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Exhibit 4.1
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
December 27, 1996 (this "Agreement"), by and among Wave Systems Corp., a
Delaware corporation (the "Company"), and JNC Opportunity Fund Ltd., a
corporation organized and existing under the laws of the Cayman Islands (the
"Purchaser").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the Company's Series C
Convertible Preferred Stock, par value $.01 per share (the "Preferred Stock").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
I
CERTAIN DEFINITIONS
1. Certain Definitions. As used in this Agreement, unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Delaware are authorized or required by law or other government actions
to close.
"Closing" shall have the meaning set forth in Section 2.1(b).
"Closing Date" shall have the meaning set forth in Section
2.1(b).
"Certificate of Designation" shall have the meaning set forth
in Section 2.1(a).
"Class A Common Stock" means the Company's Class A Common
Stock, par value $.01 per share.
"Class B Common Stock" means the Company's Class B Common
Stock, par value $.01 per share.
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"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, collectively, the Class A Common Stock,
Class B Common Stock, any stock into which such shares may hereafter be
reclassified, and any other class of equity securities of the Company hereafter
designated as Common Stock.
"Disclosure Materials" means, collectively, the SEC Documents
and the Schedules to this Agreement furnished by or on behalf of the Company
pursuant to Section 3.1.
"Escrow Agent" means Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP.
"Escrow Agreement" means the escrow agreement, dated as of the
date hereof, by and between the Company, the Purchaser and the Escrow Agent,
substantially in the form of Exhibit E, as the same may be amended, supplemented
or otherwise modified in accordance with its terms.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, right of first refusal, charge or security interest of any
kind in or on such asset or the revenues or income thereon or therefrom.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.1(a).
"Original Issue Date" shall mean the first issuance of any
Shares, regardless of the number of transfers of any particular Share and
regardless of the number of certificates which may be issued to evidence any
particular Share.
"Per Share Market Value" shall have the meaning set forth in
the Certificate of Designation.
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Preferred Stock" shall have the meaning set forth in the
recitals hereto.
"Purchase Price" shall have the meaning set forth in Section
2.1(a).
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"Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof, by and between the Company and the
Purchaser, substantially in the form of Exhibit B, as the same may be amended,
supplemented or otherwise modified in accordance with its terms.
"SEC Documents" shall have the meaning set forth in Section
3.1(l).
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Securities" shall have the meaning set forth in
Section 3.1(m).
"September Quarterly Report" shall have the meaning set forth
in Section 3.1(e).
"Shares" means the shares of Preferred Stock to be purchased
by the Purchaser pursuant to this Agreement.
"Subsequent Financing Notice" shall have the meaning set forth
in Section 4.12.
"Subsequent Sale" shall have the meaning set forth in Section
4.12.
"Subsidiaries" shall have the meaning set forth in Section
3.1(a).
"Trading Day" shall have the meaning set forth in the
Certificate of Designation.
"Transaction Documents" shall have the meaning set forth in
Section 3.1(b).
"Underlying Shares" means the shares of Class A Common Stock
issuable upon conversion of Shares in accordance with the terms hereof and the
Certificate of Designation.
"Underlying Shares Registration Statement" shall have the
meaning set forth in Section 3.1(f).
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II
PURCHASE OF SHARES
1. Purchase of Shares; Closing.
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 150,000 Shares, which shall have the
respective rights, preferences and privileges set forth in Exhibit A (the
"Certificate of Designation"), at a price per Share of $20. The "Purchase Price"
for the Shares is $3,000,000.
(b) The closing of the purchase and sale of the Shares (the
"Closing") shall take place at the offices of the Escrow Agent, 0000 Xxxxxx xx
xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, immediately following the execution
hereof, or at such other time and/or place as the Purchaser and the Company may
agree, but not until the conditions listed in Article V have been satisfied or
waived by the appropriate party. The date of the Closing is referred to herein
as the "Closing Date".
(c) At the Closing, the Escrow Agent, in accordance with and
subject to the terms and conditions of the Escrow Agreement, shall, pursuant to
instructions delivered with respect thereto by the Company and the Purchaser,
deliver (i) to the Purchaser one or more stock certificates representing the
Shares purchased hereunder, registered in the name of the Purchaser, (ii) to the
Company the Purchase Price, less the legal fees and disbursements contemplated
in Section 7.1, in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company prior to the Closing
and (iii) to the party entitled thereto, all documents, instruments and writings
required to have been delivered at or prior to Closing by either the Company or
the Purchaser pursuant to this Agreement.
