Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of
December 16, 2004, among Wave Systems Corp., a Delaware corporation (the
“Company”), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”); and

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company in the
aggregate, up to $5,759,028 of shares of Common Stock on the Closing Date
pursuant to an effective Registration Statement on Form S-3, file no.
333-114476.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1                                 Definitions.  In addition to the terms
defined elsewhere in this Agreement, for all purposes of this Agreement, the
following terms have the meanings indicated in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144.  With respect to
a Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

 

“Closing” means the closing of the purchase and sale of the Common Stock
pursuant to Section 2.1.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.

 

“Closing Price” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the closing bid price of the Common Stock for such date (or
the nearest preceding date) on the Trading Market on which the Common Stock is
then listed or quoted as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)  if the
Common Stock is not then listed or quoted on a Trading Market and if prices for
the Common Stock are then quoted on the OTC Bulletin Board, the closing bid
price of the Common Stock for such date (or the

 

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nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is
not then listed or quoted on the OTC Bulletin Board and if prices for the Common
Stock are then reported in the “Pink Sheets” published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (d) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Purchasers and reasonably acceptable to the Company.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the Class A common stock of the Company, par value $0.01
per share, and any securities into which such common stock may hereafter be
reclassified.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company Counsel” means Bingham McCutchen LLP.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Effective Date” means the date that the Registration Statement was first
declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise or conversion price of any such securities, other than by express
mechanics contained in such convertible securities, options or warrants prior to
the date of this Agreement,  (c) securities issued pursuant to acquisitions or
strategic transactions, including such a transaction involving Wavexpress, Inc.,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities; and (d) up to, in
the

 

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aggregate, 250,000 shares of Common Stock or Common Stock Equivalents in any 12
month period to consultants as payment for services rendered.

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

 

“Market Price” means the Closing Price immediately prior to the date in
question.

 

“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in
Section 3.1(m).

 

“Per Share Purchase Price” equals $1.05, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Registration Statement” means the registration statement of the Company,
Commission File No. 333-114476 covering the sale to the Purchasers of the
Shares.

 

“Required Approvals” shall have the meaning ascribed to such term in
Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Shares.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

 

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“Subscription Amount” means, as to each Purchaser, the amounts set forth below
such Purchaser’s signature block on the signature page hereto, in United States
dollars and in immediately available funds.

 

“Subsidiary” shall mean the subsidiaries of the Company, if any, set forth in
the Company’s SEC Reports.

 

“Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

 

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange, or
the Nasdaq National Market.

 

“Transaction Documents” means this Agreement and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1                                 Closing.  On the Closing Date, each
Purchaser shall purchase from the Company, severally and not jointly with the
other Purchasers, and the Company shall issue and sell to each Purchaser a
number of Shares equal to such Purchaser’s Subscription Amount divided by the
Per Share Purchase Price.  The aggregate Subscription Amounts for Shares sold
hereunder shall be up to $5,759,028.  Upon satisfaction of the conditions set
forth in Section 2.2, the Closing shall occur at the offices of Company Counsel
or such other location as the parties shall mutually agree.

 

2.2                                 Deliveries.

 

(a)                                  On the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser the following:

 

(I)                                                 THIS AGREEMENT DULY EXECUTED
BY THE COMPANY;

 

(II)                                              THE RECEIPT BY EACH PURCHASER,
VIA THE DTC DWAC SYSTEM, OF THE NUMBER OF SHARES EQUAL TO SUCH PURCHASER’S
SUBSCRIPTION AMOUNT DIVIDED BY THE PER SHARE PURCHASE PRICE, REGISTERED IN THE
NAME OF SUCH PURCHASER;

 

(III)                                           AN OFFICER’S CERTIFICATE OF THE
COMPANY’S CHIEF EXECUTIVE OFFICER OR CHIEF FINANCIAL OFFICER, IN FORM REASONABLY
ACCEPTABLE TO THE PURCHASERS, CERTIFYING THE CONTINUING ACCURACY OF THE
COMPANY’S REPRESENTATIONS AND WARRANTIES MADE IN THIS AGREEMENT AND THE
COMPANY’S PERFORMANCE OF THE COVENANTS TO BE PERFORMED BY IT PURSUANT TO THIS
AGREEMENT AT OR PRIOR TO CLOSING; AND

 

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(IV)                                          A LEGAL OPINION OF COMPANY
COUNSEL, IN THE FORM OF EXHIBIT B ATTACHED HERETO.

 

(b)                                 On the Closing Date, each Purchaser shall
deliver or cause to be delivered to the Company the following:

 

(I)                                                 THIS AGREEMENT DULY EXECUTED
BY SUCH PURCHASER; AND

 

(II)                                              SUCH PURCHASER’S SUBSCRIPTION
AMOUNT BY WIRE TRANSFER TO THE ACCOUNT AS SPECIFIED IN WRITING BY THE COMPANY.

 

2.3                                 Closing Conditions.

 

(a)                                  The obligations of the Company hereunder in
connection with the Closing are subject to the following conditions being met:

 

(I)                                                 THE ACCURACY IN ALL MATERIAL
RESPECTS WHEN MADE AND ON THE CLOSING DATE OF THE REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS CONTAINED HEREIN;

 

(II)                                              ALL OBLIGATIONS, COVENANTS AND
AGREEMENTS OF THE PURCHASERS REQUIRED TO BE PERFORMED AT OR PRIOR TO THE CLOSING
DATE SHALL HAVE BEEN PERFORMED; AND

 

(III)                                           THE DELIVERY BY THE PURCHASERS
OF THE ITEMS SET FORTH IN SECTION 2.2(B) OF THIS AGREEMENT.

 

(B)                                 THE RESPECTIVE OBLIGATIONS OF THE PURCHASERS
HEREUNDER IN CONNECTION WITH THE CLOSING ARE SUBJECT TO THE FOLLOWING CONDITIONS
BEING MET:

 

(I)                                                 THE ACCURACY IN ALL MATERIAL
RESPECTS ON THE CLOSING DATE OF THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY CONTAINED HEREIN;

 

(II)                                              ALL OBLIGATIONS, COVENANTS AND
AGREEMENTS OF THE COMPANY REQUIRED TO BE PERFORMED AT OR PRIOR TO THE CLOSING
DATE SHALL HAVE BEEN PERFORMED;

 

(III)                                           THE DELIVERY BY THE COMPANY OF
THE ITEMS SET FORTH IN SECTION 2.2(A) OF THIS AGREEMENT;

 

(IV)                                          THERE SHALL HAVE BEEN NO MATERIAL
ADVERSE EFFECT WITH RESPECT TO THE COMPANY SINCE THE DATE HEREOF, WHICH SHALL
NOT HAVE BEEN REASONABLY CURED BY THE COMPANY; AND

 

(V)                                             FROM THE DATE HEREOF TO THE
CLOSING DATE, TRADING IN THE 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

 

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CLOSING DATE, TRADING IN SECURITIES GENERALLY AS REPORTED BY BLOOMBERG FINANCIAL
MARKETS SHALL NOT HAVE BEEN SUSPENDED OR LIMITED, OR MINIMUM PRICES SHALL NOT
HAVE BEEN ESTABLISHED ON SECURITIES WHOSE TRADES ARE REPORTED BY SUCH SERVICE,
OR ON ANY TRADING MARKET, 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 OF SUCH MAGNITUDE IN ITS EFFECT ON, OR ANY MATERIAL
ADVERSE CHANGE IN, ANY FINANCIAL MARKET WHICH, IN EACH CASE, IN THE REASONABLE
JUDGMENT OF EACH PURCHASER, MAKES IT IMPRACTICABLE OR INADVISABLE TO PURCHASE
THE SHARES AT THE CLOSING.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1                                 Representations and Warranties of the
Company.  Except as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof, the Company
hereby makes the representations and warranties set forth below to each
Purchaser:

 

(A)                                  SUBSIDIARIES.  ALL OF THE DIRECT AND
INDIRECT SUBSIDIARIES OF THE COMPANY ARE SET FORTH IN THE SEC REPORTS AS FILED
WITH THE COMMISSION.  THE COMPANY OWNS, DIRECTLY OR INDIRECTLY, ALL OF THE
CAPITAL STOCK OR OTHER EQUITY INTERESTS OF EACH SUBSIDIARY FREE AND CLEAR OF ANY
LIENS, AND ALL THE ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OF EACH
SUBSIDIARY ARE VALIDLY ISSUED AND ARE FULLY PAID, NON-ASSESSABLE AND FREE OF
PREEMPTIVE AND SIMILAR RIGHTS TO SUBSCRIBE FOR OR PURCHASE SECURITIES.  IF THE
COMPANY HAS NO SUBSIDIARIES, THEN REFERENCES IN THE TRANSACTION DOCUMENTS TO THE
SUBSIDIARIES WILL BE DISREGARDED.

 

(B)                                 ORGANIZATION AND QUALIFICATION.  EACH OF THE
COMPANY AND THE SUBSIDIARIES IS AN ENTITY DULY INCORPORATED OR OTHERWISE
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION (AS APPLICABLE), WITH THE
REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS PROPERTIES AND ASSETS AND TO
CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY IS IN VIOLATION OR DEFAULT OF ANY OF THE PROVISIONS OF ITS RESPECTIVE
CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR
CHARTER DOCUMENTS.  EACH OF THE COMPANY AND THE SUBSIDIARIES IS DULY QUALIFIED
TO CONDUCT BUSINESS AND IS IN GOOD STANDING AS A FOREIGN CORPORATION OR OTHER
ENTITY 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
HAVE OR REASONABLY BE EXPECTED TO RESULT IN (I) A MATERIAL ADVERSE EFFECT ON THE
LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY TRANSACTION DOCUMENT, (II) A
MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS, ASSETS, BUSINESS,
PROSPECTS OR FINANCIAL CONDITION OF THE COMPANY AND THE SUBSIDIARIES, TAKEN AS A
WHOLE, OR (III) A MATERIAL ADVERSE EFFECT ON THE COMPANY’S ABILITY TO PERFORM IN
ANY MATERIAL RESPECT ON A TIMELY BASIS ITS OBLIGATIONS UNDER ANY TRANSACTION
DOCUMENT (ANY OF (I), (II) OR (III), A “MATERIAL ADVERSE EFFECT”) AND NO
PROCEEDING HAS BEEN INSTITUTED IN ANY SUCH JURISDICTION REVOKING, LIMITING OR
CURTAILING OR SEEKING TO REVOKE, LIMIT OR CURTAIL SUCH POWER AND AUTHORITY OR
QUALIFICATION.

 

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(C)                                  AUTHORIZATION; ENFORCEMENT.  THE COMPANY
HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE
THE TRANSACTIONS CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE
TO CARRY OUT ITS OBLIGATIONS 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 AND NO FURTHER ACTION IS REQUIRED BY THE
COMPANY IN CONNECTION THEREWITH OTHER THAN IN CONNECTION WITH THE REQUIRED
APPROVALS.  EACH TRANSACTION DOCUMENT HAS BEEN (OR UPON DELIVERY WILL HAVE BEEN)
DULY EXECUTED BY THE COMPANY AND, WHEN DELIVERED IN ACCORDANCE WITH THE TERMS
HEREOF, WILL CONSTITUTE THE VALID AND BINDING OBLIGATION OF THE COMPANY
ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS EXCEPT (I) AS
LIMITED BY APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM AND
OTHER LAWS OF GENERAL APPLICATION AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS
GENERALLY AND (II) AS LIMITED BY LAWS RELATING TO THE AVAILABILITY OF SPECIFIC
PERFORMANCE, INJUNCTIVE RELIEF OR OTHER EQUITABLE REMEDIES.

