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EXHIBIT 10.1
 
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of December 5,
2011, among EdgeWave, Inc., a Delaware corporation (the “Company”), and the
investors identified on the signature pages hereto (each, an “Investor” and
collectively, the “Investors”).
 
WHEREAS, the Company wishes to sell to each Investor, and each Investor wishes
to purchase, severally and not jointly with the other Investors, on the terms
and subject to the conditions set forth in this Agreement, a Convertible Note in
the form attached hereto as Exhibit A (collectively, the “Notes”).

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 Investor hereby
agree 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 shall have the meanings
indicated in this Section 1.1:
 
“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.
 
“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.
 
“Business Day” means any day except Saturday, Sunday and any day which shall be
a federal legal holiday or a day on which banking institutions in the State of
California are authorized or required by law or other governmental action to
close.
 
“Closing” has the meaning set forth in Section 2.3.
 
“Closing Date” has the meaning set forth in Section 2.3.
 
“Collateral” has the meaning set forth in Section 4.7.
 
“Commission” means the Securities and Exchange Commission.
 
“Common Stock” means the common stock of the Company, $0.01 par value per share,
and any securities into which such common stock may hereafter be reclassified.
 
 
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 “Contract” means any contract, plan, undertaking, understanding, agreement,
license, lease, note, mortgage or other binding commitment, whether written or
oral.
 
“Conversion Shares” means the shares of Common Stock into which the Notes are
convertible.
 
“Court” means any court or arbitration tribunal of the United States, any
domestic state, or any foreign country, and any political subdivision thereof.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“GAAP” means United States generally accepted accounting principles and
practices in effect from time to time consistently applied.
 
“Governmental Authority” means any governmental or legislative agency or
authority (other than a Court) of the United States, any domestic state, or any
foreign country, and any political subdivision or agency thereof, and includes
any authority having governmental or quasi-governmental powers, including any
administrative agency or commission.
 
“Knowledge” means (a) in the case an individual, knowledge of a particular fact
or other matter if (i) such individual is actually aware of such fact or other
matter, or (ii) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or other matter,
and (b) in the case of a Person (other than an individual) such Person will be
deemed to have knowledge of a particular fact or other matter if (i) any
individual who is serving, as a director, officer, partner, executor, or trustee
of such Person (or in any similar capacity) has or at any time had, knowledge of
such fact or other matter, or (ii) such Person could reasonably be expected to
discover or otherwise become aware of such fact or other matter.
 
“Law” means all laws, statutes, ordinances and Regulations of any Governmental
Authority including all decisions of Courts having the effect of law in each
such jurisdiction.
 
“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.
 
“Litigation” means any suit, action, arbitration, cause of action, claim,
complaint, criminal prosecution, investigation, inquiry, demand letter,
governmental or other administrative proceeding, whether at law or at equity,
before or by any Court, Governmental Authority, arbitrator or other tribunal.
 
“Material Adverse Effect” means any circumstance, change in, or effect on, the
business, assets, properties or operations of the Company that, individually or
in the aggregate with any other circumstances, changes in, or effects on, the
Company and/or its business, assets, properties or operations (a) is, or could
be, materially adverse to the business, operations, assets or liabilities
(including, without limitation, contingent liabilities), employee relationships,
customer or supplier relationships, prospects, results of operations or the
condition (financial or otherwise) of the Company, or (b) could reasonably be
expected to materially adversely affect the ability of the Company to operate or
conduct the Company’s business in the manner in which it is currently operated
or conducted, or contemplated to be conducted; except to the extent that any
such Material Adverse Effect primarily results from (A) adverse changes or
developments in the general economic or regulatory condition (provided that such
changes do not affect the Company disproportionately as compared to the
Company’s competitors); (B) changes or developments affecting the industry
generally in which the Company operates (provided that such changes do not
affect the Company disproportionately as compared to the Company’s competitors);
or (C) any action or omission of the Company taken at the prior written consent
of the Investors.
 
 
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“Order” means any judgment, order, writ, injunction, ruling, stipulation,
determination, award or decree of or by, or any settlement under the
jurisdiction of, any Court or Governmental Authority.
 
“Permits” means any licenses, permits, pending applications, consents,
certificates, registrations, approvals and authorizations.
 
“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.
 
“Purchase Price” means, with respect to a Note purchased at Closing, the
original amount of such Note.
 
“Regulation” shall mean any rule or regulation of any Governmental Authority.
 
“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 mean all reports required to be filed by the Company under
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two (2) years preceding the date hereof (or such shorter period as the Company
was required by law to file such material).
 
“Securities” means the Notes and the Conversion Shares,.
 
“Securities Act” means the Securities Act of 1933, as amended.
 
 “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of
Regulation S-X promulgated by the Commission under the Exchange Act.
 
“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not listed on a Trading Market, a day on
which the Common Stock if traded in the over-the-counter market is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean
a Business Day.
 
 
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“Trading Market” means whichever of the New York Stock Exchange, the NYSE Amex,
The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital
Market or OTC Bulletin Board on which the Common Stock is listed or quoted for
trading on the date in question.
 