III
REPRESENTATIONS AND WARRANTIES
1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no material subsidiaries other
than as set forth in the SEC Documents (collectively, the "Subsidiaries").
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Each of the Subsidiaries is a corporation, duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with the full corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, have a material adverse effect on
the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and by the Registration Rights Agreement, the Escrow
Agreement and Certificate of Designation (collectively with this Agreement, the
"Transaction Documents") and to otherwise carry out its obligations hereunder
and thereunder. The execution and delivery of each of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each of the Transaction Documents has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, bylaws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in Schedule 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares hereunder, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as disclosed in the Disclosure Materials, no Person beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Exchange Act)
or has the right to acquire by agreement with the Company in excess of 5% of the
Common Stock.
(d) Issuance of Shares and Underlying Shares. The Shares are
duly authorized and, when paid for in accordance with the terms hereof, shall be
validly issued,
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fully paid and nonassessable, free and clear of any Liens. The Company has and
at all times while the Shares are outstanding will maintain a reserve of shares
of Common Stock to enable it to perform its conversion and other obligations
under this Agreement and the Certificate of Designation, which reserve shall be
no less than 3,000,000 shares of Class A Common Stock issuable hereunder and
pursuant to the terms of the Certificate of Designation. When issued in
accordance with the terms hereof and the Certificate of Designation, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation or bylaws (each as
amended through the date hereof) or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or (iii) to the knowledge of the Company result in a violation of any
law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or govern mental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which any
property or asset of the Company is bound or affected, except in the case of
each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could not,
individually or in the aggregate, (x) adversely affect the legality, validity or
enforceability of any of the Transaction Documents, (y) have a Material Adverse
Effect or (z) adversely impair the Company's ability to perform fully on a
timely basis its obligations under the Transaction Documents. The business of
the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any court or other Federal, state,
local or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
except for (i) the filing of the Certificate of Designation with respect to the
Shares with the Secretary of State of Delaware, which filing shall be effected
on or prior to the Closing Date, (ii) the filing of the registration statement
covering the Underlying Shares (the "Underlying Shares Registration Statement")
with the Commission and the making of the applicable blue-sky filings under
state securities laws, each as contemplated by the Registration Rights
Agreement, and (iii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of any of the Transaction Documents, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under the Transaction Documents.
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(g) Litigation; Proceedings. Other than as specifically set
forth in the letter, dated November 26, 1996, from the Nasdaq National Market to
the Company, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or foreign) which
(i) relates to or chal lenges the legality, validity or enforceability of the
Transaction Documents, Shares or Underlying Shares, (ii) could, individually or
in the aggregate, have a Material Adverse Effect or (iii) could, individually or
in the aggregate, adversely impair the Company's ability to perform fully on a
timely basis its obligations under the Transaction Documents.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, (ii) is in violation of any order
of any court, arbitrator or governmental body, or (iii) is in violation of any
statute, rule or regulation of any governmental authority, except as could not,
in any case of (i) above, individually or in the aggregate, (x) adversely affect
the legality, validity or enforceability of any of the Transaction Documents,
(y) have a Material Adverse Effect or (z) adversely impair the Company's ability
to perform fully on a timely basis its obligations under the Transaction
Documents.
(i) Certain Fees. Except for fees payable by the Company to
Xxxxxxx Capital Partners, Ltd. and to the Shemano Group, Inc., no fees or
commissions will be payable by the Company to any broker, finder, investment
banker or bank with respect to the consummation of the transactions contemplated
hereby. The Purchaser shall have no obligation with respect to such fees or with
respect to any claims made by other Persons for fees due in connection with this
transaction.
(j) Disclosure Materials. The Disclosure Materials (other than
the SEC Documents) do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(k) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Shares under the Securities Act) which might subject the offering, issuance or
sale of the Shares to the registration requirements of Section 5 of the
Securities Act.
