceed,
when aggregated with all other shares of Common Stock owned by such Purchaser at
such time, the number of shares of Common Stock which would result in such
Purchaser owning more than 4.99% of all of the Common Stock outstanding at such
time; provided, however, that upon a Purchaser providing the Company with
sixty-one (61) days notice (the "Waiver Notice") that such Purchaser would like
to waive this provision with regard to any or all shares of Common Stock
issuable upon conversion of the Preferred Shares or exercise of the Warrants,
this provision shall be of no force or effect with regard to those Preferred
Shares or Warrants referenced in the Waiver Notice. The Company's compliance
with, and obligations under, this Section 3.1(c) are based solely upon
information provided to the Company by the applicable Purchaser.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Nasdaq National Market, or if such listing is
no longer available, on the Nasdaq SmallCap Market, over-the-counter electronic
bulletin board or another securities exchange, quotation system or market.
Section 3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section 3.4 Compliance with Laws. The Company shall comply, and cause each
subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall keep
and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
16
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6 Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then at a
Purchaser's request the Company shall furnish the following to such Purchaser so
long as such Purchaser shall be obligated hereunder to purchase the Preferred
Shares or shall beneficially own any Preferred Shares, or shall own Conversion
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7 Intentionally Omitted.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document or the Certificate of Designation.
Section 3.9 Intentionally Omitted.
Section 3.10 Intentionally Omitted.
Section 3.11 Intentionally Omitted.
Section 3.12 Future Financings; Right of First Offer and Refusal. (a) For
purposes of this Agreement, a "Subsequent Financing" shall be defined as any
subsequent offer or sale to, or exchange with (or other type of distribution
to), any third party of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including convertible debt securities
(collectively, the "Financing Securities") other than a Permitted Financing (as
defined hereinafter). For purposes of this Agreement, "Permitted Financing"
shall mean any transaction involving (i) the Company's issuance of any Financing
Securities in connection with a merger and/or acquisition, strategic alliance,
joint venture, consolidation, sale or disposition of all or substantially all of
the Company's assets, (ii) the Company's issuance of Financing Securities in
connection with underwritten public offerings of its securities, (iii) the
17
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock to eligible officers, employees or directors of, or
consultants to, the Company, pursuant to the Company's stock option plans and
employee stock purchase plans as they now exist or the issuance of Common Stock
or the issuance or grants of options to purchase Common Stock pursuant to
amendments to existing stock incentive or employee stock purchase plans or new
stock incentive or employee stock purchase plans adopted after the date of this
Agreement which are approved by the Board of Directors so long as such issuances
in the aggregate do not exceed (A) 2,500,000 shares of Common Stock for a period
of one year following the Closing Date and (B) 2,500,000 shares of Common Stock
for the subsequent one year period, (iv) any transaction where the first use of
proceeds from such transaction would be used to redeem all of the Preferred
Shares in accordance with Section 8(i) of the Certificate of Designation, (v)
the exercise of options or warrants or conversion of convertible notes,
heretofore granted or issued, (vi) Preferred Shares or Warrants issued by the
Company pursuant to this Agreement, or Common Stock issued upon conversion or
exercise thereof, (vii) Other Preferred Shares or the Other Warrant issued by
the Company pursuant to the Other Purchase Agreement, or Common Stock issued
upon conversion or exercise thereof, (viii) Financing Securities issued as a
stock dividend or upon any stock split, recapitalization or other subdivision or
combination of Common Stock, (ix) any warrants issued to X.X. Xxxxxxxxxx & Co.,
Inc. as placement agent for the transactions contemplated by this Agreement and
the Other Purchase Agreement and the shares of Common Stock issued upon exercise
thereof, (x) the Company's issuance of Financing Securities in connection with
raising capital for WaveXpress, Inc. and SignOnLine, or (xi) the Company's
issuance of Financing Securities to consultants for professional services so
long as such issuances in the aggregate do not exceed one percent (1%) of the
Company's issued and outstanding shares of Common Stock as of the date hereof.