 

(D)                                 NO CONFLICTS.  THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE TRANSACTION DOCUMENTS BY THE COMPANY, THE ISSUANCE AND SALE
OF THE SHARES AND THE CONSUMMATION BY THE COMPANY OF THE OTHER TRANSACTIONS
CONTEMPLATED THEREBY DO NOT AND WILL NOT (I) CONFLICT WITH OR VIOLATE ANY
PROVISION OF THE COMPANY’S OR ANY SUBSIDIARY’S CERTIFICATE OR ARTICLES OF
INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS, OR (II)
CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT THAT WITH NOTICE OR LAPSE OF
TIME OR BOTH WOULD BECOME A DEFAULT) UNDER, RESULT IN THE CREATION OF ANY LIEN
UPON ANY OF THE PROPERTIES OR ASSETS OF THE COMPANY OR ANY SUBSIDIARY, OR GIVE
TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION
(WITH OR WITHOUT NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT, CREDIT
FACILITY, DEBT OR OTHER INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY DEBT OR
OTHERWISE) OR OTHER UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY IS A
PARTY OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS
BOUND OR AFFECTED, OR (III) SUBJECT TO THE REQUIRED APPROVALS, CONFLICT WITH OR
RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER, JUDGMENT, INJUNCTION,
DECREE OR OTHER RESTRICTION OF ANY COURT OR GOVERNMENTAL AUTHORITY TO WHICH THE
COMPANY OR A SUBSIDIARY IS SUBJECT (INCLUDING FEDERAL AND STATE SECURITIES LAWS
AND REGULATIONS), OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR A
SUBSIDIARY IS BOUND OR AFFECTED, OR (IV) CONFLICT WITH OR VIOLATE THE TERMS OF
ANY AGREEMENT BY WHICH THE COMPANY OR ANY SUBSIDIARY IS BOUND OR TO WHICH ANY
PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS BOUND OR AFFECTED; EXCEPT
IN THE CASE OF EACH OF CLAUSES (II) AND (III), SUCH AS COULD NOT HAVE OR
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.

 

(E)                                  FILINGS, CONSENTS AND APPROVALS.  THE
COMPANY IS NOT REQUIRED TO OBTAIN ANY CONSENT, WAIVER, AUTHORIZATION OR ORDER
OF, GIVE ANY NOTICE TO, 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, OTHER THAN (I) THE NOTIFICATION FORM: LISTING OF
ADDITIONAL SHARES REQUIRED BY THE NASDAQ STOCK MARKET, (II) FILINGS REQUIRED
PURSUANT TO SECTION 4.3 OF THIS AGREEMENT, AND (III) SUCH FILINGS AS ARE
REQUIRED TO BE MADE UNDER APPLICABLE STATE SECURITIES LAWS (COLLECTIVELY, THE
“REQUIRED APPROVALS”).

 

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(F)                                    ISSUANCE OF THE SECURITIES.  THE SHARES
ARE DULY AUTHORIZED AND, WHEN ISSUED AND PAID FOR IN ACCORDANCE WITH THE
TRANSACTION DOCUMENTS, WILL BE DULY AND VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE, FREE AND CLEAR OF ALL LIENS IMPOSED BY THE COMPANY OTHER THAN
RESTRICTIONS ON TRANSFER PROVIDED FOR IN THE TRANSACTION DOCUMENTS.  THE COMPANY
HAS RESERVED FROM ITS DULY AUTHORIZED CAPITAL STOCK THE MAXIMUM NUMBER OF SHARES
OF COMMON STOCK ISSUABLE PURSUANT TO THIS AGREEMENT.

 

(G)                                 CAPITALIZATION.  THE CAPITALIZATION OF THE
COMPANY IS AS DESCRIBED IN THE COMPANY’S MOST RECENT PERIODIC REPORT FILED WITH
THE COMMISSION.  THE COMPANY HAS NOT ISSUED ANY CAPITAL STOCK SINCE SUCH FILING
OTHER THAN PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS UNDER THE
COMPANY’S STOCK OPTION PLANS, THE ISSUANCE OF SHARES OF COMMON STOCK TO
EMPLOYEES PURSUANT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN AND PURSUANT TO
THE CONVERSION OR EXERCISE OF OUTSTANDING COMMON STOCK EQUIVALENTS.  NO PERSON
HAS ANY RIGHT OF FIRST REFUSAL, PREEMPTIVE RIGHT, RIGHT OF PARTICIPATION, OR ANY
SIMILAR RIGHT TO PARTICIPATE IN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS.  THERE ARE NO OUTSTANDING OPTIONS, WARRANTS, SCRIPT RIGHTS TO
SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR
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.  THE ISSUE AND SALE OF THE SECURITIES WILL NOT OBLIGATE THE
COMPANY TO ISSUE SHARES OF COMMON STOCK OR OTHER SECURITIES TO ANY PERSON (OTHER
THAN THE PURCHASERS) AND WILL NOT RESULT IN A RIGHT OF ANY HOLDER OF COMPANY
SECURITIES TO ADJUST THE EXERCISE, CONVERSION, EXCHANGE OR RESET PRICE UNDER
SUCH SECURITIES. ALL OF THE OUTSTANDING SHARES OF CAPITAL STOCK OF THE COMPANY
ARE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, HAVE BEEN ISSUED IN COMPLIANCE
WITH ALL FEDERAL AND STATE SECURITIES LAWS, AND NONE OF SUCH OUTSTANDING SHARES
WAS ISSUED IN VIOLATION OF ANY PREEMPTIVE RIGHTS OR SIMILAR RIGHTS TO SUBSCRIBE
FOR OR PURCHASE SECURITIES.  NO FURTHER APPROVAL OR AUTHORIZATION OF ANY
STOCKHOLDER, THE BOARD OF DIRECTORS OF THE COMPANY OR OTHERS IS REQUIRED FOR THE
ISSUANCE AND SALE OF THE SHARES.  THERE ARE NO STOCKHOLDERS AGREEMENTS, VOTING
AGREEMENTS OR OTHER SIMILAR AGREEMENTS WITH RESPECT TO THE COMPANY’S CAPITAL
STOCK TO WHICH THE COMPANY IS A PARTY OR, TO THE KNOWLEDGE OF THE COMPANY,
BETWEEN OR AMONG ANY OF THE COMPANY’S STOCKHOLDERS.

 

(H)                                 SEC REPORTS; FINANCIAL STATEMENTS.  THE
COMPANY HAS FILED ALL REPORTS REQUIRED TO BE FILED BY IT UNDER THE SECURITIES
ACT AND THE EXCHANGE ACT, INCLUDING PURSUANT TO SECTION 13(A) OR 15(D) THEREOF,
FOR THE TWO YEARS PRECEDING THE DATE HEREOF (OR SUCH SHORTER PERIOD AS THE
COMPANY WAS REQUIRED BY LAW TO FILE SUCH MATERIAL) (THE FOREGOING MATERIALS,
INCLUDING THE EXHIBITS THERETO, BEING COLLECTIVELY REFERRED TO HEREIN AS THE
“SEC REPORTS”) ON A TIMELY BASIS OR HAS RECEIVED A VALID EXTENSION OF SUCH TIME
OF FILING AND HAS FILED ANY SUCH SEC REPORTS PRIOR TO THE EXPIRATION OF ANY SUCH
EXTENSION.  AS OF THEIR RESPECTIVE DATES, THE SEC REPORTS COMPLIED IN ALL
MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE SECURITIES ACT AND THE EXCHANGE
ACT AND THE RULES AND REGULATIONS OF THE COMMISSION PROMULGATED THEREUNDER, AND
NONE OF THE SEC REPORTS, 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

 

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OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  THE FINANCIAL
STATEMENTS OF THE COMPANY INCLUDED IN THE SEC REPORTS COMPLY IN ALL MATERIAL
RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE RULES AND REGULATIONS
OF THE COMMISSION WITH RESPECT THERETO AS IN EFFECT AT THE TIME OF FILING.  SUCH
FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES APPLIED ON A CONSISTENT BASIS DURING
THE PERIODS INVOLVED (“GAAP”), EXCEPT AS MAY BE OTHERWISE SPECIFIED IN SUCH
FINANCIAL STATEMENTS OR THE NOTES THERETO AND EXCEPT THAT UNAUDITED FINANCIAL
STATEMENTS MAY NOT CONTAIN ALL FOOTNOTES REQUIRED BY GAAP, 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, IMMATERIAL, YEAR-END AUDIT ADJUSTMENTS.

 

(I)                                     MATERIAL CHANGES.  SINCE THE DATE OF THE
LATEST AUDITED FINANCIAL STATEMENTS INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS
SPECIFICALLY DISCLOSED IN THE SEC REPORTS, (I) THERE HAS BEEN NO EVENT,
OCCURRENCE OR DEVELOPMENT THAT HAS HAD OR THAT COULD REASONABLY BE EXPECTED TO
RESULT IN A MATERIAL ADVERSE EFFECT, EXCEPT AS HAS BEEN REASONABLY CURED BY THE
COMPANY (II) THE COMPANY HAS NOT INCURRED ANY LIABILITIES (CONTINGENT OR
OTHERWISE) OTHER THAN (A) TRADE PAYABLES AND ACCRUED EXPENSES INCURRED IN THE
ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST PRACTICE AND (B) LIABILITIES
NOT REQUIRED TO BE REFLECTED IN THE COMPANY’S FINANCIAL STATEMENTS PURSUANT TO
GAAP OR REQUIRED TO BE DISCLOSED IN FILINGS MADE WITH THE COMMISSION, (III) THE
COMPANY HAS NOT ALTERED ITS METHOD OF ACCOUNTING, (IV) THE COMPANY HAS NOT
DECLARED OR MADE ANY DIVIDEND OR DISTRIBUTION OF CASH OR OTHER PROPERTY TO ITS
STOCKHOLDERS OR PURCHASED, REDEEMED OR MADE ANY AGREEMENTS TO PURCHASE OR REDEEM
ANY SHARES OF ITS CAPITAL STOCK AND (V) THE COMPANY HAS NOT ISSUED ANY EQUITY
SECURITIES TO ANY OFFICER, DIRECTOR OR AFFILIATE, EXCEPT PURSUANT TO EXISTING
COMPANY STOCK OPTION PLANS.  THE COMPANY DOES NOT HAVE PENDING BEFORE THE
COMMISSION ANY REQUEST FOR CONFIDENTIAL TREATMENT OF INFORMATION.