(l) SEC Documents. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the
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"SEC Documents") on a timely basis, or has received a valid extension of such
time of filing. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the published rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as may be otherwise
indicated in such financial statements or the notes thereto, and fairly present
in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the date of
the financial statements included in the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1996 (the "September Quarterly
Report"), there has been no event, occurrence or development that could have had
a Material Adverse Effect which is not specifically disclosed in the Disclosure
Materials.
(m) Seniority. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise other than the Company's Series A Cumulative Redeemable Preferred
Stock, par value $.01 per share, of which, on the date hereof, 360 shares are
outstanding, and the Company's Series B Preferred Stock, par value $.01 per
share of which, on the date hereof, 20 shares are outstanding (collectively, the
"Senior Securities").
(n) Form S-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form S-3 promulgated under the Securities Act.
(o) Investment Company. The Company is not and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(p) Class B Common Stock. The issued and outstanding shares of
the Class B Common Stock are restricted securities subject to Rule 144
promulgated under the Exchange Act, and the holders of such shares have no
registration rights or preemptive rights arising out of their ownership of such
shares.
2. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
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(a) Organization; Authority. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the Registration Rights Agreement and the Escrow Agreement and otherwise
to carry out its obligations hereunder and thereunder. The purchase of the
Shares (and upon conversion thereof, the Underlying Shares) by the Purchaser
hereunder has been duly authorized by all necessary action on the part of the
Purchaser. Each of this Agreement, the Registration Rights Agreement and the
Escrow Agreement has been duly executed and delivered by the Purchaser or on its
behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity.
(b) Investment Intent. The Purchaser is acquiring the Shares
and the Underlying Shares for its own account for investment purposes only and
not with a view to or for distributing or reselling such Shares or Underlying
Shares or any part thereof or interest therein, without prejudice, however, to
the Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Shares or Underlying Shares under an effective registration
statement under the Securities Act and in compliance with applicable State
securities laws or under an exemption from such registration.
(c) Purchaser Status. At the time the Purchaser was offered
the Shares, it was, and at the date hereof, it is, and at the Closing Date, it
will be, an "accredited investor" as defined in Rule 501(a) under the Securities
Act.
(d) Experience of Purchaser. The Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.
(e) Ability of Purchaser to Bear Risk of Investment. The
Purchaser is able to bear the economic risk of an investment in the Shares and,
at the present time, is able to afford a complete loss of such investment.
(f) Prohibited Transactions. The Shares are not being
acquired, directly or indirectly, with the assets of any "employee benefit
plan", within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended.
(g) Access to Information. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it or its
representatives have been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of
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the Shares and the merits and risks of investing in the Shares; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, proper ties and management sufficient to enable it to
evaluate its investment in the Shares; and (iii) the opportunity to obtain such
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Shares and to verify the accuracy and completeness
of the information contained in the Disclosure Materials.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Shares are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
and (ii) the availability of such exemption depends in part on, and that the
Company will rely upon the accuracy and truthfulness of, the foregoing
representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
IV
OTHER AGREEMENTS OF THE PARTIES
1. Transfer Restrictions. If the Purchaser should decide to
dispose of any of the Shares to be purchased by it hereunder (and upon
conversion thereof, any Underlying Shares), the Purchaser understands and agrees
that it may do so only pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements thereof. In connection with any transfer of any Shares other than
pursuant to an effective registration statement or to the Company, the Company
may require that the transferor of such Shares provide to the Company an opinion
of counsel experienced in the area of United States securities laws selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such Shares under the Securities Act or any state securities
laws.
The Purchaser agrees to the imprinting, so long as is required
by applicable law, of the following legend on certificates representing the
Shares and the Underlying Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D
PROMULGATED UNDER THE
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SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed upon the
conversion of Shares represented by such certificate at any time after the
Underlying Shares Registration Statement has been declared effective under the
Securities Act or in the opinion of counsel to the Company experienced in the
area of United States securities laws such legend is no longer required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
stock certificates representing the Shares and the Underlying Shares shall also
bear any other legends required by applicable Federal or state securities laws,
which legends may be removed when, in the opinion of counsel to the Company
experienced in the applicable securities laws, such legends are no longer
required under the applicable requirements of such securities laws. The Company
agrees that it will provide the Purchaser, upon request, with a substitute stock
certificate or certificates, free from such legend at such time as such legend
is no longer applicable. The Purchaser agrees that, in connection with any
transfer of Shares or Underlying Shares by it pursuant to an effective
registration statement under the Securities Act, it will comply with all
prospectus delivery requirements of the Securities Act. The Company makes no
representation, warranty or agreement as to the availability of any exemption
from registration under the Securities Act with respect to any resale of Shares
or Underlying Shares.
