Exhibit 10.2

 

PLACEMENT AGENCY AGREEMENT

 

                                                                                                                                                                                                                                               
June 11, 2014

 

WAVE SYSTEMS CORP.

480 Pleasant Street

Lee, MA 01238

Attention: William M. Solms

 

Ladies and Gentlemen:

 

Introduction.  Subject to the terms and conditions herein (this “Agreement”) and
pursuant to that certain engagement agreement, dated as of June 2, 2014, by and
between Wave Systems Corp., a Delaware corporation (the “Company”), and
Craig-Hallum Capital Group LLC (“C-H” or the “Placement Agent”), the Company
hereby engages C-H as the exclusive placement agent for the Company, on a
reasonable best efforts basis, in connection with the proposed placement (the
“Placement”) of registered securities (the “Securities”) of the Company,
including, but not limited to, shares (the “Shares”) of the Company’s Class A
common stock, par value $0.01 per share (the “Common Stock”) and Common Stock
purchase warrants (the “Warrants”).  The terms of the Placement and the
Securities shall be mutually agreed upon by the Company and the purchasers
(each, a “Purchaser” and, collectively, the “Investors”) and nothing herein
constitutes that C-H would have the power or authority to bind the Company or
any Purchaser or create any obligation for the Company to issue any Securities
or complete the Placement.  This Agreement and the documents executed and
delivered by the Company and the Investors in connection with a Placement shall
be collectively referred to herein as the “Transaction Documents.”  The date of
the closing (“Closing”) of the Placement shall be referred to herein as the
“Closing Date.”  The Company expressly acknowledges and agrees that C-H’s
obligations hereunder are on a reasonable best efforts basis only and that the
execution of this Agreement does not constitute a commitment by C-H to purchase
the Securities and does not ensure the successful placement of the Securities or
any portion thereof or the success of C-H with respect to securing any other
financing on behalf of the Company.

 

The Company hereby confirms its agreement with the Placement Agent as follows:

 

Section 1.                                          Agreement to Act as
Placement Agent.

 

(a)                                 On the basis of the representations,
warranties and agreements of the Company herein contained, and subject to all
the terms and conditions of this Agreement, the Placement Agent shall be the
exclusive Placement Agent in connection with the offering and sale by the
Company of the Securities pursuant to the Company’s registration statement on
Form S-3 (File No. 333-190539 (the “Registration Statement”), with the terms of
the Placement to be subject to market conditions and negotiations between the
Company, the Placement Agent and the prospective Investors.  The Placement Agent
will act on a reasonable best efforts basis and the Company agrees and
acknowledges that there is no guarantee of the successful placement of the
Securities, or any portion thereof, in the prospective Placement.  Under no
circumstances will the Placement Agent or any of its Affiliates (as defined
below) be obligated to underwrite or purchase any of the Securities for its own
account or otherwise provide any financing.  The Placement Agent shall act
solely as the Company’s agent and not as principal.  The Placement Agent shall
have no authority to bind the Company with respect to any prospective offer to
purchase Securities and the Company shall have the sole right to accept offers
to purchase Securities and may reject any such offer, in whole or in part. 
Subject to the terms and conditions hereof, payment of the purchase price for,
and delivery of, the Securities shall be made at the

 

--------------------------------------------------------------------------------

 

Closing on the Closing Date.  As compensation for services rendered, on the
Closing Date, the Company shall pay to the Placement Agent the fees and expenses
set forth below:

 

(i)                                     A cash fee equal to 7% of the gross
proceeds received by the Company from the sale of the Securities at the Closing.

 

(ii)                                  In addition to any fees that may be
payable to C-H pursuant to Section 1(a)(i), at the Closing the Company hereby
agrees to reimburse C-H for (a) all reasonable out-of-pocket accountable fees
and disbursements of counsel retained by C-H with Company’s consent, (b) all of
C-H’s reasonable out-of-pocket accountable travel and related expenses arising
out of C-H’s engagement hereunder, and (c) any other reasonable out-of-pocket
accountable expenses incurred by C-H in connection with the performance of its
services hereunder.  Such total reimbursable expenses shall not exceed 1% of the
gross proceeds of the offering with a maximum allowed amount of $125,000.

 

(b)                                 The term (“Exclusive Term”) of this
Agreement shall extend from the date hereof until the close of business on the
earlier of (i) June 30, 2014, (ii) Early Termination (as defined below) and
(iii) the Closing of the Placement.  This Agreement may be extended beyond the
initial term if both the Company and C-H agree to such extension in writing. 
“Early Termination” shall occur if C-H, in its sole discretion, has elected to
terminate its involvement in the Placement because the outcome of its
investigation and inquiry into the affairs of the Company, as C-H deems
appropriate and necessary under the circumstances, is not to its satisfaction or
the approval of its internal committee is not obtained.  Notwithstanding
anything to the contrary contained herein, the provisions concerning
confidentiality, indemnification and contribution contained herein and the
Company’s obligations contained in the indemnification provisions will survive
any expiration or termination of this Agreement, and the Company’s obligation to
pay fees actually earned and payable and to reimburse expenses actually incurred
and reimbursable pursuant to Section 1(a) hereof and which are permitted to be
reimbursed under FINRA Rule 5110(f)(2)(D), will survive any expiration or
termination of this Agreement.  Nothing in this Agreement shall be construed to
limit the ability of the Placement Agent or its Affiliates to pursue,
investigate, analyze, invest in, or engage in investment banking, financial
advisory or any other business relationship with Persons (as defined below)
other than the Company. As used herein (i) “Persons” 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 and (ii) “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 405 under the
Securities Act of 1933, as amended (the “Securities Act”).