 

(J)                                     LITIGATION.  THERE IS NO ACTION, SUIT,
INQUIRY, NOTICE OF VIOLATION, PROCEEDING OR INVESTIGATION PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY, ANY
SUBSIDIARY OR ANY OF THEIR RESPECTIVE PROPERTIES BEFORE OR BY ANY COURT,
ARBITRATOR, GOVERNMENTAL OR ADMINISTRATIVE AGENCY OR REGULATORY AUTHORITY
(FEDERAL, STATE, COUNTY, LOCAL OR FOREIGN) (COLLECTIVELY, AN “ACTION”) WHICH (I)
ADVERSELY AFFECTS OR CHALLENGES THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY
OF THE TRANSACTION DOCUMENTS OR THE SECURITIES OR (II) COULD, IF THERE WERE AN
UNFAVORABLE DECISION, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL
ADVERSE EFFECT.  NEITHER THE COMPANY NOR ANY SUBSIDIARY, NOR ANY DIRECTOR OR
OFFICER THEREOF, IS OR HAS BEEN THE SUBJECT OF ANY ACTION INVOLVING A CLAIM OF
VIOLATION OF OR LIABILITY UNDER FEDERAL OR STATE SECURITIES LAWS OR A CLAIM OF
BREACH OF FIDUCIARY DUTY.  THERE HAS NOT BEEN, AND TO THE KNOWLEDGE OF THE
COMPANY, THERE IS NOT PENDING OR CONTEMPLATED, ANY INVESTIGATION BY THE
COMMISSION INVOLVING THE COMPANY OR ANY CURRENT OR FORMER DIRECTOR OR OFFICER OF
THE COMPANY.  THE COMMISSION HAS NOT ISSUED ANY STOP ORDER OR OTHER ORDER
SUSPENDING THE EFFECTIVENESS OF ANY REGISTRATION STATEMENT FILED BY THE COMPANY
OR ANY SUBSIDIARY UNDER THE EXCHANGE ACT OR THE SECURITIES ACT.

 

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(K)                                  LABOR RELATIONS.  NO MATERIAL LABOR DISPUTE
EXISTS OR, TO THE KNOWLEDGE OF THE COMPANY, IS IMMINENT WITH RESPECT TO ANY OF
THE EMPLOYEES OF THE COMPANY WHICH COULD REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE EFFECT.

 

(L)                                     COMPLIANCE.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY (I) IS IN DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED
THAT HAS NOT BEEN WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD
RESULT IN A DEFAULT BY THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY
OR ANY SUBSIDIARY RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT
IT IS 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 (WHETHER OR NOT SUCH DEFAULT OR VIOLATION HAS BEEN WAIVED),
(II) IS IN VIOLATION OF ANY ORDER OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY,
OR (III) IS OR HAS BEEN IN VIOLATION OF ANY STATUTE, RULE OR REGULATION OF ANY
GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT LIMITATION ALL FOREIGN, FEDERAL, STATE
AND LOCAL LAWS APPLICABLE TO ITS BUSINESS EXCEPT IN EACH CASE AS COULD NOT HAVE
A MATERIAL ADVERSE EFFECT.

 

(M)                               REGULATORY PERMITS.  THE COMPANY AND THE
SUBSIDIARIES POSSESS ALL CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE
APPROPRIATE FEDERAL, STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO
CONDUCT THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT
WHERE THE FAILURE TO POSSESS SUCH PERMITS COULD NOT HAVE OR REASONABLY BE
EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT (“MATERIAL PERMITS”), AND
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS
RELATING TO THE REVOCATION OR MODIFICATION OF ANY MATERIAL PERMIT.

 

(N)                                 TITLE TO ASSETS.  THE COMPANY AND THE
SUBSIDIARIES HAVE GOOD AND MARKETABLE TITLE IN FEE SIMPLE TO ALL REAL PROPERTY
OWNED BY THEM THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND THE
SUBSIDIARIES AND GOOD AND MARKETABLE TITLE IN ALL PERSONAL PROPERTY OWNED BY
THEM THAT IS MATERIAL TO THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES, IN
EACH CASE FREE AND CLEAR OF ALL LIENS, EXCEPT FOR LIENS AS DO NOT MATERIALLY
AFFECT THE VALUE OF SUCH PROPERTY AND DO NOT MATERIALLY INTERFERE WITH THE USE
MADE AND PROPOSED TO BE MADE OF SUCH PROPERTY BY THE COMPANY AND THE
SUBSIDIARIES AND LIENS FOR THE PAYMENT OF FEDERAL, STATE OR OTHER TAXES, THE
PAYMENT OF WHICH IS NEITHER DELINQUENT NOR SUBJECT TO PENALTIES.  ANY REAL
PROPERTY AND FACILITIES HELD UNDER LEASE BY THE COMPANY AND THE SUBSIDIARIES ARE
HELD BY THEM UNDER VALID, SUBSISTING AND ENFORCEABLE LEASES OF WHICH THE COMPANY
AND THE SUBSIDIARIES ARE IN COMPLIANCE.

 

(O)                                 PATENTS AND TRADEMARKS.  THE COMPANY AND THE
SUBSIDIARIES HAVE, OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS,
TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS,
LICENSES AND OTHER SIMILAR RIGHTS NECESSARY OR MATERIAL FOR USE IN CONNECTION
WITH THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS AND WHICH THE
FAILURE TO SO HAVE COULD HAVE A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE
“INTELLECTUAL PROPERTY RIGHTS”).  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS
RECEIVED A WRITTEN NOTICE THAT THE INTELLECTUAL PROPERTY RIGHTS USED BY THE
COMPANY OR ANY SUBSIDIARY VIOLATES OR INFRINGES UPON THE RIGHTS OF ANY PERSON. 
TO THE KNOWLEDGE OF THE COMPANY, ALL SUCH INTELLECTUAL PROPERTY RIGHTS ARE
ENFORCEABLE AND THERE IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OF ANY OF
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

 

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(P)                                 INSURANCE.  THE COMPANY AND THE SUBSIDIARIES
ARE INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH
LOSSES AND RISKS AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE
BUSINESSES IN WHICH THE COMPANY AND THE SUBSIDIARIES ARE ENGAGED, INCLUDING BUT
NOT LIMITED TO, DIRECTORS AND OFFICERS INSURANCE COVERAGE OF $5,000,000.  TO THE
BEST OF COMPANY’S KNOWLEDGE, SUCH INSURANCE CONTRACTS AND POLICIES ARE ACCURATE
AND COMPLETE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY REASON TO BELIEVE
THAT IT WILL NOT BE ABLE TO RENEW ITS EXISTING INSURANCE COVERAGE AS AND WHEN
SUCH COVERAGE EXPIRES OR TO OBTAIN SIMILAR COVERAGE FROM SIMILAR INSURERS AS MAY
BE NECESSARY TO CONTINUE ITS BUSINESS WITHOUT A SIGNIFICANT INCREASE IN COST.

 

(Q)                                 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. 
EXCEPT AS SET FORTH IN THE SEC REPORTS, NONE OF THE OFFICERS OR DIRECTORS OF THE
COMPANY AND, TO THE KNOWLEDGE OF THE COMPANY, NONE OF THE EMPLOYEES OF THE
COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE COMPANY OR ANY
SUBSIDIARY (OTHER THAN FOR SERVICES AS EMPLOYEES, OFFICERS AND DIRECTORS),
INCLUDING ANY CONTRACT, AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR THE
FURNISHING OF SERVICES TO OR BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL
PROPERTY TO OR FROM, OR OTHERWISE REQUIRING PAYMENTS TO OR FROM ANY OFFICER,
DIRECTOR OR SUCH EMPLOYEE OR, TO THE KNOWLEDGE OF THE COMPANY, ANY ENTITY IN
WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A SUBSTANTIAL INTEREST OR
IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER, IN EACH CASE IN EXCESS OF $60,000
OTHER THAN (I) FOR PAYMENT OF SALARY OR CONSULTING FEES FOR SERVICES RENDERED,
(II) REIMBURSEMENT FOR EXPENSES INCURRED ON BEHALF OF THE COMPANY AND (III) FOR
OTHER EMPLOYEE BENEFITS, INCLUDING STOCK OPTION AGREEMENTS UNDER ANY STOCK
OPTION PLAN OF THE COMPANY.

 

(R)                                    SARBANES-OXLEY; INTERNAL ACCOUNTING
CONTROLS.  THE COMPANY IS IN MATERIAL COMPLIANCE WITH ALL PROVISIONS OF THE
SARBANES-OXLEY ACT OF 2002 WHICH ARE APPLICABLE TO IT AS OF THE CLOSING DATE. 
THE COMPANY HAS ESTABLISHED DISCLOSURE CONTROLS AND PROCEDURES (AS DEFINED IN
EXCHANGE ACT RULES 13A-15(E) AND 15D-15(E)) FOR THE COMPANY AND DESIGNED SUCH
DISCLOSURE CONTROLS AND PROCEDURES TO ENSURE THAT MATERIAL INFORMATION RELATING
TO THE COMPANY, INCLUDING ITS SUBSIDIARIES, IS MADE KNOWN TO THE CERTIFYING
OFFICERS BY OTHERS WITHIN THOSE ENTITIES, PARTICULARLY DURING THE PERIOD IN
WHICH THE COMPANY’S MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT,
AS THE CASE MAY BE, IS BEING PREPARED.  THE COMPANY’S CERTIFYING OFFICERS HAVE
EVALUATED THE EFFECTIVENESS OF THE COMPANY’S CONTROLS AND PROCEDURES AS OF THE
DATE PRIOR TO THE FILING DATE OF THE MOST RECENTLY FILED PERIODIC REPORT UNDER
THE EXCHANGE ACT (SUCH DATE, THE “EVALUATION DATE”).  THE COMPANY PRESENTED IN
ITS MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT THE CONCLUSIONS
OF THE CERTIFYING OFFICERS ABOUT THE EFFECTIVENESS OF THE DISCLOSURE CONTROLS
AND PROCEDURES BASED ON THEIR EVALUATIONS AS OF THE EVALUATION DATE.  SINCE THE
EVALUATION DATE, THERE HAVE BEEN NO SIGNIFICANT CHANGES IN THE COMPANY’S
INTERNAL CONTROLS (AS SUCH TERM IS DEFINED IN ITEM 307(B) OF REGULATION S-K
UNDER THE EXCHANGE ACT) OR, TO THE COMPANY’S KNOWLEDGE, IN OTHER FACTORS THAT
COULD SIGNIFICANTLY AFFECT THE COMPANY’S INTERNAL CONTROLS.