2. Stop Transfer Instruction. The Purchaser agrees that the
Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in Section 4.1 above.
3. Furnishing of Information. For so long as the Purchaser
owns Shares or Underlying Shares, the Company covenants to timely file (or
obtain valid extensions in respect thereof) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchaser with true and complete copies
of all such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser annual
and quarterly financial statements, together with a discussion and analysis of
such financial statements in form and substance substantially similar to those
that would otherwise be required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act in the time period that such filings would
have been required to have been made under the Exchange Act.
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4. Use of Disclosure Materials. The Company consents to the
use of the Disclosure Materials, and any amendments and supplements thereto, by
the Purchaser in connection with resales of the Shares or the Underlying Shares
other than pursuant to an effective registration statement.
5. Issuance of Senior Securities. For so long as the Purchaser
shall own Shares, the Company shall not issue any Senior Securities.
6. Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Shares and the Underlying Shares under
the securities or Blue Sky laws of such jurisdictions as the Purchaser may
request and continue such qualification at all times through the third
anniversary of the Closing Date; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified.
7. Integration. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Shares or the Underlying Shares in a manner that would require the
registration under the Securities Act of the sale of the Shares or Underlying
Shares to the Purchaser.
8. Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Shares or Underlying Shares other than the Disclosure Materials and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Shares or Underlying Shares by means of any
form of general solicitation or advertising.
9. Right of First Refusal; Subsequent Regulations; Certain
Corporate Actions. (a) The Company shall not, directly or indirectly, without
the prior written consent of the Purchaser, offer, sell, grant any option to
purchase, or otherwise dispose (or announce any offer, sale, grant any option to
purchase or other disposition) of any of its or its Affiliates equity or
equity-equivalent securities at a price which is, on the face thereof, or
implied therein, less than the market price or fair market value for such
securities (a "Subsequent Sale") for a period of 180 days after Closing Date,
except (i) the granting of options to employees, officers and directors, and the
issuance of shares upon exercise of options granted, under any stock option plan
heretofore or hereinafter duly adopted by the Company, (ii) shares issued upon
exercise of any currently outstanding warrants and upon conversion of any
currently outstanding convertible preferred stock disclosed in Schedule 3.1(c),
and (iii) shares of Common Stock issued upon conversion of Shares or exercise of
the Warrants in accordance herewith and the Certificate of Designation or
Warrants, as the case may be, unless (A) the Company delivers to the Purchaser a
written notice (the "Subsequent Financing Notice") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing and the amount
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of proceeds intended to be raised thereunder and (B) the Purchaser shall not
have notified the Company by 5:00 p.m. (Eastern Time) on the third Business Day
after its receipt of the Subsequent Financing Notice of its willingness to enter
into good faith negotiations to provide as promptly as is commercially
practicable (or to cause its sole designee to provide) financing to the Company
on substantially the terms set forth in the Subsequent Financing Notice. If the
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, or if the Purchaser shall fail to actually
close such financing within 10 Business Days after such notice, the Company may
effect the Subsequent Financing substantially upon the terms and to the Persons
(or Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Purchaser with a second Subsequent
Financing Notice, and the Purchaser shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within 60
Business Days after the date of the initial Subsequent Financing Notice with the
Person (or an Affiliate of such Person) identified in the Subsequent Financing
Notice. The provisions of this Section 4.9 shall not apply to any financing by
the Company with a strategic partner (including without limitation any company
which is involved in computer hardware, including peripherals, or software
manufacturing, design, development, marketing and sales, content providers,
Internet document transmission, data broadcast systems, and electronic commerce
applications), including without limitation Creative Technology Ltd. A strategic
partner does not include entities in the business of acquiring private placement
securities for investment purposes only.
(a) Except Underlying Shares to be registered in accordance
with the Registration Rights Agreement, the Company may not register for resale
any securities of the Company for a period of not less than 60 Trading Days
after the date that the Underlying Shares Registration Statement is declared
effective by the Commission. Any days that the Purchaser is unable to sell
Underlying Shares under the Underlying Shares Registration Statement shall be
added to such 60 Trading Day period.