 

(c)                                  During the term of this Agreement the
Company will not, and will not permit its representatives, without the Placement
Agent’s prior consent, to: (i) contact or solicit institutions, corporations or
other entities as potential purchasers of the Securities, other than in
connection with the Placement in coordination with the Placement Agent; or
(ii) pursue any other placement or offering of the Securities or financing
transaction that would be in lieu of the contemplated Placement.  Furthermore,
the Company agrees that during the term of this Agreement, all inquiries,
whether direct or indirect, from prospective investors will be referred to C-H
and will be deemed to have been contacted by C-H in connection with the
Placement. The Company may reject any potential investor if, in its discretion,
the Company believes that the inclusion of such investor as a purchaser of the
Securities would be incompatible with the best interests of the Company.  The
Company shall not be obligated to sell the Securities or to accept any offer

 

2

--------------------------------------------------------------------------------

 

thereof, and the terms of such Securities and the final decision to issue the
same shall be subject to the sole discretionary approval of the Company.

 

Section 2.                                          Representations, Warranties
and Covenants of the Company.  Except as set forth in the Company’s SEC Reports,
which shall be deemed a part hereof and shall qualify any representation made
herein, the Company hereby represents, warrants and covenants to the Placement
Agent as of the date hereof, and as of the Closing Date, as follows:

 

(a)                                 Securities Law Filings.  The Company has
filed with the Securities and Exchange Commission (the “Commission”) the
Registration Statement under the Securities Act, which was declared effective on
September 12, 2013 for the registration under the Securities Act of the
Securities and has prepared for delivery to prospective Investors a final
prospectus supplement relating to the placement of the Securities (the
“Prospectus Supplement”), including the pricing and plan of distribution thereof
and along with all further information (financial and other) with respect to the
Company required to be set forth therein pursuant to the rules and regulations
(the “Rules and Regulations”) of the Commission promulgated thereunder.  Any
reference in this Agreement to the Registration Statement, the prospectus
included therein, as amended ( the “Base Prospectus”) or the Prospectus
Supplement, including any documents, schedules or statements filed pursuant to
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and
incorporated by reference therein, shall be referred to as the “Incorporated
Documents”.  The Company has not received any notice that the Commission has
issued or intends to issue a stop order suspending the effectiveness of the
Registration Statement or the use of the Base Prospectus or the Prospectus
Supplement or intends to commence a proceeding for any such purpose.

 

(b)                                 Assurances.  The Registration Statement, as
amended, (and any further documents to be filed with the Commission) contains
all exhibits and schedules as required by the Securities Act.  Each of the
Registration Statement and any post-effective amendments thereto, at the time it
became effective, complied in all material respects with the Securities Act and
the applicable Rules and Regulations and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Base Prospectus, and the Prospectus
Supplement, each as of its respective date, comply or will comply in all
material respects with the Securities Act and the applicable Rules and
Regulations.  Each of the Base Prospectus and the Prospectus Supplement, as
amended or supplemented, did not and will not contain as of the date thereof any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Incorporated Documents, when they were
filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act and the applicable rules and regulations
promulgated thereunder, and none of such documents, when they were filed with
the Commission, contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein (with respect to
Incorporated Documents incorporated by reference in the Base Prospectus or
Prospectus Supplement), in light of the circumstances under which they were made
not misleading.  No post-effective amendment to the Registration Statement
reflecting any facts or events arising after the date thereof which represent,
individually or in the aggregate, a fundamental change in the information set
forth therein is required to be filed with the Commission.  Except for this
Agreement, there are no documents required to be filed with the Commission in
connection with the transaction contemplated hereby that (x) have not been filed
as required pursuant to the Securities Act or (y) will not be filed within the
requisite time period. Except for this Agreement, there are no contracts or
other documents required to be described in the Base Prospectus or

 

3

--------------------------------------------------------------------------------

 

Prospectus Supplement, or to be filed as exhibits or schedules to the
Registration Statement, which have not been described or filed as required.

 

(c)                                  Placement Materials.  Neither the Company
nor any of its directors and officers has distributed and none of them will
distribute, prior to the Closing Date, any offering material in connection with
the offering and sale of the Securities other than the Base Prospectus, the
Prospectus Supplement, the Registration Statement, copies of the documents
incorporated by reference therein and any other materials permitted by the
Securities Act.

 

(d)                                 Subsidiaries.  All of the direct and
indirect subsidiaries of the Company (the “Subsidiaries”) are set forth in the
Incorporated Documents.  The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
liens, charges, security interests, encumbrances, rights of first refusal,
preemptive rights or other restrictions (collectively, “Liens”), and all of 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.

 

(e)                                  Organization and Qualification.  The
Company and each of 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, 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
nor 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
this Agreement or any other agreement entered into between the Company and the
Investors, (ii) a material adverse effect on the results of operations, assets,
business or condition (financial or otherwise) 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 this Agreement or the transactions contemplated under the
Prospectus Supplement (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened (“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.

 

(f)                                   Authorization; Enforcement.  The Company
has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by this Agreement and the Prospectus Supplement
and otherwise to carry out its obligations hereunder and thereunder.  The
execution and delivery of each of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby and under
the Prospectus Supplement have been duly authorized by all necessary action on
the part of the Company and no further action is required by the Company, the
Company’s Board of Directors (the “Board of Directors”) or the Company’s
stockholders in connection therewith other than in connection with the Required
Approvals (as defined below).  This Agreement has 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 general equitable
principles and applicable

 

4

--------------------------------------------------------------------------------

 

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.

 

(g)                                  No Conflicts.  The execution, delivery and
performance by the Company of this Agreement and the transactions contemplated
pursuant to the Prospectus Supplement, the issuance and sale of the Securities
and the consummation by it of the transactions contemplated hereby and thereby
to which it is a party 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; 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.