(b) During the period commencing on the Closing Date and ending on the
first (1st) anniversary of the Closing Date, the Company covenants and agrees to
promptly notify (in no event later than five (5) days after making or receiving
an applicable offer) in writing (a "Rights Notice") the Purchasers of the terms
and conditions of any proposed Subsequent Financing. The Rights Notice shall
describe, in reasonable detail, the proposed Subsequent Financing, the proposed
closing date of the Subsequent Financing, which shall be within sixty (60)
calendar days from the date of the Rights Notice, including, without limitation,
all of the terms and conditions thereof. The Rights Notice shall provide the
Purchasers an option (the "Rights Option") during the ten (10) trading days
following delivery of the Rights Notice (the "Option Period") to inform the
Company in writing whether the Purchasers will purchase all or part of the
securities being offered in such Subsequent Financing on the same terms and
conditions as contemplated by such Subsequent Financing (the "First Refusal
Rights"). Each Purchaser will be entitled to purchase up to its pro rata share
of the securities being offered in such Subsequent Financing. Delivery of any
Rights Notice constitutes a representation and warranty by the Company that
there are no other material terms and conditions, arrangements, agreements or
otherwise except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, additional compensation based on changes in the
18
purchase price or any type of reset or adjustment of a purchase or conversion
price or to issue additional securities at any time after the closing date of a
Subsequent Financing. If the Company does not receive written notice of exercise
of the Rights Option from the Purchasers within the Option Period, the Company
shall have the right to close the Subsequent Financing on the scheduled closing
date (or within thirty (30) days following such date) with a third party;
provided that all of the material terms and conditions of the closing are the
same as those provided to the Purchasers in the Rights Notice. If the closing of
the proposed Subsequent Financing does not occur on that date or within thirty
(30) days following such date, any closing of the contemplated Subsequent
Financing or any other Subsequent Financing shall be subject to all of the
provisions of this Section 3.12, including, without limitation, the delivery of
a new Rights Notice. The provisions of this Section 3.12(b) shall not apply to
issuances of Financing Securities in a Permitted Financing. For purposes of this
Section, all references to "pro rata" means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the total number of Preferred Shares purchased by such Purchaser at the
Closing by (y) the total number of Preferred Shares purchased by all of the
participating Purchasers at the Closing plus the total number of Other Preferred
Shares purchased by the Other Purchaser, if participating, at the closing under
the Other Purchase Agreement.
(c) During the period commencing on the Closing Date and ending on the
second (2nd) anniversary of the Closing Date, if the Company enters into any
Subsequent Financing on terms more favorable than the terms governing the
Preferred Shares and the Warrants, then any Purchaser in its sole discretion
may exchange all of the Preferred Shares (and all of the Warrants) purchased by
such Purchaser at the Closing, valued at the Liquidation Preference Amount (as
defined in the Certificate of Designation), together with accrued but unpaid
dividends (which dividends shall be payable in the form of the new
securities to be issued in the Subsequent Financing) for the securities issued
or to be issued in the Subsequent Financing. The closing of the exchange
pursuant to this Section 3.12(c) shall take place on the date of the closing of
such Subsequent Financing. If any Purchaser elects to exchange all of the
Preferred Shares (and all of the Warrants) in accordance with this Section
3.12(c), such Purchaser shall receive securities to be issued in the Subsequent
Financing with a purchase price equal to the Liquidation Preference Amount plus
all accrued but unpaid dividends. The Company covenants and agrees to promptly
notify in writing the Purchasers of the terms and conditions of any such
proposed Subsequent Financing. The Purchasers shall have ten (10) trading days
after a notice of Subsequent Financing to elect to exchange its securities under
this Section 3.12(c) by written notice to the Company.