 

(S)                                  CERTAIN FEES.  NO BROKERAGE OR FINDER’S
FEES OR COMMISSIONS ARE OR WILL BE PAYABLE BY THE COMPANY TO ANY BROKER,
FINANCIAL ADVISOR OR CONSULTANT, FINDER, PLACEMENT AGENT, INVESTMENT BANKER,
BANK OR OTHER PERSON WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, OTHER THAN A FEE TO CORPFIN INC. IN CONNECTION WITH THE

 

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SALE OF THE SHARES AT CLOSING.  THE PURCHASERS SHALL HAVE NO OBLIGATION WITH
RESPECT TO ANY FEES OR WITH RESPECT TO ANY CLAIMS MADE BY OR ON BEHALF OF OTHER
PERSONS FOR FEES OF A TYPE CONTEMPLATED IN THIS SECTION THAT MAY BE DUE IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(T)                                    LISTING AND MAINTENANCE REQUIREMENTS. 
THE COMPANY’S COMMON STOCK IS REGISTERED PURSUANT TO SECTION 12(G) OF THE
EXCHANGE ACT, AND THE COMPANY HAS TAKEN NO ACTION DESIGNED TO, OR WHICH TO ITS
KNOWLEDGE IS LIKELY TO HAVE THE EFFECT OF, TERMINATING THE REGISTRATION OF THE
COMMON STOCK UNDER THE EXCHANGE ACT NOR HAS THE COMPANY RECEIVED ANY
NOTIFICATION THAT THE COMMISSION IS CONTEMPLATING TERMINATING SUCH
REGISTRATION.  THE COMPANY HAS NOT, IN THE 12 MONTHS PRECEDING THE DATE HEREOF,
RECEIVED NOTICE FROM ANY TRADING MARKET ON WHICH THE COMMON STOCK IS OR HAS BEEN
LISTED OR QUOTED TO THE EFFECT THAT THE COMPANY IS NOT IN COMPLIANCE WITH THE
LISTING OR MAINTENANCE REQUIREMENTS OF SUCH TRADING MARKET. THE COMPANY IS IN
COMPLIANCE WITH ALL SUCH LISTING AND MAINTENANCE REQUIREMENTS.

 

(U)                                 APPLICATION OF TAKEOVER PROTECTIONS.  THE
COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN
ORDER TO RENDER INAPPLICABLE ANY CONTROL SHARE ACQUISITION, BUSINESS
COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS AGREEMENT)
OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S CERTIFICATE OF
INCORPORATION (OR SIMILAR CHARTER DOCUMENTS) OR THE LAWS OF ITS STATE OF
INCORPORATION THAT IS OR COULD BECOME APPLICABLE TO THE PURCHASERS AS A RESULT
OF THE PURCHASERS AND THE COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING
THEIR RIGHTS UNDER THE TRANSACTION DOCUMENTS, INCLUDING WITHOUT LIMITATION THE
COMPANY’S ISSUANCE OF THE SECURITIES AND THE PURCHASERS’ OWNERSHIP OF THE
SECURITIES.

 

(V)                                 DISCLOSURE.  THE COMPANY CONFIRMS THAT,
NEITHER THE COMPANY NOR ANY OFFICER, DIRECTOR OR EMPLOYEE OF THE COMPANY ACTING
ON ITS BEHALF HAS PROVIDED ANY OF THE PURCHASERS OR THEIR AGENTS OR COUNSEL WITH
ANY INFORMATION THAT CONSTITUTES OR MIGHT CONSTITUTE MATERIAL, NON-PUBLIC
INFORMATION.   THE COMPANY UNDERSTANDS AND CONFIRMS THAT THE PURCHASERS WILL
RELY ON THE FOREGOING REPRESENTATIONS AND COVENANTS IN EFFECTING TRANSACTIONS IN
SECURITIES OF THE COMPANY.  ALL DISCLOSURE PROVIDED TO THE PURCHASERS REGARDING
THE COMPANY, ITS BUSINESS AND THE TRANSACTIONS CONTEMPLATED HEREBY FURNISHED BY
OR ON BEHALF OF THE COMPANY WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES
MADE HEREIN ARE TRUE AND CORRECT WITH RESPECT TO SUCH REPRESENTATIONS AND
WARRANTIES AND 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. THE
COMPANY ACKNOWLEDGES AND AGREES THAT NO PURCHASER MAKES OR HAS MADE ANY
REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN SECTION 3.2 HEREOF.

 

(W)                               NO INTEGRATED OFFERING. ASSUMING THE ACCURACY
OF THE PURCHASERS’ REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.2,
NEITHER THE COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR
THEIR BEHALF HAS, DIRECTLY OR INDIRECTLY, MADE ANY OFFERS OR SALES OF ANY
SECURITY OR SOLICITED ANY OFFERS TO BUY ANY SECURITY, UNDER CIRCUMSTANCES THAT
WOULD, TO THE BEST OF THE COMPANY’S KNOWLEDGE, CAUSE THIS OFFERING OF

 

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THE SECURITIES, WHEN, AND IF, INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY, TO
REQUIRE SHAREHOLDER APPROVAL, INCLUDING, WITHOUT LIMITATION, UNDER THE RULES AND
REGULATIONS OF ANY EXCHANGE OR AUTOMATED QUOTATION SYSTEM ON WHICH ANY OF THE
SECURITIES OF THE COMPANY ARE LISTED OR DESIGNATED.

 

(X)                                   SOLVENCY.  BASED ON THE FINANCIAL
CONDITION OF THE COMPANY AS OF THE CLOSING DATE AFTER GIVING EFFECT TO THE
RECEIPT BY THE COMPANY OF THE PROCEEDS FROM THE SALE OF THE SECURITIES
HEREUNDER, (I) THE COMPANY’S FAIR SALEABLE VALUE OF ITS ASSETS EXCEEDS THE
AMOUNT THAT WILL BE REQUIRED TO BE PAID ON OR IN RESPECT OF THE COMPANY’S
EXISTING DEBTS AND OTHER LIABILITIES (INCLUDING KNOWN CONTINGENT LIABILITIES) AS
THEY MATURE; (II) THE COMPANY’S ASSETS DO NOT CONSTITUTE UNREASONABLY SMALL
CAPITAL TO CARRY ON ITS BUSINESS FOR THE CURRENT FISCAL YEAR AS NOW CONDUCTED
AND AS PROPOSED TO BE CONDUCTED INCLUDING ITS CAPITAL NEEDS TAKING INTO ACCOUNT
THE PARTICULAR CAPITAL REQUIREMENTS OF THE BUSINESS CONDUCTED BY THE COMPANY,
AND PROJECTED CAPITAL REQUIREMENTS AND CAPITAL AVAILABILITY THEREOF; AND (III)
THE CURRENT CASH FLOW OF THE COMPANY THROUGH THE CURRENT FISCAL YEAR, TOGETHER
WITH THE PROCEEDS THE COMPANY WOULD RECEIVE, WERE IT TO LIQUIDATE ALL OF ITS
ASSETS, AFTER TAKING INTO ACCOUNT ALL ANTICIPATED USES OF THE CASH, WOULD BE
SUFFICIENT TO PAY ALL AMOUNTS ON OR IN RESPECT OF ITS DEBT WHEN SUCH AMOUNTS ARE
REQUIRED TO BE PAID.  THE COMPANY DOES NOT INTEND TO INCUR DEBTS BEYOND ITS
ABILITY TO PAY SUCH DEBTS AS THEY MATURE (TAKING INTO ACCOUNT THE TIMING AND
AMOUNTS OF CASH TO BE PAYABLE ON OR IN RESPECT OF ITS DEBT).  THE COMPANY HAS NO
KNOWLEDGE OF ANY FACTS OR CIRCUMSTANCES WHICH LEAD IT TO BELIEVE THAT IT WILL
FILE FOR REORGANIZATION OR LIQUIDATION UNDER THE BANKRUPTCY OR REORGANIZATION
LAWS OF ANY JURISDICTION WITHIN ONE YEAR FROM THE CLOSING DATE.  THE SEC REPORTS
SET FORTH, AS OF THE DATES THEREOF, 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 OR AMOUNTS OWED IN EXCESS OF
$50,000 (OTHER THAN TRADE ACCOUNTS PAYABLE INCURRED IN THE ORDINARY COURSE OF
BUSINESS), (B) ALL 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 $50,000 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.

 

(Y)                                 EFFECTIVE REGISTRATION STATEMENT.  THE
REGISTRATION STATEMENT HAS BEEN DECLARED EFFECTIVE BY THE COMMISSION AND THE
COMPANY KNOWS OF NO REASON WHY THE REGISTRATION STATEMENT WILL NOT CONTINUE TO
REMAIN EFFECTIVE FOR THE FORESEEABLE FUTURE.

 

(Z)                                   TAXES.  EXCEPT FOR MATTERS THAT WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE, OR REASONABLY BE EXPECTED TO RESULT IN,
A MATERIAL ADVERSE EFFECT, TO THE BEST OF THE COMPANY’S KNOWLEDGE, THE COMPANY
AND EACH SUBSIDIARY HAS FILED ALL NECESSARY FEDERAL, STATE AND FOREIGN INCOME
AND FRANCHISE TAX RETURNS AND HAS PAID OR ACCRUED ALL TAXES SHOWN AS DUE
THEREON, AND THE COMPANY HAS NO KNOWLEDGE OF A TAX DEFICIENCY WHICH HAS BEEN
ASSERTED OR THREATENED AGAINST THE COMPANY OR ANY SUBSIDIARY.

 

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(AA)                            FOREIGN CORRUPT PRACTICES.  NEITHER THE COMPANY,
NOR TO THE KNOWLEDGE OF THE COMPANY, ANY AGENT OR OTHER PERSON ACTING ON BEHALF
OF THE COMPANY, HAS (I) DIRECTLY OR INDIRECTLY, USED ANY CORRUPT FUNDS FOR
UNLAWFUL CONTRIBUTIONS, GIFTS, ENTERTAINMENT OR OTHER UNLAWFUL EXPENSES RELATED
TO FOREIGN OR DOMESTIC POLITICAL ACTIVITY, (II) MADE ANY UNLAWFUL PAYMENT TO
FOREIGN OR DOMESTIC GOVERNMENT OFFICIALS OR EMPLOYEES OR TO ANY FOREIGN OR
DOMESTIC POLITICAL PARTIES OR CAMPAIGNS FROM CORPORATE FUNDS, (III) FAILED TO
DISCLOSE FULLY ANY CONTRIBUTION MADE BY THE COMPANY (OR MADE BY ANY PERSON
ACTING ON ITS BEHALF OF WHICH THE COMPANY IS AWARE) WHICH IS IN VIOLATION OF
LAW, OR (IV) VIOLATED IN ANY MATERIAL RESPECT ANY PROVISION OF THE FOREIGN
CORRUPT PRACTICES ACT OF 1977, AS AMENDED.

 

(BB)                          ACKNOWLEDGMENT REGARDING PURCHASERS’ PURCHASE OF
SHARES.  THE COMPANY ACKNOWLEDGES AND AGREES THAT EACH OF THE PURCHASERS IS
ACTING SOLELY IN THE CAPACITY OF AN ARM’S LENGTH PURCHASER WITH RESPECT TO THE
TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY.  THE COMPANY
FURTHER ACKNOWLEDGES THAT NO PURCHASER IS ACTING AS A FINANCIAL ADVISOR OR
FIDUCIARY OF THE COMPANY (OR IN ANY SIMILAR CAPACITY) WITH RESPECT TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND ANY ADVICE GIVEN BY ANY
PURCHASER OR ANY OF THEIR RESPECTIVE REPRESENTATIVES OR AGENTS IN CONNECTION
WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IS MERELY
INCIDENTAL TO THE PURCHASERS’ PURCHASE OF THE SHARES.  THE COMPANY FURTHER
REPRESENTS TO EACH PURCHASER THAT THE COMPANY’S DECISION TO ENTER INTO THIS
AGREEMENT HAS BEEN BASED SOLELY ON THE INDEPENDENT EVALUATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY BY THE COMPANY AND ITS REPRESENTATIVES.

 

(CC)                            APPROVALS.  THE ISSUANCE AND LISTING ON THE
NASDAQ NATIONAL MARKET OF THE SHARES REQUIRES NO FURTHER APPROVALS, INCLUDING
BUT NOT LIMITED TO, THE APPROVAL OF SHAREHOLDERS.