 

(h)                                 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 this
Agreement and the transactions contemplated pursuant to the Prospectus
Supplement, other than: (i) the filing with the Commission of the Prospectus
Supplement, (ii) application(s) to the Nasdaq Stock Market, Inc. (the “Trading
Market”) for the listing of the Securities for trading thereon in the time and
manner required thereby and (iii) such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

 

(i)                                     Issuance of the Securities.  The
Securities are duly authorized and, when issued and paid for in accordance with
the Prospectus Supplement, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company.  The shares
underlying the Warrants, when issued in accordance with the terms of the
Warrants, will be validly issued, fully paid and nonassessable, free and clear
of all Liens imposed by the Company.  The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to the Prospectus Supplement.

 

(j)                                    Capitalization.  The capitalization of
the Company is as set forth in the Incorporated Documents as of the dates
referenced therein.  The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, 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 plans and pursuant to the conversion and/or exercise of
securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time any Common Stock, including, without limitation,
any debt, preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or otherwise

 

5

--------------------------------------------------------------------------------

 

entitles the holder thereof to receive, Common Stock (“Common Stock
Equivalents”) outstanding as of the date of the most recently filed periodic
report under the Exchange Act.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by this Agreement and the transactions
contemplated pursuant to the Prospectus Supplement.  Except as a result of the
purchase and sale of the Securities, there are no outstanding options, warrants,
scrip rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable 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 Common Stock
Equivalents.  The issuance 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 Investors) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any
of 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 or others is required
for the issuance and sale of the Securities.  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.

 

(k)                                 SEC Reports; Financial Statements.  The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company 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 or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, together with
the Prospectus and the Prospectus Supplement, 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, as applicable, 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 the light 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.

 

(l)                                     Material Changes; Undisclosed Events,
Liabilities or Developments.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date hereof, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in

 

6

--------------------------------------------------------------------------------

 

a Material Adverse Effect, (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 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.  Except
for the issuance of the Securities contemplated by the Prospectus Supplement or
disclosed in the Prospectus Supplement, no event, liability, fact, circumstance,
occurrence or development has occurred or exists or is reasonably expected to
occur or exist with respect to the Company or its Subsidiaries or their
respective business, prospects, properties, operations, assets or financial
condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has
not been publicly disclosed at least 1 Trading Day prior to the date that this
representation is made.

 

(m)                             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 this Agreement and
the transactions contemplated pursuant to the Prospectus Supplement 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.

 

(n)                                 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.  None of the Company’s or its Subsidiaries’ employees
is a member of a union that relates to such employee’s relationship with the
Company or such Subsidiary, and neither the Company nor any of its Subsidiaries
is a party to a collective bargaining agreement, and the Company and its
Subsidiaries believe that their relationships with their employees are good.  No
executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.  The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

 

7

--------------------------------------------------------------------------------

 

(o)                                 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 judgment, decree or order of any court,
arbitrator or governmental body or (iii) is or has been in violation of any
statute, rule, ordinance or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.

 

(p)                                 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 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.

 

(q)                                 Title to Assets.  The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them 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 with which the
Company and the Subsidiaries are in compliance.

 

(r)                                    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, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and
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”).  None of, and neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of, the Intellectual Property Rights has
expired, terminated or been abandoned, or is expected to expire or terminate or
be abandoned, within two (2) years from the date of this Agreement.  Neither the
Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a notice (written or
otherwise) of a claim or otherwise has any knowledge that the Intellectual
Property Rights violate or infringe upon the rights of any Person, except as
would not have a Material Adverse Effect.  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.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

8

--------------------------------------------------------------------------------

 

(s)                                   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. 
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.

 

(t)                                    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 $120,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and
(iii) other employee benefits, including stock option agreements under any stock
option plan of the Company.

 

(u)                                 Sarbanes-Oxley; Internal Accounting
Controls.  The Company is in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Closing Date. 
The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. 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 information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s 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 changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

 

(v)                                 Certain Fees.  Except as set forth in the
Prospectus Supplement, 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 and the transactions
contemplated pursuant to the Prospectus Supplement.  The Investors shall have no
obligation with respect to

 

9

--------------------------------------------------------------------------------

 

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 and the transactions
contemplated pursuant to the Prospectus Supplement.

 

(w)                               Investment Company. The Company is not, and is
not an Affiliate of, and immediately after receipt of payment for the
Securities, will not be or be an Affiliate of, an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.  The Company
shall conduct its business in a manner so that it will not become an “investment
company” subject to registration under the Investment Company Act of 1940, as
amended.

 

(x)                                 Registration Rights.  No Person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company.

 

(y)                                 Listing and Maintenance Requirements.  The
Common Stock is registered pursuant to Section 12(b) 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, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.

 

(z)                                  Application of Takeover Protections.  There
exist no 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 Investors as a result of the issuance of the Securities and
the Investors’ ownership of the Securities.

 

(aa)                          Disclosure.  Except with respect to the material
terms and conditions of the transactions contemplated by this Agreement and the
transactions contemplated pursuant to the Prospectus Supplement, the Company
confirms that neither it nor any other Person acting on its behalf has provided
any of the Investors or their agents or counsel with any information that it
believes constitutes or might constitute material, non-public information which
is not otherwise disclosed in the Prospectus Supplement.  The Company
understands and confirms that the Investors will rely on the foregoing
representation in effecting transactions in securities of the Company.  All of
the disclosure furnished by or on behalf of the Company to the Investors
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, is true and correct and
does 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 press
releases disseminated by the Company during the twelve months preceding the date
of this Agreement taken as a whole do not contain any untrue statement of a
material fact or omit 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 and when made, not misleading.