Section 3.13 Reservation of Shares. So long as any of the Preferred Shares
or Warrants remain outstanding, the Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than 120% of the aggregate number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
19
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in the form of
Exhibit E attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 6.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 6.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form and reasonably satisfactory to the Company, to the
effect that a public sale, assignment or transfer of the Shares may be made
without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Shares can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of
a particular date that can then be immediately sold, the Company shall permit
the transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.14 will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other
security being required.
Section 3.15 Disposition of Assets. So long as the Preferred Shares remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including,
without limitation, its software and intellectual property, to any person
without the prior written consent of the holders of a majority of the
Preferred Shares then outstanding except for (i) sales to customers in the
ordinary course of business, (ii) sales of stock, properties, assets and rights,
including, without limitation, the software and intellectual property of
WaveXpress, Inc., or (iii) sales of properties, assets and rights including,
without limitation, the software and intellectual property of SignOnLine.
Section 3.16 Stockholder Approval. The Company covenants and agrees to
solicit in its Proxy Statement and Notice of Annual Meeting stockholder approval
(the "Stockholder Approval") to authorize: (1) the issuance of shares of Common
Stock upon conversion of the Preferred Shares, the exercise of the Warrants, the
exercise of the warrant issued to the Company's placement agent (the "Placement
Agent Warrant"), the conversion of the Other Preferred Shares, and the exercise
of the Other Warrant in connection with this Agreement and the Other Purchase
20
Agreement, as applicable, in excess of 19.99% of the number of shares of Common
Stock outstanding immediately prior to the date hereof (the "Cap Amount"), and
(2) an amendment to its Certificate increasing the number of authorized shares
of Common Stock from 75,000,000 to 100,000,000 (the "Charter Amendment"). The
number of shares of Common Stock equal to (i) the Cap Amount minus (ii) the
number of shares of Common Stock issuable upon exercise of the Placement Agent
Warrant as of the Closing Date, is referred to herein as the "Issuable Maximum".
Each Purchaser's and the Other Purchaser's pro rata portion of the Issuable
Maximum based upon the number of shares of Common Stock issuable upon conversion
or exercise of all Preferred Shares and Warrants issued and sold at the Closing
and upon conversion or exercise of all the Other Preferred Shares and the Other
Warrant issued and sold at the closing under the Other Purchase Agreement is set
forth on Schedule 3.16 hereto (as proportionately adjusted for stock splits,
reverse stock splits and stock combinations, the "Pro Rata Maximum"). The
Company shall file its Preliminary Proxy Statement no later than five (5) days
following the date that the Company has been advised by the Commission that the
Form 10-K is no longer under review. The Company shall use its reasonable best
efforts to hold its 2003 Annual Stockholder's Meeting (the "Annual Meeting") no
later than July 15, 2003 (the "Annual Meeting Date"); provided, however, that
the Annual Meeting Date shall be extended in the event that the Commission
provides comments to the Company's Preliminary Proxy Statement or other
Commission Documents in connection with the Commission's review of the
Preliminary Proxy Statement that causes a delay in soliciting the Stockholder
Approval and holding the Annual Meeting by July 15, 2003. The Annual Meeting
Date shall be extended for only such time that is reasonably necessary for the
Company to obtain the approval of the Commission to proceed with soliciting the
Stockholder Approval and holding the Annual Meeting, but in no event later than
August 15, 2003. If Stockholder Approval is not obtained with respect to
subclause (1) of the first sentence above by August 15, 2003, each Purchaser and
the Other Purchaser shall have the option to cause the Company to redeem
Preferred Shares or Other Preferred Shares and a portion of the Warrant or the
Other Warrant of such Purchaser or the Other Purchaser, as the case may be
(referred to herein as such Purchaser's or the Other Purchaser's "Excess
Redemption Securities"), that, as of the Closing, were convertible or
exercisable into the number of shares of Common Stock that was in excess of such
Purchaser's or the Other Purchaser's Pro Rata Maximum (such Purchaser's or the
Other Purchaser's "Excess Conversion Shares"). The portion of the Warrant or the