 

(DD)                          ACCOUNTANTS.  THE COMPANY’S ACCOUNTANTS ARE SET
FORTH ON SCHEDULE 3.1(DD) OF THE DISCLOSURE SCHEDULE.  TO THE COMPANY’S
KNOWLEDGE, SUCH ACCOUNTANTS, WHO THE COMPANY EXPECTS WILL EXPRESS THEIR OPINION
WITH RESPECT TO THE FINANCIAL STATEMENTS TO BE INCLUDED IN THE COMPANY’S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDING DECEMBER 31, 2004, ARE A REGISTERED
PUBLIC ACCOUNTING FIRM AS REQUIRED BY THE SECURITIES ACT.

 

(EE)                            ACKNOWLEDGEMENT REGARDING PURCHASERS’ TRADING
ACTIVITY.  ANYTHING IN THIS AGREEMENT OR ELSEWHERE HEREIN TO THE CONTRARY
NOTWITHSTANDING, IT IS UNDERSTOOD AND AGREED BY THE COMPANY (I) THAT NONE OF THE
PURCHASERS HAVE BEEN ASKED TO AGREE, NOR HAS ANY PURCHASER AGREED, TO DESIST
FROM PURCHASING OR SELLING, LONG AND/OR SHORT, SECURITIES OF THE COMPANY, OR
“DERIVATIVE” SECURITIES BASED ON SECURITIES ISSUED BY THE COMPANY OR TO HOLD THE
SECURITIES FOR ANY SPECIFIED TERM; (II) THAT PAST OR FUTURE OPEN MARKET OR OTHER
TRANSACTIONS BY ANY PURCHASER, INCLUDING SHORT SALES, AND SPECIFICALLY
INCLUDING, WITHOUT LIMITATION, SHORT SALES OR “DERIVATIVE” TRANSACTIONS, BEFORE
OR AFTER THE CLOSING OF THIS OR FUTURE PRIVATE PLACEMENT TRANSACTIONS, MAY
NEGATIVELY IMPACT THE MARKET PRICE OF THE COMPANY’S PUBLICLY-TRADED SECURITIES;
(III) THAT ANY PURCHASER, AND COUNTER PARTIES IN “DERIVATIVE” TRANSACTIONS TO
WHICH ANY SUCH PURCHASER IS A PARTY, DIRECTLY OR INDIRECTLY, PRESENTLY MAY HAVE
A “SHORT” POSITION IN THE COMMON STOCK, AND (IV) THAT EACH PURCHASER

 

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SHALL NOT BE DEEMED TO HAVE ANY AFFILIATION WITH OR CONTROL OVER ANY ARM’S
LENGTH COUNTER-PARTY IN ANY “DERIVATIVE” TRANSACTION.

 

3.2                                 Representations and Warranties of the
Purchasers.  Each Purchaser hereby, for itself and for no other Purchaser,
represents and warrants as of the date hereof and as of the Closing Date to the
Company as follows:

 

(A)                                  ORGANIZATION; AUTHORITY.  SUCH PURCHASER IS
AN ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS
OF THE JURISDICTION OF ITS ORGANIZATION WITH FULL RIGHT, CORPORATE OR
PARTNERSHIP POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS
OBLIGATIONS THEREUNDER. THE EXECUTION, DELIVERY AND PERFORMANCE BY SUCH
PURCHASER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT HAVE BEEN DULY
AUTHORIZED BY ALL NECESSARY CORPORATE OR SIMILAR ACTION ON THE PART OF SUCH
PURCHASER.  EACH TRANSACTION DOCUMENT TO WHICH IT IS A PARTY HAS BEEN DULY
EXECUTED BY SUCH PURCHASER, AND WHEN DELIVERED BY SUCH PURCHASER IN ACCORDANCE
WITH THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND LEGALLY BINDING OBLIGATION
OF SUCH PURCHASER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS, EXCEPT
(I) AS LIMITED BY GENERAL EQUITABLE PRINCIPLES AND APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM AND OTHER LAWS OF GENERAL APPLICATION
AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS GENERALLY, (II) AS LIMITED BY LAWS
RELATING TO THE AVAILABILITY OF SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF OR OTHER
EQUITABLE REMEDIES AND (III) INSOFAR AS INDEMNIFICATION AND CONTRIBUTION
PROVISIONS MAY BE LIMITED BY APPLICABLE LAW.

 

(B)                                 PURCHASER REPRESENTATION.  SUCH PURCHASER
DOES NOT HAVE ANY AGREEMENT OR UNDERSTANDING, DIRECTLY OR INDIRECTLY, WITH ANY
PERSON TO DISTRIBUTE ANY OF THE SECURITIES. SUCH PURCHASER IS NOT REQUIRED TO BE
REGISTERED AS A BROKER-DEALER UNDER SECTION 15 OF THE EXCHANGE ACT.

 

(C)                                  EXPERIENCE OF SUCH PURCHASER.  SUCH
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 SECURITIES, AND HAS SO EVALUATED THE MERITS AND RISKS OF SUCH
INVESTMENT.  SUCH PURCHASER IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT
IN THE SECURITIES AND, AT THE PRESENT TIME, IS ABLE TO AFFORD A COMPLETE LOSS OF
SUCH INVESTMENT.

 

(D)                                 SHORT SALES.  EACH PURCHASER REPRESENTS THAT
FROM THE DATE THAT IT WAS APPROACHED (ON OR ABOUT DECEMBER 16, 2004) TO
PARTICIPATE IN THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT THROUGH THE
CLOSING DATE, NEITHER IT NOR ANY OF ITS AFFILIATES OVER WHICH PURCHASER
EXERCISES INVESTMENT DISCRETION HAVE MADE ANY NET SHORT SALES OF, OR GRANTED ANY
OPTION FOR THE PURCHASE OF OR ENTERED INTO ANY HEDGING OR SIMILAR TRANSACTION
WITH THE SAME ECONOMIC EFFECT AS A NET SHORT SALE, IN THE COMMON STOCK.

 

(E)                                  SECURITIES LAWS.  IF A PURCHASER ENGAGED IN
ANY OF THE TRADING ACTIVITIES DESCRIBED IN SECTION 3.1(D) ABOVE, SUCH PURCHASER
DID SO IN COMPLIANCE WITH FEDERAL SECURITIES LAWS.

 

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The Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 NO TRANSFER RESTRICTIONS.

 

(A)                                  CERTIFICATES EVIDENCING THE SHARES SHALL
NOT CONTAIN ANY LEGEND RESTRICTING THEIR TRANSFERABILITY BY THE PURCHASER. THE
COMPANY SHALL CAUSE ITS COUNSEL TO ISSUE A LEGAL OPINION TO THE COMPANY’S
TRANSFER AGENT IF REQUIRED BY THE COMPANY’S TRANSFER AGENT TO EFFECT A TRANSFER
OF ANY OF THE SECURITIES.

 

(B)                                 IN ADDITION TO SUCH PURCHASER’S OTHER
AVAILABLE REMEDIES, THE COMPANY SHALL PAY TO A PURCHASER, IN CASH, AS PARTIAL
LIQUIDATED DAMAGES AND NOT AS A PENALTY, FOR EACH $1,000 OF SHARES (BASED ON THE
MARKET PRICE OF THE COMMON STOCK ON THE DATE SUCH SECURITIES ARE SUBMITTED TO
THE COMPANY’S TRANSFER AGENT) FOR TRANSFER, $10 PER TRADING DAY (INCREASING TO
$20 PER TRADING DAY FIVE (5) TRADING DAYS AFTER SUCH DAMAGES HAVE BEGUN TO
ACCRUE) FOR EACH TRADING DAY AFTER THREE (3) TRADING DAYS UNTIL SUCH SECURITIES
ARE DELIVERED. NOTHING HEREIN SHALL LIMIT SUCH PURCHASER’S RIGHT TO PURSUE
ACTUAL DAMAGES FOR THE COMPANY’S FAILURE TO DELIVER CERTIFICATES REPRESENTING
ANY SECURITIES AS REQUIRED BY THE TRANSACTION DOCUMENTS, AND SUCH PURCHASER
SHALL HAVE THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT AT LAW OR IN EQUITY
INCLUDING, WITHOUT LIMITATION, A DECREE OF SPECIFIC PERFORMANCE AND/OR
INJUNCTIVE RELIEF.

 

4.2           Furnishing of Information.  As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act.  As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

4.3                                 Securities Laws Disclosure; Publicity.  The
Company shall, by 9:00 a.m. Eastern time on the Trading Day following the date
hereof file a Current Report on Form 8-K which attaches as exhibits all
agreements relating to this transaction, in each case reasonably acceptable to
each Purchaser, if such Purchaser is readily available to review such Form 8-K
in a timely manner, disclosing the material terms of the transactions
contemplated hereby.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, except as set forth in the exhibits to be attached to the Form 8-K
contemplated above, without the prior written consent of such Purchaser (such
consent not to be unreasonably

 

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withheld), except (i) as required by federal securities law and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).

 

4.4                                 Shareholders Rights Plan.  No claim will be
made or enforced by the Company or, to the knowledge of the Company, any other
Person that any Purchaser is an “Acquiring Person” under any shareholders rights
plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.

 

4.5                                 NON-PUBLIC INFORMATION.  THE COMPANY
COVENANTS AND AGREES THAT NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF
WILL PROVIDE ANY PURCHASER OR ITS AGENTS OR COUNSEL WITH ANY INFORMATION THAT
THE COMPANY BELIEVES CONSTITUTES MATERIAL NON-PUBLIC INFORMATION, UNLESS PRIOR
THERETO SUCH PURCHASER SHALL HAVE EXECUTED A WRITTEN AGREEMENT REGARDING THE
CONFIDENTIALITY AND USE OF SUCH INFORMATION.  THE COMPANY UNDERSTANDS AND
CONFIRMS THAT EACH PURCHASER SHALL BE RELYING ON THE FOREGOING REPRESENTATIONS
IN EFFECTING TRANSACTIONS IN SECURITIES OF THE COMPANY.