 

(bb)                          No Integrated Offering.  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

 

10

--------------------------------------------------------------------------------

 

security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.

 

(cc)                            Solvency.  Neither the Company nor any
Subsidiary is in material default with respect to any of its respective material
indebtedness for borrowed money.

 

(dd)                          Tax Status.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary (i) has made or filed
all United States federal and state income and all foreign income and franchise
tax returns, reports and declarations required by any jurisdiction to which it
is subject, (ii) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply.  There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.

 

(ee)                            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 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.

 

(ff)                              Accountants.  The Company’s accounting firm is
set forth in the Incorporated Documents.  To the knowledge and belief of the
Company, such accounting firm (i) is a registered public accounting firm as
required by the Exchange Act and (ii) shall express its opinion with respect to
the financial statements to be included in the Company’s Annual Report for the
year ending December 31, 2014.

 

(gg)                            Regulation M Compliance.  The Company has not,
and to its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any
compensation for soliciting purchases of, any of the Securities, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in connection
with the placement of the Securities.

 

(hh)                          Office of Foreign Assets Control.  Neither the
Company nor, to the Company’s knowledge, any director, officer, agent, employee
or affiliate of the Company is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”).

 

11

--------------------------------------------------------------------------------

 

(ii)                                  U.S. Real Property Holding Corporation. 
The Company is not and has never been a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon Investor’s request.

 

(jj)                                Bank Holding Company Act.  Neither the
Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding
Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of
Governors of the Federal Reserve System (the “Federal Reserve”).  Neither the
Company nor any of its Subsidiaries or Affiliates owns or controls, directly or
indirectly, five percent (5%) or more of the outstanding shares of any class of
voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal
Reserve.  Neither the Company nor any of its Subsidiaries or Affiliates
exercises a controlling influence over the management or policies of a bank or
any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(kk)                          Money Laundering.  The operations of the Company
are and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
“Money Laundering Laws”), and no action, suit or proceeding by or before any
court or governmental agency, authority or body or any arbitrator involving the
Company with respect to the Money Laundering Laws is pending or, to the
knowledge of the Company, threatened.

 

(ll)                                  Certificates.  Any certificate signed by
an officer of the Company and delivered to the Placement Agent or to counsel for
the Placement Agent shall be deemed to be a representation and warranty by the
Company to the Placement Agent as to the matters set forth therein.

 

(mm)                  Reliance.  The Company acknowledges that the Placement
Agent will rely upon the accuracy and truthfulness of the foregoing
representations and warranties and hereby consents to such reliance.

 

(nn)                          FINRA Affiliations.  There are no affiliations
with any FINRA member firm among the Company’s officers, directors or, to the
knowledge of the Company, any five percent (5%) or greater stockholder of the
Company.

 

Section 3.                                          Delivery and Payment.  The
Closing shall occur at the offices of Ellenoff Grossman & Schole, LLP, 1345
Avenue of the Americas, New York, New York 10105 (or at such other place as
shall be agreed upon by the Placement Agent and the Company) (“Placement Agent
Counsel”).  Subject to the terms and conditions hereof, at the Closing payment
of the purchase price for the Securities sold on the Closing Date shall be made
by the Investors by Federal Funds wire transfer to Private Bank Minnesota as
escrow agent to the Placement, against delivery of such Securities otherwise
pursuant to the Transaction Documents.  The Securities shall be registered in
such name or names and shall be in such denominations, as the Placement Agent
may request at least one business day before the time of purchase (as defined
below).  Deliveries of the documents with respect to the purchase of the
Securities, if any, shall be made at the offices of Placement Agent Counsel.

 

Section 4.                                          Covenants and Agreements of
the Company.  The Company further covenants and agrees with the Placement Agent
as follows:

 

(a)                                 Blue Sky Compliance.  The Company will
cooperate with the Placement Agent and the Investors in endeavoring to qualify
the Securities for sale under the securities laws of

 

12

--------------------------------------------------------------------------------

 

such jurisdictions (United States and foreign) as the Placement Agent and the
Investors may reasonably request.

 

(b)                                 Amendments and Supplements to a Prospectus
Supplement and Other Matters.  The Company will comply with the Securities Act
and the Exchange Act, and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the Securities
as contemplated in this Agreement, the Transaction Documents, the Incorporated
Documents and any Prospectus Supplement.  If during the period in which a
prospectus is required by law to be delivered in connection with the
distribution of Securities contemplated by the Incorporated Documents or any
Prospectus Supplement (the “Prospectus Delivery Period”), any event shall occur
as a result of which, in the judgment of the Company or in the opinion of the
Placement Agent or counsel for the Placement Agent, it becomes necessary to
amend or supplement the Incorporated Documents or any Prospectus Supplement in
order to make the statements therein, in the light of the circumstances under
which they were made, as the case may be, not misleading, or if it is necessary
at any time to amend or supplement the Incorporated Documents or any Prospectus
Supplement or to file under the Exchange Act any Incorporated Document to comply
with any law, the Company will promptly prepare and file with the Commission,
and furnish at its own expense to the Placement Agent and to dealers, an
appropriate amendment to the Registration Statement or supplement to the
Registration Statement, the Incorporated Documents or any Prospectus Supplement
that is necessary in order to make the statements in the Incorporated Documents
and any Prospectus Supplement as so amended or supplemented, in the light of the
circumstances under which they were made, as the case may be, not misleading, or
so that the Registration Statement, the Incorporated Documents or any Prospectus
Supplement, as so amended or supplemented, will comply with law.  Before
amending the Registration Statement or supplementing the Incorporated Documents
or any Prospectus Supplement in connection with the Placement, the Company will
furnish the Placement Agent with a copy of such proposed amendment or supplement
and will not file any such amendment or supplement to which the Placement Agent
reasonably objects.