Other Warrant included in such Purchaser's or the Other Purchaser's Excess
Redemption Securities represents 1/3 of such Purchaser's or the Other
Purchaser's Excess Conversion Shares being redeemed. The redemption price for
the Excess Redemption Securities for any Purchaser or the Other Purchaser shall
be equal to the greater of (a) the Liquidation Preference Amount (as defined in
the Certificate of Designation) of the Preferred Shares or Other Preferred
Shares included in the Excess Redemption Securities for such Purchaser or the
Other Purchaser plus accrued and unpaid dividends thereon and (b) the amount
equal to the product of (i) the quotient of (A) the Liquidation Preference
Amount of the Preferred Shares and the Other Preferred Shares included in the
Excess Redemption Securities for such Purchaser or the Other Purchaser plus
accrued and unpaid dividends thereon divided by (B) the Conversion Price (as
defined in the Certificate of Designation) multiplied by (ii) the average of the
21
closing price of the Common Stock for the ten (10) trading days immediately
preceding the date of such redemption, and shall be payable upon surrender to
the Company by such Purchaser or the Other Purchaser of the certificates,
Warrants or the Other Warrant representing such Purchaser's or the Other
Purchaser's Excess Redemption Securities. No Purchaser shall be entitled to
cause the Company to redeem any of its Excess Redemption Securities under this
Section 3.16 unless the Company shall have received written notice of such
Purchaser's election to require such redemption within 30 days following the
Annual Meeting. With respect to the Stockholder Approval required to be obtained
to file the Charter Amendment pursuant to subclause (2) above, the Company shall
file the Charter Amendment within one business day of receipt of such
Stockholder Approval.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell
the Shares. The obligation hereunder of the Company to issue and sell the
Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(a) Accuracy of Each Purchaser's Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered or promulgated by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Preferred Shares
and Warrants has been delivered to the Company at the Closing Date. (e) Delivery
of Transaction Documents. The Transaction Documents have been duly executed and
delivered by the Purchasers to the Company.
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Shares. The obligation hereunder of each Purchaser to acquire and
22
pay for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that are expressly
made as of a particular date), which shall be true and correct in all material
respects as of such date.
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.
(c) No Suspension, Etc. From the date hereof to the Closing Date, trading
in the Company's Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity or crisis
of such magnitude in its effect on, or any material adverse change in any
financial market which, in each case, in the judgment of such Purchaser, makes
it impracticable or inadvisable to purchase the Preferred Shares.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered or promulgated by any
court or governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Certificate of Designation of Rights and Preferences. Prior to the
Closing, the Certificate of Designation in the form of Exhibit C attached hereto
shall have been filed with the Secretary of State of Delaware.
23
(g) Opinion of Counsel, Etc. At the Closing, the Purchasers shall have
received an opinion of counsel to the Company, dated the date of the Closing, in
the form of Exhibit F hereto, and such other certificates and documents as the
Purchasers or its counsel shall reasonably require incident to the Closing.
(h) Registration Rights Agreement. At the Closing, the Company shall have
executed and delivered the Registration Rights Agreement to each Purchaser.
(i) Certificates. The Company shall have executed and delivered to the
Purchasers the certificates (in such denominations as such Purchaser shall
request) for the Preferred Shares and Warrants being acquired by such Purchaser
at the Closing.
(j) Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) above in a form reasonably acceptable
to such Purchaser (the "Resolutions").
(k) Reservation of Shares. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the Other Preferred
Shares and the exercise of the Warrants and the Other Warrant, a number of
shares of Common Stock equal to at least 120% of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares and the Other
Preferred Shares outstanding on the Closing Date and the number of Warrant
Shares issuable upon exercise of the number of Warrants and the Other Warrant
assuming such Warrants and the Other Warrant were granted on the Closing Date
(assuming all such Preferred Shares and Other Preferred Shares and Warrants and
the Other Warrant were fully convertible or exercisable on such date regardless
of any limitation on the timing or amount of such conversions or exercises).