 

4.6                                 REIMBURSEMENT.  IF ANY PURCHASER BECOMES
INVOLVED IN ANY CAPACITY IN ANY PROCEEDING BY OR AGAINST ANY PERSON WHO IS A
STOCKHOLDER OF THE COMPANY (EXCEPT AS A RESULT OF SALES, PLEDGES, MARGIN SALES
AND SIMILAR TRANSACTIONS BY SUCH PURCHASER TO OR WITH ANY CURRENT STOCKHOLDER),
SOLELY AS A RESULT OF SUCH PURCHASER’S ACQUISITION OF THE SECURITIES UNDER THIS
AGREEMENT, THE COMPANY WILL REIMBURSE SUCH PURCHASER FOR ITS REASONABLE LEGAL
AND OTHER EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION PREPARATION AND
TRAVEL IN CONNECTION THEREWITH) INCURRED IN CONNECTION THEREWITH, AS SUCH
EXPENSES ARE INCURRED.  THE REIMBURSEMENT OBLIGATIONS OF THE COMPANY UNDER THIS
PARAGRAPH SHALL BE IN ADDITION TO ANY LIABILITY WHICH THE COMPANY MAY OTHERWISE
HAVE, SHALL EXTEND UPON THE SAME TERMS AND CONDITIONS TO ANY AFFILIATES OF THE
PURCHASERS WHO ARE ACTUALLY NAMED IN SUCH ACTION, PROCEEDING OR INVESTIGATION,
AND PARTNERS, DIRECTORS, AGENTS, EMPLOYEES AND CONTROLLING PERSONS (IF ANY), AS
THE CASE MAY BE, OF THE PURCHASERS AND ANY SUCH AFFILIATE, AND SHALL BE BINDING
UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF THE COMPANY, THE PURCHASERS AND ANY SUCH AFFILIATE AND ANY
SUCH PERSON.  THE COMPANY ALSO AGREES THAT NEITHER THE PURCHASERS NOR ANY SUCH
AFFILIATES, PARTNERS, DIRECTORS, AGENTS, EMPLOYEES OR CONTROLLING PERSONS SHALL
HAVE ANY LIABILITY TO THE COMPANY OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF OR
IN RIGHT OF THE COMPANY SOLELY AS A RESULT OF ACQUIRING THE SECURITIES UNDER
THIS AGREEMENT.

 

4.7                                 INDEMNIFICATION OF PURCHASERS.   SUBJECT TO
THE PROVISIONS OF THIS SECTION 4.7, THE COMPANY WILL INDEMNIFY AND HOLD THE
PURCHASERS AND THEIR DIRECTORS, OFFICERS, SHAREHOLDERS, PARTNERS, EMPLOYEES AND
AGENTS (EACH, A “PURCHASER PARTY”) HARMLESS FROM ANY AND ALL LOSSES,
LIABILITIES, OBLIGATIONS, CLAIMS, CONTINGENCIES, DAMAGES, COSTS AND EXPENSES,
INCLUDING ALL JUDGMENTS, AMOUNTS PAID IN SETTLEMENTS, COURT COSTS AND REASONABLE
ATTORNEYS’ FEES AND COSTS OF INVESTIGATION THAT ANY SUCH PURCHASER PARTY MAY
SUFFER OR INCUR AS A RESULT OF OR RELATING TO (A) ANY BREACH OF ANY OF THE
REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS MADE BY THE COMPANY IN THIS
AGREEMENT OR IN THE OTHER TRANSACTION DOCUMENTS OR (B) ANY ACTION INSTITUTED
AGAINST A PURCHASER, OR ANY OF THEM OR THEIR RESPECTIVE AFFILIATES, BY ANY
STOCKHOLDER OF THE COMPANY WHO IS NOT AN AFFILIATE OF SUCH PURCHASER, WITH
RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED BY THE

 

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TRANSACTION DOCUMENTS (UNLESS SUCH ACTION IS BASED UPON A BREACH OF SUCH
PURCHASER’S REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THE TRANSACTION
DOCUMENTS OR ANY AGREEMENTS OR UNDERSTANDINGS SUCH PURCHASER MAY HAVE WITH ANY
SUCH STOCKHOLDER OR ANY VIOLATIONS BY THE PURCHASER OF STATE OR FEDERAL
SECURITIES LAWS OR ANY CONDUCT BY SUCH PURCHASER WHICH CONSTITUTES FRAUD, GROSS
NEGLIGENCE, WILLFUL MISCONDUCT OR MALFEASANCE).  IF ANY ACTION SHALL BE BROUGHT
AGAINST ANY PURCHASER PARTY IN RESPECT OF WHICH INDEMNITY MAY BE SOUGHT PURSUANT
TO THIS AGREEMENT, SUCH PURCHASER PARTY SHALL PROMPTLY NOTIFY THE COMPANY IN
WRITING, AND THE COMPANY SHALL HAVE THE RIGHT TO ASSUME THE DEFENSE THEREOF WITH
COUNSEL OF ITS OWN CHOOSING.  ANY PURCHASER PARTY SHALL HAVE THE RIGHT TO EMPLOY
SEPARATE COUNSEL IN ANY SUCH ACTION AND PARTICIPATE IN THE DEFENSE THEREOF, BUT
THE FEES AND EXPENSES OF SUCH COUNSEL SHALL BE AT THE EXPENSE OF SUCH PURCHASER
PARTY EXCEPT TO THE EXTENT THAT (I) THE EMPLOYMENT THEREOF HAS BEEN SPECIFICALLY
AUTHORIZED BY THE COMPANY IN WRITING, (II) THE COMPANY HAS FAILED AFTER A
REASONABLE PERIOD OF TIME TO ASSUME SUCH DEFENSE AND TO EMPLOY COUNSEL OR (III)
IN SUCH ACTION THERE IS, IN THE REASONABLE OPINION OF SUCH SEPARATE COUNSEL, A
MATERIAL CONFLICT ON ANY MATERIAL ISSUE BETWEEN THE POSITION OF THE COMPANY AND
THE POSITION OF SUCH PURCHASER PARTY.  THE COMPANY WILL NOT BE LIABLE TO ANY
PURCHASER PARTY UNDER THIS AGREEMENT (I) FOR ANY SETTLEMENT BY A PURCHASER PARTY
EFFECTED WITHOUT THE COMPANY’S PRIOR WRITTEN CONSENT, WHICH SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED; OR (II) TO THE EXTENT, BUT ONLY TO THE EXTENT
THAT A LOSS, CLAIM, DAMAGE OR LIABILITY IS ATTRIBUTABLE TO ANY PURCHASER PARTY’S
BREACH OF ANY OF THE REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS MADE
BY THE PURCHASERS IN THIS AGREEMENT OR IN THE OTHER TRANSACTION DOCUMENTS.

 

4.8                                 RESERVATION OF COMMON STOCK. AS OF THE DATE
HEREOF, THE COMPANY HAS RESERVED AND THE COMPANY SHALL CONTINUE TO RESERVE AND
KEEP AVAILABLE AT ALL TIMES, FREE OF PREEMPTIVE RIGHTS, A SUFFICIENT NUMBER OF
SHARES OF COMMON STOCK FOR THE PURPOSE OF ENABLING THE COMPANY TO ISSUE SHARES
PURSUANT TO THIS AGREEMENT.  

 

4.9                                 LISTING OF COMMON STOCK.  THE COMPANY HEREBY
AGREES TO USE BEST EFFORTS TO MAINTAIN THE LISTING OF THE COMMON STOCK ON A
TRADING MARKET. THE COMPANY FURTHER AGREES, IF THE COMPANY APPLIES TO HAVE THE
COMMON STOCK TRADED ON ANY OTHER TRADING MARKET, IT WILL INCLUDE IN SUCH
APPLICATION ALL OF THE SHARES AND WILL TAKE SUCH OTHER ACTION AS IS NECESSARY TO
CAUSE ALL OF THE SHARES TO BE LISTED ON SUCH OTHER TRADING MARKET AS PROMPTLY AS
POSSIBLE.  THE COMPANY WILL TAKE ALL ACTION REASONABLY NECESSARY TO CONTINUE THE
LISTING AND TRADING OF ITS COMMON STOCK ON A TRADING MARKET AND WILL COMPLY IN
ALL RESPECTS WITH THE COMPANY’S REPORTING, FILING AND OTHER OBLIGATIONS UNDER
THE BYLAWS OR RULES OF THE TRADING MARKET.

 

4.10                           EQUAL TREATMENT OF PURCHASERS.  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.  FOR CLARIFICATION PURPOSES, THIS PROVISION CONSTITUTES A SEPARATE
RIGHT GRANTED TO EACH PURCHASER BY THE COMPANY AND NEGOTIATED SEPARATELY BY EACH
PURCHASER, AND IS INTENDED TO TREAT FOR THE COMPANY THE PURCHASERS AS A CLASS
AND SHALL NOT IN ANY WAY BE CONSTRUED AS THE PURCHASERS ACTING IN CONCERT OR AS
A GROUP WITH RESPECT TO THE PURCHASE, DISPOSITION OR VOTING OF SECURITIES OR
OTHERWISE.

 

4.11                           SUBSEQUENT EQUITY SALES.  FROM THE DATE HEREOF
UNTIL 30 DAYS AFTER THE CLOSING DATE, NEITHER THE COMPANY NOR ANY SUBSIDIARY
SHALL ISSUE SHARES OF COMMON STOCK OR COMMON

 

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STOCK EQUIVALENTS; WITHOUT THE PRIOR WRITTEN CONSENT OF EACH PURCHASER (SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD).  NOTWITHSTANDING THE FOREGOING, THIS
SECTION 4.11 SHALL NOT APPLY IN RESPECT OF AN EXEMPT ISSUANCE OR IN RESPECT OF
SHARES OF COMMON STOCK AND COMMON STOCK EQUIVALENTS WHICH THE COMPANY IS NOT
PERMITTED TO REGISTER UNDER THE SECURITIES ACT FOR AT LEAST 12 MONTHS FOLLOWING
THE CLOSING DATE.

 

4.12                           APPROVAL OF SUBSEQUENT EQUITY SALES.  THE COMPANY
SHALL NOT ISSUE SHARES OF COMMON STOCK OR COMMON STOCK EQUIVALENTS IF SUCH
ISSUANCE WOULD REQUIRE SHAREHOLDER APPROVAL PURSUANT TO RULE 4350 OF THE NASD
MARKETPLACE RULES, UNLESS AND UNTIL SUCH SHAREHOLDER APPROVAL IS OBTAINED.

 