 

(c)                                  Free Writing Prospectus.  The Company
covenants that it will not, unless it obtains the prior written consent of the
Placement Agent, make any offer relating to the Securities that would constitute
an Company Free Writing Prospectus or that would otherwise constitute a “free
writing prospectus” (as defined in Rule 405 of the Securities Act) required to
be filed by the Company with the Commission or retained by the Company under
Rule 433 of the Securities Act.

 

(d)                                 Transfer Agent.  The Company will maintain,
at its expense, a registrar and transfer agent for the Common Stock.

 

(e)                                  Periodic Reporting Obligations.  During the
period the Company is required to meet the prospectus delivery requirements with
respect to the Securities, the Company will duly file, on a timely basis, with
the Commission and the Trading Market all reports and documents required to be
filed under the Exchange Act within the time periods and in the manner required
by the Exchange Act.

 

(f)                                   Additional Documents.  The Company will
enter into subscription agreements in the form attached as Exhibit A hereto, as
necessary or appropriate to consummate the Placement.  The Company agrees that
the Placement Agent may rely upon, and each is a third party beneficiary of, the
representations and warranties, and applicable covenants, set forth in any such
subscription agreement.

 

13

--------------------------------------------------------------------------------

 

(g)                                  No Manipulation of Price.  The Company will
not take, directly or indirectly, any action designed to cause or result in, or
that has constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the Company.

 

(h)                                 Acknowledgment.  The Company acknowledges
that any advice given by the Placement Agent to the Company is solely for the
benefit and use of the Board of Directors and management of the Company and may
not be used, reproduced, disseminated, quoted or referred to, without the
Placement Agent’s prior written consent.

 

(i)                                     Announcement of Offering.  The Company
acknowledges and agrees that C-H may, subsequent to the Closing, make public its
involvement with the Placement.

 

(j)                                    Confidentiality.  The Company
acknowledges that this Agreement and all opinions and advice (whether written or
oral) given by C-H to the Company in connection with C-H’s engagement are
intended solely for the benefit and use of the Company.  The Company further
acknowledges that neither the terms of this Agreement nor any of C-H’s opinions
or financial advice will be disclosed to any third party (other than the
Company’s officers, directors, employees and advisors), without the prior
written consent of C-H, except as required by law, regulation, legal or
regulatory process, or any order or other action of a court or administrative
agency of competent jurisdiction.  C-H agrees that any non-public information
relating to the Company or any potential investor received by C-H from or at the
direction of the Company will be used by C-H solely for the purpose of
performing its roles contemplated hereunder and that C-H will maintain the
confidentiality thereof.  Notwithstanding the foregoing, C-H may disclose
confidential information hereunder (i) to such of its employees and advisors as
C-H determines have a need to know and who are bound to hold such information
confidential, and (ii) to the extent necessary to comply with any order or other
action of a court or administrative agency of competent jurisdiction.

 

(k)                                 Reliance on Others.  The Company confirms
that it will rely on its own counsel and accountants for legal and accounting
advice.

 

(l)                                     No Partnership.  The Company is a
sophisticated business enterprise that has retained C-H for the limited purposes
set forth in this Agreement.  The parties acknowledge and agree that their
respective rights and obligations are contractual in nature.  Each party
disclaims an intention to impose fiduciary obligations on the other by virtue of
the engagement contemplated by this Agreement.

 

(m)                             Research Matters.  By entering into this
Agreement, C-H does not provide any promise, either explicitly or implicitly, of
favorable or continued research coverage of the Company and the Company hereby
acknowledges and agrees that C-H’s selection as a placement agent for the
Placement was in no way conditioned, explicitly or implicitly, on C-H providing
favorable or any research coverage of the Company.  In accordance with FINRA
Rule 2711(e), the parties acknowledge and agree that C-H has not directly or
indirectly offered favorable research, a specific rating or a specific price
target, or threatened to change research, a rating or a price target, to the
Company or inducement for the receipt of business or compensation.

 

14

--------------------------------------------------------------------------------

 

Section 5.                                          Conditions of the
Obligations of the Placement Agent.  The obligations of the Placement Agent
hereunder shall be subject to the accuracy of the representations and warranties
on the part of the Company set forth in Section 2 hereof, in each case as of the
date hereof and as of the Closing Date as though then made, to the timely
performance by each of the Company of its covenants and other obligations
hereunder on and as of such dates, and to each of the following additional
conditions:

 

(a)                                 Accountants’ Comfort Letter.  On the date
hereof, the Placement Agent shall have received, and the Company shall have
caused to be delivered to the Placement Agent, a letter from KPMG LLP (the
independent registered public accounting firm of the Company), addressed to the
Placement Agent, dated as of the date of pricing the Placement, in form and
substance satisfactory to the Placement Agent.  The letter shall not disclose
any change in the condition (financial or other), earnings, operations, business
or prospects of the Company from that set forth in the Incorporated Documents or
the applicable Prospectus Supplement, which, in the Placement Agent’s sole
judgment, is material and adverse and that makes it, in the Placement Agent’s
sole judgment, impracticable or inadvisable to proceed with the Placement of the
Securities as contemplated by such Prospectus Supplement.