(l) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(m) Secretary's Certificate. The Company shall have delivered to such
Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.
(n) Officer's Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of the Closing Date and confirming the compliance by
24
the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.
(o) Material Adverse Effect. No Material Adverse Effect shall have occurred
at or before the Closing Date.
ARTICLE V
Intentionally Omitted
ARTICLE VI
Stock Certificate Legend
Section 6.1 Legend. Each certificate representing the Preferred Shares and
the Warrants, and, if appropriate, securities issued upon conversion thereof,
shall be stamped or otherwise imprinted with a legend substantially in the
following form (in addition to any legend required by applicable state
securities or "blue sky" laws):
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS OR WAVE SYSTEMS CORP.
SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION
OF SUCH SECURITIES UNDER THE SECURITIES AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing the Shares without
the legend set forth above if at such time, prior to making any transfer
of any Shares or Shares, such holder thereof shall give written notice to the
Company describing the manner and terms of such transfer and removal as the
Company may reasonably request, and (x) the Shares have been registered for sale
under the Securities Act and the holder is selling such shares and is complying
with its prospectus delivery requirement under the Securities Act, (y) the
holder is selling such Shares in compliance with the provisions of Rule 144 or
(z) the provisions of paragraph (k) of Rule 144 apply to such Shares.
ARTICLE VII
Intentionally Omitted.
25
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers and any finder (and their respective directors,
officers, affiliates, agents, successors and assigns) from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys' fees, charges and disbursements)
incurred by the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article 8 shall not exceed the portion of
the Purchase Price paid by such Purchaser hereunder.
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
\the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out
of the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party
and shall furnish to the indemnifying party all information reasonably available
26
to the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of
any judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not
entitled to indemnification. The indemnity agreements contained herein shall be
in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE IX
Miscellaneous
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designation,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, delivery and performance
of this Agreement, provided that the Company shall pay, (i) at the Closing all
actual attorneys' fees and expenses of one counsel for the Purchasers and the
Other Purchaser incurred by the Purchasers and the Other Purchaser up to
$40,000 (exclusive of disbursements and out-of-pocket expenses) in connection
with the preparation, negotiation, execution and delivery of this Agreement,
the Registration Rights Agreement, the Other Purchase Agreement and the
transactions contemplated hereunder and thereunder, and (ii) the costs of any
amendments, modifications or waivers of this Agreement or any of the other
Transaction Documents. In addition, the Company shall pay all reasonable fees
and expenses incurred by the Purchasers in connection with the enforcement of
this Agreement or any of the other Transaction Documents, including, without
limitation, all reasonable attorneys' fees and expenses. The Company shall pay
all stamp or other similar taxes and duties levied in connection with issuance
of the Preferred Shares pursuant hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement,
27
the Certificate of Designation or the Registration Rights Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or
the Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby irrevocably submits
to the jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
county for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 9.2
shall affect or limit any right to serve process in any other manner permitted
by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the entire
understanding of the parties with respect to the matters covered hereby and,
except as specifically set forth herein or in the Transaction Documents, neither
the Company nor any of the Purchasers makes any representations, warranty,
covenant or undertaking with respect to such matters and they supersede all
prior understandings and agreements with respect to said subject matter, all of
which are merged herein. No provision of this Agreement may be waived or amended
other than by a written instrument signed by the Company and the holders of at
least three-fourths (3/4) of the Preferred Shares then outstanding, and no
provision hereof may be waived other than by an a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Shares then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
28
received), telecopy or facsimile 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
Attention: Xxxxxx Xxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
with copies to: Xxxxxxx XxXxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
Tel. No.: (000) 000-0000
Fax No.: (000) 000-0000
If to any Purchaser: At the address of such Purchaser
set forth on Exhibit A to this
Agreement, with copies to
Purchaser's counsel as set
forth on Exhibit A or as
specified in writing by such
Purchaser with copies to:
Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxxxx X. Xxxxxxx
Tel No.: (000) 000-0000
Fax No.: (000) 000-0000
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party 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 provisions,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
29
Section 9.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 9.10 Survival. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1(o) and (s) should survive
indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and the
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, VIII and IX of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (determined in accordance with
Rule 13d-3 under the Exchange Act) less than 2% of the total combined voting
power of all voting securities then outstanding, provided, that Sections 3.1,
3.2, 3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.12, 3.13 and 3.14 shall not expire until
the Registration Statement required by Section 2 of the Registration Rights
Agreement is no longer required to be effective under the terms and conditions
of Registration Rights Agreement.