4.13                           PARTICIPATION IN FUTURE FINANCING.  FROM THE DATE
HEREOF UNTIL 6 MONTHS AFTER THE CLOSING DATE, UPON ANY FINANCING BY THE COMPANY
OF ITS COMMON STOCK OR COMMON STOCK EQUIVALENTS (A “SUBSEQUENT FINANCING”), EACH
PURCHASER SHALL HAVE THE RIGHT TO PARTICIPATE IN UP TO 100% OF SUCH SUBSEQUENT
FINANCING (THE “PARTICIPATION MAXIMUM”).  AT LEAST 5 TRADING DAYS PRIOR TO THE
CLOSING OF THE SUBSEQUENT FINANCING, THE COMPANY SHALL DELIVER TO EACH PURCHASER
A WRITTEN NOTICE OF ITS INTENTION TO EFFECT A SUBSEQUENT FINANCING
(“PRE-NOTICE”), WHICH PRE-NOTICE SHALL ASK SUCH PURCHASER IF IT WANTS TO REVIEW
THE DETAILS OF A PROPOSED FINANCING (SUCH ADDITIONAL NOTICE, A “SUBSEQUENT
FINANCING NOTICE”).  UPON THE REQUEST OF A PURCHASER, AND ONLY UPON A REQUEST BY
SUCH PURCHASER, FOR A SUBSEQUENT FINANCING NOTICE, THE COMPANY SHALL PROMPTLY,
BUT NO LATER THAN 1 TRADING DAY AFTER SUCH REQUEST, DELIVER A SUBSEQUENT
FINANCING NOTICE TO SUCH PURCHASER.  THE SUBSEQUENT FINANCING NOTICE SHALL
DESCRIBE IN REASONABLE DETAIL THE PROPOSED TERMS OF SUCH SUBSEQUENT FINANCING,
THE AMOUNT OF PROCEEDS INTENDED TO BE RAISED THEREUNDER, THE PERSON WITH WHOM
SUCH SUBSEQUENT FINANCING IS PROPOSED TO BE EFFECTED, AND ATTACHED TO WHICH
SHALL BE A TERM SHEET OR SIMILAR DOCUMENT RELATING THERETO.    IF BY 6:30 P.M.
(NEW YORK CITY TIME) ON THE FIFTH TRADING DAY AFTER ALL OF THE PURCHASERS HAVE
RECEIVED THE PRE-NOTICE, NOTIFICATIONS BY THE PURCHASERS OF THEIR WILLINGNESS TO
PARTICIPATE IN THE SUBSEQUENT FINANCING (OR TO CAUSE THEIR DESIGNEES TO
PARTICIPATE) IS, IN THE AGGREGATE, LESS THAN THE TOTAL AMOUNT OF THE SUBSEQUENT
FINANCING, THEN THE COMPANY MAY EFFECT THE REMAINING PORTION OF SUCH SUBSEQUENT
FINANCING ON THE TERMS AND TO THE PERSONS SET FORTH IN THE SUBSEQUENT FINANCING
NOTICE.  IF THE COMPANY RECEIVES NO NOTICE FROM A PURCHASER AS OF SUCH FIFTH
TRADING DAY, SUCH PURCHASER SHALL BE DEEMED TO HAVE NOTIFIED THE COMPANY THAT IT
DOES NOT ELECT TO PARTICIPATE.  THE COMPANY MUST PROVIDE THE PURCHASERS WITH A
SECOND SUBSEQUENT FINANCING NOTICE, AND THE PURCHASERS WILL AGAIN HAVE THE RIGHT
OF PARTICIPATION SET FORTH ABOVE IN THIS SECTION 4.13, IF THE SUBSEQUENT
FINANCING SUBJECT TO THE INITIAL SUBSEQUENT FINANCING NOTICE IS NOT CONSUMMATED
FOR ANY REASON ON THE TERMS SET FORTH IN SUCH SUBSEQUENT FINANCING NOTICE WITHIN
60 TRADING DAYS AFTER THE DATE OF THE INITIAL SUBSEQUENT FINANCING NOTICE. IN
THE EVENT THE COMPANY RECEIVES RESPONSES TO SUBSEQUENT FINANCING NOTICES FROM
PURCHASERS SEEKING TO PURCHASE MORE THAN THE AGGREGATE AMOUNT OF THE SUBSEQUENT
FINANCING, EACH SUCH PURCHASER SHALL HAVE THE RIGHT TO PURCHASE THEIR PRO RATA
PORTION (AS DEFINED BELOW) OF THE PARTICIPATION MAXIMUM.  “PRO RATA PORTION” IS
THE RATIO OF (X) THE SUBSCRIPTION AMOUNT OF SECURITIES PURCHASED BY A
PARTICIPATING PURCHASER AND (Y) THE SUM OF THE AGGREGATE SUBSCRIPTION AMOUNT OF
ALL PARTICIPATING PURCHASERS.  NOTWITHSTANDING THE FOREGOING, THIS SECTION 4.13
SHALL NOT APPLY IN RESPECT OF AN EXEMPT ISSUANCE.

 

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ARTICLE V.
MISCELLANEOUS

 

5.1                                 TERMINATION.  THIS AGREEMENT MAY BE
TERMINATED BY ANY PURCHASER, AS APPLIED TO SUCH PURCHASER, BY WRITTEN NOTICE TO
THE OTHER PARTIES, IF THE CLOSING HAS NOT BEEN CONSUMMATED ON OR BEFORE
DECEMBER 31, 2004, PROVIDED HOWEVER THAT NO SUCH TERMINATION WILL AFFECT THE
RIGHT OF ANY PARTY TO SUE FOR ANY BREACH BY THE OTHER PARTY (OR PARTIES).

 

5.2                                 FEES AND EXPENSES.  THE COMPANY SHALL
DELIVER, PRIOR TO THE CLOSING, A COMPLETED AND EXECUTED COPY OF THE CLOSING
STATEMENT, ATTACHED HERETO AS ANNEX A. EXCEPT AS OTHERWISE SET FORTH IN THIS
AGREEMENT, 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.  THE COMPANY SHALL PAY ALL STAMP AND OTHER TAXES
AND DUTIES LEVIED IN CONNECTION WITH THE SALE OF THE SECURITIES.

 

5.3                                 ENTIRE AGREEMENT.  THE TRANSACTION
DOCUMENTS, TOGETHER WITH THE EXHIBITS AND SCHEDULES THERETO, 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, WHICH THE PARTIES ACKNOWLEDGE HAVE BEEN MERGED INTO SUCH
DOCUMENTS, EXHIBITS AND SCHEDULES.

 

5.4                                 NOTICES.  ANY AND ALL NOTICES OR OTHER
COMMUNICATIONS OR DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER
SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF
(A) THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA
FACSIMILE AT THE FACSIMILE NUMBER SET FORTH ON THE SIGNATURE PAGES ATTACHED
HERETO PRIOR TO 6:30 P.M. (NEW YORK CITY TIME) ON A TRADING DAY, (B) THE NEXT
TRADING DAY AFTER THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS
DELIVERED VIA FACSIMILE AT THE FACSIMILE NUMBER SET FORTH ON THE SIGNATURE PAGES
ATTACHED HERETO ON A DAY THAT IS NOT A TRADING DAY OR LATER THAN 6:30 P.M. (NEW
YORK CITY TIME) ON ANY TRADING DAY, (C) THE SECOND TRADING DAY FOLLOWING THE
DATE OF MAILING, IF SENT BY U.S. NATIONALLY RECOGNIZED OVERNIGHT COURIER
SERVICE, OR (D) UPON ACTUAL RECEIPT BY THE PARTY TO WHOM SUCH NOTICE IS REQUIRED
TO BE GIVEN.  THE ADDRESS FOR SUCH NOTICES AND COMMUNICATIONS SHALL BE AS SET
FORTH ON THE SIGNATURE PAGES ATTACHED HERETO.

 

5.5                                 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 THE COMPANY AND EACH 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 SUBSEQUENT DEFAULT 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.

 

5.6                                 CONSTRUCTION.  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.  THE LANGUAGE USED IN
THIS AGREEMENT WILL BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO
EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED
AGAINST ANY PARTY.

 

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5.6                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR
SUCCESSORS AND PERMITTED ASSIGNS.  THE COMPANY MAY NOT ASSIGN THIS AGREEMENT OR
ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF EACH
PURCHASER.  ANY PURCHASER MAY ASSIGN ANY OR ALL OF ITS RIGHTS UNDER THIS
AGREEMENT TO ANY PERSON TO WHOM SUCH PURCHASER ASSIGNS OR TRANSFERS ANY
SECURITIES, PROVIDED SUCH TRANSFEREE AGREES IN WRITING TO BE BOUND, WITH RESPECT
TO THE TRANSFERRED SECURITIES, BY THE PROVISIONS HEREOF THAT APPLY TO THE
“PURCHASERS”.

 

5.7                                 NO THIRD-PARTY BENEFICIARIES.  THIS
AGREEMENT IS INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND PERMITTED ASSIGNS AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY
PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON, EXCEPT AS OTHERWISE SET FORTH
IN SECTION 4.7.

 

5.8                                 GOVERNING LAW.  ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THE TRANSACTION
DOCUMENTS 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.  EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS
CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND ANY OTHER TRANSACTION DOCUMENTS (WHETHER
BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS,
OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN
THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK.  EACH PARTY HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF  ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER OR INCONVENIENT VENUE FOR SUCH
PROCEEDING.  EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) 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 CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW.  THE PARTIES HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.  IF
EITHER PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF
THE TRANSACTION DOCUMENTS, THEN THE PREVAILING PARTY IN SUCH ACTION OR
PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEYS’ FEES AND
OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION AND
PROSECUTION OF SUCH ACTION OR PROCEEDING.

 

5.9                                 SURVIVAL.  THE REPRESENTATIONS AND
WARRANTIES HEREIN SHALL SURVIVE THE CLOSING AND DELIVERY OF THE SHARES.

 

5.10                           EXECUTION.  THIS AGREEMENT MAY BE EXECUTED IN TWO
OR MORE COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER SHALL BE CONSIDERED ONE
AND THE SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN
SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTY, IT BEING UNDERSTOOD THAT
BOTH PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY
SIGNATURE IS DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A
VALID AND BINDING

 

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OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH SIGNATURE IS
EXECUTED) WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE SIGNATURE PAGE
WERE AN ORIGINAL THEREOF.

 

5.11                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
IS HELD TO 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 AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT TO AGREE
UPON A VALID AND ENFORCEABLE PROVISION THAT IS A REASONABLE SUBSTITUTE THEREFOR,
AND UPON SO AGREEING, SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS
AGREEMENT.

 

5.12                           RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR
PROVISIONS OF) THE TRANSACTION DOCUMENTS, WHENEVER ANY PURCHASER EXERCISES A
RIGHT, ELECTION, DEMAND OR OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY
DOES NOT TIMELY PERFORM ITS RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN
PROVIDED, THEN SUCH PURCHASER MAY RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION
FROM TIME TO TIME UPON WRITTEN NOTICE TO THE COMPANY, ANY RELEVANT NOTICE,
DEMAND OR ELECTION IN WHOLE OR IN PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS
AND RIGHTS.

 

5.13                           REPLACEMENT OF SECURITIES.  IF ANY CERTIFICATE OR
INSTRUMENT EVIDENCING ANY SECURITIES IS MUTILATED, LOST, STOLEN OR DESTROYED,
THE COMPANY SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE AND SUBSTITUTION FOR
AND UPON CANCELLATION THEREOF, OR IN LIEU OF AND SUBSTITUTION THEREFOR, A NEW
CERTIFICATE OR INSTRUMENT, BUT ONLY UPON RECEIPT OF EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY OF SUCH LOSS, THEFT OR DESTRUCTION AND CUSTOMARY AND
REASONABLE INDEMNITY, IF REQUESTED.  THE APPLICANTS FOR A NEW CERTIFICATE OR
INSTRUMENT UNDER SUCH CIRCUMSTANCES SHALL ALSO PAY ANY REASONABLE THIRD-PARTY
COSTS ASSOCIATED WITH THE ISSUANCE OF SUCH REPLACEMENT SECURITIES.

 

5.14                           REMEDIES.  IN ADDITION TO BEING ENTITLED TO
EXERCISE ALL RIGHTS PROVIDED HEREIN OR GRANTED BY LAW, INCLUDING RECOVERY OF
DAMAGES, EACH OF THE PURCHASERS AND THE COMPANY WILL BE ENTITLED TO SPECIFIC
PERFORMANCE UNDER THE TRANSACTION DOCUMENTS.  THE PARTIES AGREE THAT MONETARY
DAMAGES MAY NOT BE ADEQUATE COMPENSATION FOR ANY LOSS INCURRED BY REASON OF ANY
BREACH OF 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.