(b) As long as there are Preferred Shares outstanding, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the Purchaser, (i) amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Purchaser; (ii)
split, combine or reclassify its outstanding capital stock; (iii) declare,
authorize, set aside or pay any dividend or other distribution with respect to
the Common Stock; (iv) repay, repurchase or offer to repay, repurchase or
otherwise acquire shares of its Common Stock; or (v) enter into any agreement
with respect to any of the foregoing.
10. Purchaser Ownership of Common Stock. The Purchaser may not
use its ability to convert Shares hereunder or under the terms of the
Certificate of Designation to the extent that such conversion would result in
the Purchaser owning more than 4.9% of the outstanding shares of the Common
Stock. The Company shall, promptly upon its receipt of a Conversion Notice
tendered by the Purchaser (or its designee) under the Certificate of
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Designation, notify the Purchaser of the number of shares of Common Stock
outstanding on such date and the number of Underlying Shares which would be
issuable to the Purchaser (or its designee, as the case may be) if the
conversion requested in such Conversion Notice were effected in full, whereupon,
notwithstanding anything to the contrary set forth in the Certificate of
Designation, the Purchaser shall revoke such conversion or exercise to the
extent that it determines that such conversion or exercise would result in the
Purchaser owning in excess of 4.9% of such outstanding shares of Common Stock.
11. Listing of Underlying Shares. The Company shall take all
steps necessary to cause the Underlying Shares to be approved for listing in The
Nasdaq National Market (and each other national securities exchange or market on
which the Common Stock is then listed) no later than the first day after which
shares may be converted hereunder by the Purchaser, and shall provide to the
Purchaser evidence of such listing and shall maintain the listing of its Common
Stock on such exchange.
12. Purchaser's Rights if Trading in Common Stock is
Suspended. In the event that at any time within the three-year period after the
Closing Date trading in the shares of the Common Stock is suspended on the
principal market or exchange for such shares (other than as a result of the
suspension of trading in securities on such market or exchange generally or
temporary suspensions pending the release of material information) for more than
three days or if the shares of Common Stock are delisted from the Nasdaq
National Market, unless immediately therewith the Common Stock is listed for
trading in the Nasdaq SmallCap Market, in which event the provisions of this
Section 4.13 shall apply to a listing on the Nasdaq SmallCap Market, at the
Purchaser's option exercisable by written notice to the Company, the Company
shall repurchase all Shares and all Underlying Shares then held by such
Purchaser, at an aggregate purchase price equal to (A) the product of the
average Per Share Market Value for the five Trading Days immediately preceding
the day of such notice multiplied by the number of shares of Common Stock into
which the Shares to be purchased are then convertible (or in the case of
Underlying Shares, the number of Underlying Shares to be purchased), plus (B)
interest on such amount accruing from the 7th day after such notice at the rate
of 15% per annum.
13. No Violation of Applicable Law. Notwithstanding any
provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under this Agreement, the Registration
Rights Agreement or the Certificate of Designation would be prohibited by the
relevant provisions of the Delaware General Corporation Law, such redemption
shall be effected as soon as it is permitted under such law; provided, however,
that, interest payable by the Company with respect to any such redemption shall
continue to accrue in accordance with Section 4.12 during any such period.
14. Redemption Restrictions. Notwithstanding any provision of
this Agreement to the contrary, if any redemption of Shares or Underlying Shares
otherwise required under this Agreement would be prohibited in the absence of
consent from any lender of the Company or of any Subsidiary, or by the holders
of any class of securities of the
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Company, the Company shall use its best efforts to obtain such consent as
promptly as practicable after the redemption is required. Interest payable by
the Company with respect to any such redemption shall continue to accrue in
accordance with Section 4.12 until such consent is obtained. Nothing contained
in this Section shall be construed as a waiver by the Purchaser of any rights it
may have by virtue of any breach of any representation or warranty of the
Company herein as to the absence of any requirement to obtain any such consent.