Section 9.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.
Section 9.12 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designation and the Registration Rights Agreement are severable
30
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designation or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designation or the Registration Rights Agreement shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instrument, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Preferred
Shares, the Conversion Shares, the Warrants, the Warrant Shares, the Certificate
of Designation, and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officer as of the date first above
written.
WAVE SYSTEMS CORP.
By:_____________________________________
Name:
Title:
PURCHASER
By:______________________________________
Name:
Title:
PURCHASER
By:______________________________________
Name:
Title
PURCHASER
By:______________________________________
Name:
Title:
32
EXHIBIT A to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
EXHIBIT B to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
FORM OF WARRANT
EXHIBIT C to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT D to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
WAVE SYSTEMS CORP.
as of April 30, 2003
[Name and address of Transfer Agent]
Attn: _____________
Ladies and Gentlemen:
Reference is made to that certain Series H Convertible Preferred Stock
Purchase Agreement, dated as of April 30, 2003, by and among Wave Systems Corp.,
a Delaware corporation (the "Company"), and the purchasers named therein
(collectively, the "Purchasers") pursuant to which the Company is issuing to the
Purchasers shares of its Series H Convertible Preferred Stock, par value $.01
per share, (the "Preferred Shares") and warrants (the "Warrants") to purchase
shares of the Company's common stock, par value $.01 per share (the "Common
Stock") Warrants in connection with the sale and issuance of Preferred Shares
and Warrants to the Purchasers. This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of the
Preferred Shares (the "Conversion Shares") and exercise of the Warrants (the
"Warrant Shares") to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Preferred
Shares, a copy of the certificates (with the original certificates delivered to
the Company) representing Preferred Shares being converted or, in the case of
Warrants being exercised, a copy of the Warrants (with the original Warrants
delivered to the Company) being exercised (or, in each case, an indemnification
undertaking with respect to such share certificates or the warrants in the case
of their loss, theft or destruction), and (iii) delivery of a treasury order or
other appropriate order duly executed by a duly authorized officer of the
Company. So long as you have previously received (x) written confirmation from
counsel to the Company that a registration statement covering resales of the
Conversion Shares or Warrant Shares, as applicable, has been declared effective
by the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act"), and no subsequent notice by the Company or
its counsel of the suspension or termination of its effectiveness and (y) a copy
of such registration statement, and if the Purchaser represents in writing that
the Conversion Shares or the Warrant Shares, as the case may be, were sold
pursuant to the Registration Statement, then certificates representing the
Conversion Shares and the Warrant Shares, as the case may be, shall not bear any
legend restricting transfer of the Conversion Shares and the Warrant Shares, as
the case may be, thereby and should not be subject to any stop-transfer
restriction. Provided, however, that if you have not previously received (i)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS, OR WAVE SYSTEMS CORP. SHALL HAVE RECEIVED AN
OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES
UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as
an inducement to enter into the Securities Purchase Agreement and, accordingly,
each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
WAVE SYSTEMS CORP.
By:_______________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:____________________________________
Name:
Title:
Date:_________________________________
EXHIBIT I
WAVE SYSTEMS CORP.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series H Preferred Stock of Wave Systems Corp. (the
"Certificate of Designation"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series H Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of Wave Systems Corp., a Delaware corporation (the "Company"),
indicated below into shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Preferred Shares specified below as of the date
specified below.