“Transaction Documents” means this Agreement, the Notes, and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
 
ARTICLE II.
PURCHASE AND SALE
 
2.1 Purchase and Sale.  Upon the terms and subject to the satisfaction or waiver
of the conditions set forth herein, the Company agrees to sell and each Investor
agrees to purchase a Note with a principal amount equal to the amount set forth
next to such Investor’s name on Annex I hereto.
 
2.2 First Closing.  The first closing of the transactions contemplated herein
(the “First Closing”) will be held at the offices of the Company, 15333 Avenue
of Science, San Diego, CA 92128 on December 5, 2011, or at such other time and
place as the Company and the Investors shall determine (the "First Closing
Date").  At the First Closing, (A) this Agreement and the other Transaction
Documents shall have been executed and delivered by the Company and each
Investor participating in such First Closing, (B) each of the conditions
precedent described in Sections 5.1 and 5.2 of this Agreement shall have been
satisfied or waived as specified herein and (C) full payment of each such
Investor’s Purchase Price shall have been made by wire transfer of immediately
available funds and/or book entry of the application of the payoff of prior
promissory notes of the Company against physical delivery by the Company of duly
executed certificates representing the Note being purchased by such Investor.
 
2.3 Second Closing.  At any time within 60 days after the First Closing Date,
the Company may issue and sell additional Notes at a second closing (the “Second
Closing”) to Investors who are accredited investors, as such term is defined in
the Securities Act.  The Second Closing shall occur at such time and place as
the Company and the Investors participating in such Second Closing shall
determine (the "Second Closing Date").  Any such Second Closing shall be made on
the terms and conditions set forth in this Agreement.  At the Second Closing,
(A) this Agreement and the other Transaction Documents shall have been executed
and delivered by the Company and each Investor participating in such Second
Closing, (B) each of the conditions precedent described in Sections 5.1 and 5.2
of this Agreement shall have been satisfied or waived as specified herein and
(C) full payment of each such Investor participating in such Second Closing
Purchase Price shall have been made by wire transfer of immediately available
funds against physical delivery by the Company of duly executed certificates
representing the Note being purchased by such Investor participating in such
Second Closing.  Upon the consummation of the Second Closing Annex I shall be
amended by the Company to reflect the sale of the Notes in the Second Closing.
 
 
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2.4 Third Closing.  At any time following the Second Closing and on or prior to
ninety (90) days after the First Closing, the Company may issue and sell
additional Notes at a third closing (the “Third Closing” and each of the First
Closing, the Second Closing and the Third Closing, a “Closing”) to Investors who
are accredited investors, as such term is defined in the Securities Act. The
Third Closing shall occur on or before ninety (90) days after the First Closing,
or at such time and place as the Company and  the Investors participating in
such Third Closing shall determine (the "Third Closing Date" and each of the
First Closing Date, the Second Closing Date, and the Third Closing Date, a
“Closing Date”).  Any such Third Closing shall be made on the terms and
conditions set forth in this Agreement.  At the Third Closing, (A) this
Agreement and the other Transaction Documents shall have been executed and
delivered by the Company and each Investor participating in such Third Closing,
(B) each of the conditions precedent described in Sections 5.1 and 5.2 of this
Agreement shall have been satisfied or waived as specified therein and (C) full
payment of each such Investor participating in such Third Closing Purchase Price
shall have been made by wire transfer of immediately available funds against
physical delivery by the Company of duly executed certificates representing the
Note being purchased by such Investor participating in such Third Closing.  Upon
the consummation of the Third Closing, Annex I shall be amended by the Company
to reflect the sale of the Notes in the Third Closing.
 
2.5 Aggregate Purchase Price.  The Company may sell Notes as part of the First
Closing, Second Closing and Third Closing up to an aggregate purchase price for
all Closings not to exceed $7,000,000.
 
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
3.1 Representations and Warranties of the Company.  The Company hereby makes the
following representations and warranties to each Investor as of the date hereof
and the applicable Closing Date:
 
(a) Organization and Qualification.  The Company is (i) a corporation duly
organized validly existing and in good standing under the laws of Delaware; (ii)
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each of the jurisdictions in which the failure to be so
licensed or qualified could have a Material Adverse Effect on the Company.
 
(b) Authorization; Enforceability.  The Company has the corporate power and
authority to execute, deliver and perform this Agreement and the other
Transaction Documents.  The execution, delivery and performance of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated herein and therein have been duly authorized and
approved by the Company, and no other action on the part of the Company is
necessary in order to give effect thereto. This Agreement and each of the other
Transaction Documents to be executed and delivered by the Company have been duly
executed and delivered by, and constitute the legal, valid and binding
obligations of, the Company, enforceable against the Company, in accordance with
their terms, except as such enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefor may be brought.
 