15. Notice of Breaches. Each of the Company and the Purchaser
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in this Agreement or in
the Registration Rights Agreement, as well as any events or occurrences arising
after the date hereof and prior to the Closing Date, which could reasonably be
likely to cause any representation or warranty or other agreement of such party,
as the case may be, contained herein or therein to be incorrect or breached as
of such Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained herein or in the Registration Rights Agreement.
Neither the Company, any Subsidiary nor the Purchaser will take, or agree to
commit to take, any action that is intended to make any representation or
warranty of the Company or the Purchaser, as the case may be, contained herein
or in the Registration Rights Agreement inaccurate in any respect at the Closing
Date.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by any of the Transaction Documents violates or
would violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Shares a copy of any written statement in support of or relating to such
claim or notice.
16. Conversion Procedures. Exhibit D attached hereto sets
forth the procedures with respect to the conversion of the Shares, including the
forms of conversion notice to be provided upon conversion, instructions as to
the procedures for conversion, the form of legal opinion, if necessary, that
shall be rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchaser to exercise
its right of conversion smoothly and expeditiously.
V
CONDITIONS PRECEDENT TO CLOSING
1. Conditions Precedent to Obligations of the Purchaser. The
obligation of the Purchaser to purchase the Shares is subject to the
satisfaction or waiver by the Purchaser, at or prior to the Closing, of each of
the following conditions:
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(a) Legal Opinion. The Purchaser shall have received the legal
opinion, addressed to it and dated the Closing Date, of Xxxxxx, Xxxxxx-Xxxxxxx,
Colt & Mosle, counsel for the Company, substantially in the form of Exhibit C;
(b) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time;
(c) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing;
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(e) No Material Adverse Effect. Since the date of the
financial statements included in the September Quarterly Report, no event which
in the judgment of the Purchaser has or could have a Material Adverse Effect and
no material adverse change in the financial condition or business of the Company
shall have occurred which is not disclosed in the Disclosure Materials;
(f) No Prohibitions. The purchase of and payment for the
Shares (and upon conversion thereof, the Underlying Shares) hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any applicable law
or governmental regulation and (ii) shall not subject the Purchaser to any
penalty, or in its judgment, other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Purchaser of the purchase of the Shares or the Underlying Shares
(provided, however, that such regula tion, law or onerous condition was not in
effect in such form at the date of this Agreement);
(g) Company Certificates. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Certificate of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, and (C) resolutions duly adopted by the Board of Directors of the
Company authorizing the execution and delivery of the Transaction Documents and
the issuance and sale of the Shares and the Underlying Shares and (ii) the
incumbency of officers executing the Transaction Documents;
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(h) Registration Rights Agreement and Escrow Agreement. The
Company shall have executed and delivered to the Escrow Agent the Registration
Rights Agreement and the Escrow Agreement;
(i) No Suspensions of Trading in Common Stock. Trading in the
Common Stock shall not have been suspended by the Commission or the Nasdaq
National Market or any other national securities exchange or market on which the
Common Stock is listed or quoted (except for any suspension of trading of
limited duration at the direction of the Company solely to permit dissemination
of material information regarding the Company);
(j) Listing of Common Stock. The Common Stock shall have at
all times between the date hereof and the Closing Date been, and on the Closing
Date be, listed for trading on the Nasdaq National Market;
(k) Delivery of Stock Certificates. The Company shall have
delivered to the Escrow Agent the stock certificate(s) representing the Shares,
registered in the name of the Purchaser, each in form satisfactory to the Escrow
Agent and the Purchaser;
(l) Shares of Common Stock. On the Closing Date, the Company
shall have duly reserved for issuance to the Purchaser 3,000,000 Underlying
Shares;
(m) Certificate of Designation. The Certificate of Designation
shall have been duly filed by the Secretary of State of Delaware, and the
Company shall have delivered proof of such filing to the Escrow Agent,
reasonably satisfactory to it; and
(n) Form S-3 Eligibility. The Company shall be eligible to
register securities for resale under Form S-3 promulgated under the Securities
Act.