 

(b)                                 Compliance with Registration Requirements;
No Stop Order; No Objection from the FINRA.  Each Prospectus Supplement (in
accordance with Rule 424(b)) and “free writing prospectus” (as defined in
Rule 405 of the Securities Act), if any, shall have been duly filed with the
Commission, as appropriate; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; no order preventing or suspending the use of any Prospectus
Supplement shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; no order having the effect of
ceasing or suspending the distribution of the Securities or any other securities
of the Company shall have been issued by any securities commission, securities
regulatory authority or stock exchange and no proceedings for that purpose shall
have been instituted or shall be pending or, to the knowledge of the Company,
contemplated by any securities commission, securities regulatory authority or
stock exchange; all requests for additional information on the part of the
Commission shall have been complied with.

 

(c)                                  Corporate Proceedings.  All corporate
proceedings and other legal matters in connection with this Agreement, the
Registration Statement and the Prospectus Supplement, and the registration, sale
and delivery of the Securities, shall have been completed or resolved in a
manner reasonably satisfactory to the Placement Agent’s counsel, and such
counsel shall have been furnished with such papers and information as it may
reasonably have requested to enable such counsel to pass upon the matters
referred to in this Section 5.

 

(d)                                 No Material Adverse Effect.  Subsequent to
the execution and delivery of this Agreement and prior to the Closing Date,
there shall not have occurred any Material Adverse Effect.

 

(e)                                  Opinion of Counsel for the Company.  The
Placement Agent shall have received on the Closing Date the favorable opinion of
legal counsel to the Company, dated as of the Closing Date, including, without
limitation, a negative assurance letter, addressed to the Placement Agent in the
form attached hereto as Exhibit B.

 

(f)                                   Officers’ Certificate.  The Placement
Agent shall have received on the Closing Date a certificate of the Company,
dated as of the Closing Date, signed by the Chief Executive Officer and Chief
Financial Officer of the Company, to the effect that, and the Placement Agent

 

15

--------------------------------------------------------------------------------

 

shall be satisfied that, the signers of such certificate have reviewed the
Registration Statement, the Incorporated Documents, any Prospectus Supplement,
and this Agreement and to the further effect that:

 

(i)                                     The representations and warranties of
the Company in this Agreement are true and correct, as if made on and as of the
Closing Date, and the Company has complied in all material respects with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;

 

(ii)                                  No stop order suspending the effectiveness
of the Registration Statement or the use of the Base Prospectus or any
Prospectus Supplement has been issued and no proceedings for that purpose have
been instituted or are pending or, to the Company’s knowledge, threatened under
the Securities Act; no order having the effect of ceasing or suspending the
distribution of the Securities or any other securities of the Company has been
issued by any securities commission, securities regulatory authority or stock
exchange in the United States and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, contemplated by
any securities commission, securities regulatory authority or stock exchange in
the United States;

 

(iii)                               When the Registration Statement became
effective, at the time of sale, and at all times subsequent thereto up to the
delivery of such certificate, the Registration Statement and the Incorporated
Documents, if any, when such documents became effective or were filed with the
Commission, contained all material information required to be included therein
by the Securities Act and the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in all
material respects conformed to the requirements of the Securities Act and the
Exchange Act and the applicable rules and regulations of the Commission
thereunder, as the case may be, and the Registration Statement and the
Incorporated Documents, if any, did not and do not include any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided, however,
that the preceding representations and warranties contained in this paragraph
(iii) shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by the
Placement Agent expressly for use therein) and, since the effective date of the
Registration Statement, there has occurred no event required by the Securities
Act and the rules and regulations of the Commission thereunder to be set forth
in the Incorporated Documents which has not been so set forth; and

 

(iv)                              Subsequent to the respective dates as of which
information is given in the Registration Statement, the Incorporated Documents
and any Prospectus Supplement, there has not been:  (a) any Material Adverse
Effect; (b) any transaction that is material to the Company and the Subsidiaries
taken as a whole, except transactions entered into in the ordinary course of
business; (c) any obligation, direct or contingent, that is material to the
Company and the Subsidiaries taken as a whole, incurred by the Company or any
Subsidiary, except obligations incurred in the ordinary course of business;
(d) any material change in the capital stock (except changes thereto resulting
from the exercise of outstanding stock options or warrants) or outstanding
long-term indebtedness of the Company or any Subsidiary; (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company; or (f) any loss or damage (whether or not

 

16

--------------------------------------------------------------------------------

 

insured) to the property of the Company or any Subsidiary which has been
sustained or will have been sustained which has a Material Adverse Effect.

 

(g)                                  Bring-down Comfort Letter.  On the Closing
Date, the Placement Agent shall have received from KPMG LLP, or such other
independent registered public accounting firm of the Company, a letter dated as
of the Closing Date, in form and substance satisfactory to the Placement Agent,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more than
three business days prior to the Closing Date.

 

(h)                                 Stock Exchange Listing.  The Common Stock
shall be registered under the Exchange Act and shall be listed on the Trading
Market, and the Company shall not have taken any action designed to terminate,
or likely to have the effect of terminating, the registration of the Common
Stock under the Exchange Act or delisting or suspending from trading the Common
Stock from the Trading Market, nor shall the Company have received any
information suggesting that the Commission or the Trading Market is
contemplating terminating such registration or listing.

 

(i)                                     Additional Documents.  On or before the
Closing Date, the Placement Agent and counsel for the Placement Agent shall have
received such information and documents as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Securities
as contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.

 

If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Placement
Agent by notice to the Company at any time on or prior to the Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 6 (Payment of Expenses), Section 7
(Indemnification and Contribution) and Section 8 (Representations and
Indemnities to Survive Delivery) shall at all times be effective and shall
survive such termination.