Date of Conversion:____________________________
Number of Preferred Shares to be converted:____________________________
Stock certificate no(s). of Preferred Shares to be converted:__________
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement):
YES ____ NO____
Please confirm the following information:
Conversion Price:_________________________________
Number of shares of Common Stock
to be issued: _____________________________________
Number of shares of Common Stock beneficially owned or deemed
beneficially owned by the Holder on the Date of Conversion determined in
accordance with Section 16 of the Securities Exchange Act of 1934, as
amended: _________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:__________________________________________
Facsimile Number:__________________________________
Authorization: ____________________________________
By:_________________________________
Title:______________________________
Dated:_____________________________________________
PRICES ATTACHED
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
WAVE SYSTEMS CORP.
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Wave Systems
Corp. covered by the within Warrant.
Dated:__________________ Signature___________________________________
Address_____________________________
_____________________________
Number of shares of Common Stock beneficially owned or deemed beneficially
owned by the Holder on the date of Exercise determined in accordance with
Section 16 of the Securities Exchange Act of 1934, as amended: _________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated:__________________ Signature___________________________________
Address_____________________________
_____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers
unto __________________ the right to purchase _________ shares of Warrant
Stock evidenced by the within Warrant together with all rights therein, and
does irrevocably constitute and appoint ___________________, attorney, to
transfer that part of the said Warrant on the books of the within named
corporation.
Dated:_________________ Signature____________________________________
Address_____________________________
_____________________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name
of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock
in the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: Wave Systems Corp.
Ladies and Gentlemen:
We are counsel to Wave Systems Corp., a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Series H Convertible Preferred Stock Purchase Agreement (the "Purchase
Agreement"), dated as of April 30, 2003, by and among the Company and the
purchasers named therein (collectively, the "Purchasers") pursuant to which the
Company issued to the Purchasers shares of its Series H Convertible Preferred
Stock, par value $.01 per share, (the "Preferred Shares") and warrants (the
"Warrants") to purchase shares of the Company's common stock, par value $.01 per
share (the "Common Stock"). Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the
"Registration Rights Agreement"), dated as of April 30, 2003, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Preferred Shares and exercise of
the Warrants, under the Securities Act of 1933, as amended (the "1933 Act"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ________________, 2003, the Company filed a Registration Statement
on Form S-3 (File No. 333-________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the resale of the
Registrable Securities which names each of the present Purchasers as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:_____________________________________
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT F to the
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
WAVE SYSTEMS CORP.
FORM OF OPINION OF COUNSEL
1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on its
business as presently conducted. The company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary.
2. The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants are
not subject to any preemptive rights under the Certificate of Incorporation or
the Bylaws.
3. The Preferred Stock and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants,
have been duly authorized and reserved for issuance, and, when delivered upon
conversion or against payment in full as provided in the Certificate of
Designation and the Warrants, as applicable, will be validly issued, fully paid
and nonassessable.
4. The execution, delivery and performance of and compliance with the terms of
the Transaction Documents and the issuance of the Preferred Stock, the Warrants
and the Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants do not (i) violate any provision of the Certificate of
Incorporation or Bylaws, (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 material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) (a) result in a violation of
any federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clause (i) above, for such conflicts, default, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution and delivery of the Transaction Documents, or the offer, sale or
issuance of the Preferred Stock, the Warrants or the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants other than the
Certificate of Designation and the Registration Statement.
6. There is no action, suit, claim, investigation or proceeding pending or
threatened against the Company which questions the validity of this Agreement or
the transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending, or to our knowledge, threatened, against or involving the Company or
any of its properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Preferred Stock and the Warrants and the
offer, issuance and sale of the shares of Common Stock issuable upon conversion
of the Preferred Stock and exercise of the Warrants pursuant to the Purchase
Agreement, the Certificate of Designation and the Warrants, as applicable, are
exempt from the registration requirements of the Securities Act.
8. The Company is not, and as a result of and immediately upon Closing will not
be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
Very truly yours,