 

5.15                           PAYMENT SET ASIDE.  TO THE EXTENT THAT THE
COMPANY MAKES A PAYMENT OR PAYMENTS TO ANY PURCHASER PURSUANT TO ANY TRANSACTION
DOCUMENT OR A PURCHASER ENFORCES OR EXERCISES ITS RIGHTS THEREUNDER, AND SUCH
PAYMENT OR PAYMENTS OR THE PROCEEDS OF SUCH ENFORCEMENT OR EXERCISE OR ANY PART
THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE FRAUDULENT OR PREFERENTIAL,
SET ASIDE, RECOVERED FROM, DISGORGED BY OR ARE REQUIRED TO BE REFUNDED, REPAID
OR OTHERWISE RESTORED TO THE COMPANY, A TRUSTEE, RECEIVER OR ANY OTHER PERSON
UNDER ANY LAW (INCLUDING, WITHOUT LIMITATION, ANY BANKRUPTCY LAW, STATE OR
FEDERAL LAW, COMMON LAW OR EQUITABLE CAUSE OF ACTION), THEN TO THE EXTENT OF ANY
SUCH RESTORATION THE OBLIGATION OR PART THEREOF ORIGINALLY INTENDED TO BE
SATISFIED SHALL BE REVIVED AND CONTINUED IN FULL FORCE AND EFFECT AS IF SUCH
PAYMENT HAD NOT BEEN MADE OR SUCH ENFORCEMENT OR SETOFF HAD NOT OCCURRED.

 

5.16                           INDEPENDENT NATURE OF PURCHASERS’ OBLIGATIONS AND
RIGHTS.  THE OBLIGATIONS OF EACH PURCHASER UNDER ANY TRANSACTION DOCUMENT ARE
SEVERAL AND NOT JOINT WITH THE OBLIGATIONS OF

 

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ANY OTHER PURCHASER, AND NO PURCHASER SHALL BE RESPONSIBLE IN ANY WAY FOR THE
PERFORMANCE OF THE OBLIGATIONS OF ANY OTHER PURCHASER UNDER ANY TRANSACTION
DOCUMENT.  NOTHING CONTAINED HEREIN OR IN ANY TRANSACTION DOCUMENT, AND NO
ACTION TAKEN BY ANY PURCHASER PURSUANT THERETO, SHALL BE DEEMED TO 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 DOCUMENT.  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.  EACH
PURCHASER HAS BEEN REPRESENTED BY ITS OWN SEPARATE LEGAL COUNSEL IN THEIR REVIEW
AND NEGOTIATION OF THE TRANSACTION DOCUMENTS.  FOR REASONS OF ADMINISTRATIVE
CONVENIENCE ONLY, PURCHASERS AND THEIR RESPECTIVE COUNSEL HAVE CHOSEN TO
COMMUNICATE WITH THE COMPANY THROUGH FELDMAN WEINSTEIN LLP (“FW”).  FW DOES NOT
REPRESENT ALL OF THE PURCHASERS BUT ONLY CORPFIN INC., WHO HAS ACTED AS
PLACEMENT AGENT TO THE TRANSACTION.  THE COMPANY HAS ELECTED TO PROVIDE ALL
PURCHASERS WITH THE SAME TERMS AND TRANSACTION DOCUMENTS FOR THE CONVENIENCE OF
THE COMPANY AND NOT BECAUSE IT WAS REQUIRED OR REQUESTED TO DO SO BY THE
PURCHASERS.

 

5.17                           LIQUIDATED DAMAGES.  THE COMPANY’S OBLIGATIONS TO
PAY ANY PARTIAL LIQUIDATED DAMAGES OR OTHER AMOUNTS OWING UNDER THE TRANSACTION
DOCUMENTS IS A CONTINUING OBLIGATION OF THE COMPANY AND SHALL NOT TERMINATE
UNTIL ALL UNPAID PARTIAL LIQUIDATED DAMAGES AND OTHER AMOUNTS HAVE BEEN PAID
NOTWITHSTANDING THE FACT THAT THE INSTRUMENT OR SECURITY PURSUANT TO WHICH SUCH
PARTIAL LIQUIDATED DAMAGES OR OTHER AMOUNTS ARE DUE AND PAYABLE SHALL HAVE BEEN
CANCELED.

 

5.18                           CONSTRUCTION. THE PARTIES AGREE THAT EACH OF THEM
AND/OR THEIR RESPECTIVE COUNSEL HAS REVIEWED AND HAD AN OPPORTUNITY TO REVISE
THE TRANSACTION DOCUMENTS AND, THEREFORE, THE NORMAL RULE OF CONSTRUCTION TO THE
EFFECT THAT ANY AMBIGUITIES ARE TO BE RESOLVED AGAINST THE DRAFTING PARTY SHALL
NOT BE EMPLOYED IN THE INTERPRETATION OF THE TRANSACTION DOCUMENTS OR ANY
AMENDMENTS HERETO.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

Wave Systems Corp.

Address for Notice:

 

 

 

 

 

By:

 

 

Wave Systems Corp

Name: Gerard T. Feeney

480 Pleasant Street

Title: Chief Financial Officer

Lee, MA 01238

 

 

With a copy to (which shall not constitute notice):

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

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[PURCHASER SIGNATURE PAGES TO WAVX SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

Name of Investing Entity:

Signature of Authorized Signatory of Investing Entity:

Name of Authorized Signatory:

Title of Authorized Signatory:

Email Address of Authorized Entity:

 

Address for Notice of Investing Entity:

 

 

 

 

Address for Delivery of Securities for Investing Entity (if not same as above):

 

 

DWAC Instructions for Common Stock:

 

 

Subscription Amount: $   ,000,000

 

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

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Annex A

 

CLOSING STATEMENT

 

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $   ,000,000 of Common Stock from
Wave Systems Corp., a Delaware corporation (the “Company”).  All funds will be
wired into the Company’s account.  All funds will be disbursed in accordance
with this Closing Statement.

 

Disbursement Date:  December      , 2004

 

 

I.

PURCHASE PRICE

 

 

 

 

 

 

 

Gross Proceeds to be Received

$

 

 

 

 

II.

DISBURSEMENTS

 

 

 

 

 

 

 

Corpfin Inc.

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

Total Amount Disbursed:

$

 

 

 

 

 

 

 

WIRE INSTRUCTIONS:

 

 

 

See attached

 

 

 

 

 

To:

 

 

 

 

 

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SCHEDULE 3.1(g) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 16, 2004

 

FOR

WAVE SYSTEMS CORP.

 

OPTIONS AND WARRANTS OUTSTANDING:

 

Options granted pursuant to Employee and Non-employee

 

 

 

Director Stock Option plans

 

11,522,357

 

Warrants Outstanding(1)

 

5,754,823

 

Total

 

17,277,180

 

 

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(1) Includes warrants granted in connection with the August 2, 2004 offering, to
purchase 3,529,412 Class A Common Shares initially granted with an exercise
price of $1.15 adjusted to an exercise price of $1.1428 pursuant to a Series A
Common Stock Purchase Warrant and 882,353 Class A Common Shares initially
granted with an exercise price of $1.30 adjusted to an exercise price of $1.2820
pursuant to a Series B Common Stock Purchase Warrant.  The Series A and Series B
Stock Purchase Warrants contained a provision whereby their exercise price would
be adjusted in the event that Wave sold additional shares at prices below the
exercise prices contained therein.

 

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SCHEDULE 3.1(j) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 16, 2004

 

FOR

WAVE SYSTEMS CORP.

 

LITIGATION:

 

Securities and Exchange Commission Investigation

 

On December 17, 2003, Wave received an Order by the Securities and Exchange
Commission (the “Commission”) regarding a formal investigation.  The focus of
this investigation is on certain public statements made by Wave during and
around August 2003, as well as certain trading in Wave’s securities during such
time.  The Commission has not concluded that there has been any wrongdoing and
Wave is cooperating fully with the Commission on this matter.  Wave cannot
predict the potential effect on Wave as a result of this investigation at this
time.

 

Purported Class Actions

 

Several (9 known) similar purported class action complaints have been filed
between January 23, 2004, and February 23, 2004, most in the United States
District Court for the District of Massachusetts, seven (7) of which name Wave,
its Chief Executive Officer, its Chief Financial Officer and two (2) of which
also name Wave’s Chairman of the Board, as defendants.

 

The purported class action complaints have been filed by alleged purchasers of
Wave’s Class A Common Stock during the purported class period July 31, 2003,
through February 2, 2004.  The plaintiffs have since filed consolidated amended
complaints.  The complaints claim that Wave and the named individuals violated
the federal securities laws by publicly disseminating materially false and
misleading statements regarding Wave, relating to Intel and IBM agreements,
resulting in the artificial inflation of Wave’s Class A Common Stock price
during the purported class periods.  The complaints do not specify the amount of
alleged damages plaintiffs seek to recover.

 

Wave intends to defend the actions vigorously.  At this time, Wave is unable to
predict the outcome of these actions.

 

Derivative Actions

 

Wave has learned of three (3) other complaints filed in the United States
District Court for the District of Massachusetts.  The plaintiffs have since
filed consolidated amended complaints.  Wave believes that the complaints name
all of its directors as defendants and allege claims for breach of fiduciary
duties and other claims.  The allegations are very similar to the allegations
made in the purported securities class actions because the allegations concern
the very same alleged statements alleged in the purported class actions.  Wave
is also named as a nominal defendant, although the actions are derivative in
nature and purportedly asserted on behalf of Wave.  Wave is in the process of
evaluating these claims.

 

Wave intends to defend the actions vigorously.  At this time, Wave is unable to
predict the outcome of these actions.

 

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SCHEDULE 3.1(t) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 16, 2004

 

FOR

WAVE SYSTEMS CORP.

LISTING & MAINTENANCE REQUIREMENTS:

 

On September 14, 2004, Wave Systems Corp. received notification from The Nasdaq
Stock Market indicating that for the last 30 consecutive business days, the bid
price of Wave’s common stock has closed below the minimum $1.00 per share
requirement for continued inclusion under Marketplace Rule 4450(b)(4).  The
Nasdaq notice indicated that in accordance with Marketplace Rule 4450(e)(2),
Wave will be provided 180 calendar days, or until March 14, 2005, to regain
compliance by having its shares close above $1.00 for a minimum of 10
consecutive trading days.  The Nasdaq notice further provided that, if Wave’s
shares have not regained compliance during this period, but otherwise meet the
applicable initial listing requirements, Wave may qualify for a second 180 day
compliance period.  Thereafter, if Wave has not regained compliance by July 26,
2005, Nasdaq will issue a letter notifying Wave of its continued non-compliance,
the pending expiration of the compliance period, and its right to request a
hearing.  If Wave does not regain compliance by March 14, 2005 and is not
eligible for an additional compliance period, Nasdaq will provide written
notification that Wave’s common stock will be delisted or moved to The Nasdaq
SmallCap Market.  At that time, Wave may appeal the determination to delist its
securities to a Listings Qualifications Panel.

 

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SCHEDULE 3.1(x) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 16, 2004

 

FOR

WAVE SYSTEMS CORP.

 

Solvency:

 

As used in the second full sentence of section 3.1(x) of the purchase agreement,
“debt” shall exclude trade accounts payable, accrued expenses incurred in the
normal course of business, deferred revenue and commitments on operating leases.

 

30

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SCHEDULE 3.1(dd) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 16, 2004

 

FOR

WAVE SYSTEMS CORP.

ACCOUNTANTS:

KPMG, LLP

 

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