 

Section 6.                                          Payment of Expenses.  The
Company agrees to pay all costs, fees and expenses incurred by the Company in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including, without limitation: 
(i) all expenses incident to the issuance, delivery and qualification of the
Securities (including all printing and engraving costs); (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock and of the
warrant agent; (iii) all necessary issue, transfer and other stamp taxes in
connection with the issuance and sale of the Securities; (iv) all fees and
expenses of the Company’s counsel, independent public or certified public
accountants and other advisors; (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), the Base Prospectus and each Prospectus
Supplement, and all amendments and supplements thereto, and this Agreement;
(vi) all filing fees, reasonable attorneys’ fees and expenses incurred by the
Company or the Placement Agent in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Securities for offer and sale under the state securities or blue sky laws
or the securities laws of any other country, and, if requested by the Placement
Agent, preparing and printing a “Blue Sky Survey,” or other memorandum, and any
supplements thereto, advising the Placement Agent of such qualifications,
registrations and exemptions; (vii) if applicable, the filing fees incident to
the review and approval by FINRA of the Placement Agent’s participation in the
offering and distribution of

 

17

--------------------------------------------------------------------------------

 

the Securities; (viii) the fees and expenses associated with including the
Securities on the Trading Market; (ix) all reasonable costs and expenses
incident to the travel and accommodation of the Company’s and the Placement
Agent’s employees on the “roadshow,” if any; and (x) all other fees, costs and
expenses referred to in Part II of the Registration Statement.

 

Section 7.                                          Indemnification and
Contribution.

 

(a)                                 In the event that Craig-Hallum Capital Group
LLC or any of its affiliates (collectively, “C-H Parties”), the respective,
directors, officers, agents or employees of C-H Parties, or any other person
controlling C-H Parties (collectively, together with C-H Parties, “Indemnified
Persons”) becomes involved in any capacity in any action, claim, suit,
investigation or proceeding, actual or threatened, brought by or against any
person, including stockholders of Company, in connection with or as a result of
(i) the engagement contemplated by this Agreement, or (ii) any untrue statement
or alleged untrue statement of a material fact contained in any offering
materials related to the Placement prepared or provided by the Company (but in
all cases excluding any information relating to the Placement Agent furnished to
the Company in writing by the Placement Agent expressly for use therein
(“Placement Agent Information”)), including but not limited to any Registration
Statement, Prospectus and any Prospectus Supplement used to offer securities of
the Company in connection with the Placement (and including but not limited to
any documents deemed to be incorporated therein by reference) (collectively, the
“Placement Materials”), or any omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, the Company will
reimburse such Indemnified Person for its reasonable legal and other expenses
(including without limitation the reasonable costs and expenses incurred in
connection with investigating, preparing for and responding to third party
subpoenas or enforcing the engagement) incurred in connection therewith as such
expenses are incurred; provided, however, that with respect to clause (i) above
if it is finally determined by a court or arbitral tribunal in any such action,
claim, suit, investigation or proceeding that any loss, claim damage or
liability of C-H Parties or any other Indemnified Person has resulted primarily
and directly from the gross negligence or willful misconduct of C-H Parties or
any other Indemnified Person, then C-H Parties will repay such portion of
reimbursed amounts that is attributable to expenses incurred in relation to the
act or omission of C-H Parties or any other Indemnified Person which is the
subject of such determination.  The Company will also indemnify and hold
harmless each Indemnified Person from and against any losses, claims, damages or
liabilities (including actions or proceedings in respect thereof) (collectively,
“Losses”) related to or arising out of (i) the engagement hereunder, or (ii) any
untrue statement or alleged untrue statement of a material fact contained in the
Placement Materials (excluding any Placement Agent Information), or any omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, except, with respect to clause (i) above, to the extent
any such Losses are finally determined by a court or arbitral tribunal to have
resulted primarily and directly from the willful misconduct or gross negligence
of C-H Parties or any other Indemnified Person.

 

(b)                                 If such indemnification is for any reason
not available or insufficient to hold an Indemnified Person harmless (except by
reason of the gross negligence or willful misconduct of C-H Parties as described
above), Company and C-H Parties shall contribute to the Losses involved in such
proportion as is appropriate to reflect the relative benefits received (or
anticipated to be received) by the Company, on the one hand, and by C-H Parties
and/or any other Indemnified Person, on the other hand, with respect to the
engagement or, if such allocation is determined by a court or arbitral tribunal
to be unavailable, in such proportion as is appropriate to

 

18

--------------------------------------------------------------------------------

 

reflect other equitable considerations such as the relative fault of the Company
on the one hand and of C-H Parties and/or any other Indemnified Person on the
other hand; provided, however, that in no event shall the amounts to be
contributed by C-H Parties exceed the fees actually received by C-H Parties in
the engagement.  Relative benefits to the Company, on the one hand, and C-H
Parties and/or any other Indemnified Person, on the other hand, shall be deemed
to be in the same proportion as (i) the total value actually received by the
Company pursuant to the Placement, whether or not consummated, contemplated by
the engagement, bears to (ii) all fees actually received by C-H Parties in the
engagement.

 

(c)                                  The Company also agrees that neither C-H
Parties nor any other Indemnified Person shall have any liability to the Company
or any person asserting claims on behalf or in right of the Company in
connection with or as a result of the engagement or any matter referred to in
the engagement, except to the extent that any Losses incurred by Company are
finally determined by a court or arbitral tribunal to have resulted primarily
and directly from the willful misconduct or gross negligence of C-H Parties or
any other Indemnified Person.

 

(d)                                 The Company’s obligations hereunder shall be
in addition to any rights that any Indemnified Person may have at common law or
otherwise.

 

(e)                                  The provisions of this Section 7 shall
apply to the engagement hereunder (including related activities prior to the
date hereof) and any modification thereof and shall remain in full force and
effect regardless of the completion or termination of this Agreement.  If any
term, provision, covenant or restriction herein is held by a court of competent
jurisdiction to be invalid, void or unenforceable or against public policy, the
remainder of the terms, provisions and restrictions contained herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.