2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Shares hereunder is subject to
the satisfaction or waiver by the Company, at or prior to the Closing, of each
of the following conditions:
(a) Accuracy of the Purchaser's Representations and
Warranties. The representations and warranties of the Purchaser contained herein
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time;
(b) Performance by the Purchaser. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration Rights
Agreement and the Escrow Agreement to be performed, satisfied or complied with
by it at or prior to the Closing;
(c) No Prohibitions. The sale of the Shares (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or
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permanently) by any applicable law or governmental regulation and (ii) shall not
subject the Company to any penalty, or in its judgment, any other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the sale of Shares
or the Underlying Shares to the Purchaser (provided, however, that such
regulation, law or onerous condition was not in effect in such form at the date
of this Agreement); and
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
VI
TERMINATION
1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to Closing by the mutual consent of the Company and
the Purchaser.
2. Termination by the Company or the Purchaser. This Agreement
may be terminated prior to Closing by either the Company or the Purchaser, by
giving written notice of such termination to the other party, if:
(a) there shall be in effect any statute, rule, law
or regulation that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final
judgment, order, decree, ruling or injunction of any court of or
governmental authority having competent jurisdiction; or
(b) there shall have been an amendment to Regulation
D or an interpretive release promulgated or issued thereunder, which,
in the judgment of the terminating party, would materially adversely
affect the transactions contemplated by the Transaction Documents.
3. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in this Agreement or
the Registration Rights Agreement and such breach is not cured within one
business day following receipt by the Purchaser of notice of such breach.
4. Termination by the Purchaser. This Agreement may be
terminated prior to Closing by the Purchaser, by giving written notice of such
termination to the Company, if:
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(a) the Company has breached any representation,
warranty, covenant or agreement contained in this Agreement or the
Registration Rights Agreement and such breach is not cured within one
business day following receipt by the Company of notice of such breach;
(b) there has occurred a material adverse change in
the business or financial condition of the Company or an event since
the date of the financial statements included in the September
Quarterly Report which, in the Purchaser's judgment has or could have a
Material Adverse Effect and which is not disclosed in the Disclosure
Materials;
(c) trading in the Common Stock has been suspended by
the Commission or the Nasdaq National Market or other national
securities exchange or market on which the Common Stock is listed or
quoted; or
(d) the Common Stock shall have failed to be listed
for trading on the Nasdaq National Market or on the Nasdaq SmallCap
Market.
VII
MISCELLANEOUS
1. Fees and Expenses. Each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
set forth in the Registration Rights Agreement and except that the Company shall
reimburse the Purchaser $10,000 for its legal fees and disbursements. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Shares (and upon conversion thereof, the Underlying Shares)
pursuant hereto. The Purchaser shall be responsible for its own tax liability
that may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.
2. Entire Agreement; Amendments. This Agreement, together with
the Exhibits and Schedules hereto, and each of the other Transaction Documents
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters.
3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
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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 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx Xxxxxx Xxxxx
With copies to: Xxxxxx, Xxxxxx-Xxxxxxx,
Colt & Mosle
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx
If to the Purchaser: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Xxxxxx Xxxxx
with copies to: Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxx
- and -
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx
& Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx
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or such other address as may be designated in writing hereafter, in the same
manner, by such person.
4. Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5. Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
6. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor the Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other,
except that the Purchaser may assign its rights hereunder and under the
Registration Rights Agreement to an Affiliate thereof, provided, that such
assignee demonstrates to the reasonable satisfaction of the Company its
satisfaction of the representations and warranties set forth in Section 3.2
herein. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
7. No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
8. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof.
9. Survival. The representations and warranties of the Company
and the Purchaser contained in Article III and the agreements and covenants of
the parties contained in Article IV and this Article VII shall survive the
Closing (or any earlier termination of this Agreement) and any conversion of
Shares hereunder.
10. Counterpart Signatures. This Agreement may be executed in
two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
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valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
11. Publicity. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
12. Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
13. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchaser will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchaser hereunder with respect to the
subsequent transfer of Shares and the Underlying Shares. Each of the Company and
the Purchaser agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of any breach of its obligations described in
the foregoing sentence and hereby agrees to waive in any action for specific
performance of any such obligation the defense that a remedy at law would be
adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
WAVE SYSTEMS CORP.
By: /s/ Xxxxx X. Xxxxxxx
----------------------------
Name: Xxxxx X. Xxxxxxx
Title: Chairman
JNC OPPORTUNITY FUND LTD.
By: /s/ Xxxxxx Xxxxx
----------------------------
Name: Xxxxxx Xxxxx
Title:
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