 

Section 8.                                          Representations and
Indemnities to Survive Delivery.  The respective indemnities, agreements,
representations, warranties and other statements of the Company or any person
controlling the Company, of its officers, and of the Placement Agent set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of the Placement Agent, the
Company, or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Securities sold hereunder and any termination of this Agreement.  A
successor to a Placement Agent, or to the Company, its directors or officers or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Agreement.

 

Section 9.                                          Notices.  All communications
hereunder shall be in writing and shall be mailed, hand delivered or telecopied
and confirmed to the parties hereto as follows:

 

If to the Placement Agent:

 

Craig-Hallum Capital Group LLC

222 South 9th Street

Suite 350

Minneapolis, MN 55402

Attn: Patricia S. Bartholomew

e-mail: pbartholomew@Craig-Hallum.com

 

19

--------------------------------------------------------------------------------

 

With a copy to:

 

Ellenoff Grossman & Schole LLP

1345 Avenue of the Americas

New York, New York 10105

Attention:  Robert Charron

e-mail: rcharron@egsllp.com

 

If to the Company at the address set forth above.

 

With a copy to:

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019

Attention: Dave B. Cosgrove

e-mail: dcosgrove@willkie.com

 

Any party hereto may change the address for receipt of communications by giving
written notice to the others.

 

Section 10.                                   Successors.  This Agreement will
inure to the benefit of and be binding upon the parties hereto, and to the
benefit of the employees, officers and directors and controlling persons
referred to in Section 7 hereof, and to their respective successors, and
personal representative, and no other person will have any right or obligation
hereunder.

 

Section 11.                                   Partial Unenforceability.  The
invalidity or unenforceability of any section, paragraph or provision of this
Agreement shall not affect the validity or enforceability of any other section,
paragraph or provision hereof.  If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.

 

Section 12.                                   GOVERNING LAW; ARBITRATION.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Minnesota without regard to the conflicts of law provisions thereof. 
This Agreement contains a predispute arbitration clause.  By signing an
arbitration agreement the parties agree as follows:

 

1.              All parties to this Agreement are giving up the right to sue
each other in court, including the right to a trial by jury, except as provided
by the rules of the arbitration forum in which a claim is filed.

 

2.              Arbitration awards are generally final and binding; a party’s
ability to have a court reverse or modify an arbitration award is very limited.

 

3.              The ability of the parties to obtain documents, witness
statements and other discovery is generally more limited in arbitration than in
court proceedings.

 

4.              The arbitrators do not have to explain the reason(s) for their
award unless, in an eligible case, a joint request for an explained decision has
been submitted by all parties to the panel at least 20 days prior to the first
scheduled hearing date.

 

20

--------------------------------------------------------------------------------

 

5.              The panel of arbitrators may include a minority of arbitrators
who were or are affiliated with the securities industry.

 

6.              The rules of some arbitration forums may impose time limits for
bringing a claim in arbitration.  In some cases, a claim that is ineligible for
arbitration may be brought in court.

 

7.              The rules of the arbitration forum in which the claim is filed,
and any amendments thereto, shall be incorporated into this agreement.

 

Any dispute or controversy arising out of this Agreement or regarding the
interpretation, application, or breach of this Agreement shall be determined by
arbitration conducted in accordance with the rules of the Financial Industry
Regulatory Authority as then in effect.  Any arbitration award shall be final
and binding upon the Company’s and C-H Parties, and judgment on the award may be
entered in any court having jurisdiction.  No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a putative
class action; or who is a member of a putative class who has not opted out of
the class with respect to any claims encompassed by the putative class action
until: (i) the class certification is denied; or (ii) the class is decertified;
or (iii) the customer is excluded from the class by the court.  Such forbearance
to enforce an agreement to arbitrate shall not constitute a waiver of any rights
under this Agreement except to the extent stated herein.  Each party will bear
its own costs and attorneys’ fees, and will share equally in the fees and
expenses of the arbitrator and the arbitration.  The proceedings will be
conducted in English.  Notwithstanding the foregoing, it is expressly agreed
that either party may seek injunctive relief, at any time, in an appropriate
court of law or equity to enforce its rights hereunder.

 

Section 13.                                   General Provisions.

 

(a)                                 This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.  This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument. 
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit. 
Section headings herein are for the convenience of the parties only and shall
not affect the construction or interpretation of this Agreement.

 

(b)                                 The Company acknowledges that in connection
with the offering of the Securities: (i) the Placement Agent has acted at arm’s
length and owe no fiduciary duties to the Company or any other person, (ii) the
Placement Agent owes the Company only those duties and obligations set forth in
this Agreement and (iii) the Placement Agent may have interests that differ from
those of the Company.  The Company waives to the full extent permitted by
applicable law any claims it may have against the Placement Agent arising from
an alleged breach of fiduciary duty in connection with the offering of the
Securities

 

[The remainder of this page has been intentionally left blank.]

 

21

--------------------------------------------------------------------------------

 

If the foregoing is in accordance with your understanding of our agreement,
please sign below whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.

 

 

 

Very truly yours,

 

 

 

WAVE SYSTEMS CORP.,

 

a Delaware corporation

 

 

 

 

 

By:

/s/ Walter Shephard

 

 

Name: Walter Shephard

 

 

Title: Chief Financial Officer

 

The foregoing Placement Agency Agreement is hereby confirmed and accepted as of
the date first above written.

 

CRAIG-HALLUM CAPITAL GROUP LLC

 

 

By:

/s/ [illegible]

 

 

Name:

 

 

Title: Managing Partner

 

 

22

--------------------------------------------------------------------------------