 
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(c) No Violation or Conflict.  None of (a) the execution and delivery by the
Company of this Agreement and the other Transaction Documents to be executed and
delivered by the Company, (b) consummation by the Company of the transactions
contemplated by this Agreement and the other Transaction Documents, or (c) the
performance of this Agreement and the other Transaction Documents required by
this Agreement to be executed and delivered by the Company at the Closing, will
(i) conflict with or violate the Certificate of Incorporation or By-Laws of the
Company, (ii) conflict with or violate any Law, Order or Permit applicable to
the Company  or (iii) result in any breach or violation of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or impair the Company’s rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Lien on any of the properties or assets of the Company pursuant
to, any Contract or other instrument or obligation to which the Company is a
party or by which the Company or its properties are bound or affected except, in
the case of clause (b) or (c) above, for any such conflict, breach, violation,
default or other occurrence that would not individually or in the aggregate,
have a Material Adverse Effect.
 
(d) Governmental Consents and Approvals.  The execution, delivery and
performance of this Agreement and the other Transaction Documents by the Company
do not and will not require any consent, approval, authorization, Permit or
other order of, action by, filing with or notification to, any Governmental
Authority.
 
(e) Brokers.  The Company has not employed any financial advisor, broker or
finder in connection with the transactions contemplated by this Agreement.
 
(f) Capitalization.  As of November 29, 2011, the authorized capital stock of
the Company consists of 50,000,000 shares of common stock, $0.01 par value per
share, of which 16,942,173 shares are issued and outstanding and 5,000,000
shares of preferred stock, $0.01 par value per share, of which no shares are
issued and outstanding.  The issuance of the Notes is duly authorized and free
from all taxes, liens and charges with respect to the issue thereof.  Upon
conversion in accordance with the terms of the Notes the Conversion Shares when
issued will be validly issued, fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue thereof.  The designations,
powers, preferences, rights (including the liquidation rights), qualifications,
limitations and restrictions in respect of the capital stock of the Company are
as set forth in the Company’s Certificate of Incorporation, as amended, a copy
of which has been provided to the Company.  As of November 29, 2011, the Company
has authorized 6,239,213 shares of common stock for issuance to employees,
consultants and directors pursuant to its 2005 Stock Option Plan, the 2010
Employee, Director and Consultant Equity Incentive Plan and the and the 2006
Recruitment Equity Incentive Plan, of which options to purchase 3,393,579 shares
are issued and outstanding as of such date and 382,250 shares of restricted
stock are issued and outstanding.  As of November 29, 2011, the Company has
issued warrants to purchase 1,388,961 shares of common stock that are issued and
outstanding.  Except as set forth in the SEC Reports, there are no outstanding
subscriptions, options, warrants, rights, calls or convertible securities, stock
appreciation rights (phantom or otherwise), joint venture, partnership or other
commitments of any nature relating to shares of the capital stock of the Company
and the Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to pay
any dividend or make any other distribution in respect thereof.  Except as set
forth in the SEC Reports, there are no shareholder agreements, voting trusts,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of the Company.
 
 
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(g) Absence of Changes.  Since the date of the Company's latest audited
financial statements included in the SEC Reports and except as disclosed in the
SEC Reports, (i) 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, (ii) the
Company has not altered its method of accounting or the identity of its
auditors, (iii) the Company has not declared or made any dividend or
distribution of cash or other property to its shareholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (iv) the Company has not issued any equity securities to any officer
or director, except pursuant to existing Company stock option and employee
plans.
 
(h) SEC Reports.  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 of the
circumstances under which they were made, not misleading.  The financial
statements of the Company included in the SEC Reports, as subsequently amended,
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 all material
respects in accordance with GAAP, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company as of and for the dates
thereof and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, year-end audit
adjustments.
 
(i) Litigation.  Except as set forth in the SEC Reports, there is no Litigation
or investigation pending or, to the Knowledge of the Company, threatened in
writing against, or otherwise adversely affecting, the business of the Company
before any Court or Governmental Authority in excess of $50,000.  The Company is
not subject to any outstanding Litigation or Order, which, individually or in
the aggregate, would prevent, hinder or delay the Company from consummating the
transactions contemplated by this Agreement.
 
 
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(j) Disclaimer of Other Representations and Warranties.  The Company does not
make, has not made and shall not be deemed to have made, any representations or
warranties relating to its business, operations, properties, assets or otherwise
in connection with the transactions contemplated hereby, other than those
expressly set forth in this Section 3.1.  Without limiting the generality of the
foregoing, the Company has not made and shall not be deemed to have made, any
representations or warranties as to the information contained in any
presentation relating to the Company in connection with the transactions
contemplated hereby, and no statement made in any such presentation shall be
deemed a representation or warranty hereunder or otherwise.  It is understood
that any cost estimates, projections or other predictions, any data, any
financial information or any memoranda or presentations are not and shall not be
deemed to be or to include representations or warranties of Company.
 
(k) Disclosure.  No representation or warranty of the Company contained in this
Agreement and the other Transaction Documents contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading or omits or will omit to state a material fact necessary in order to
provide the Investors with full and proper information as to the business,
financial condition, assets, results of operation or prospects of the Company
and the value of its properties and assets.
 
3.2 Representations and Warranties of the Investors.  Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:
 
(a) Organization.  Such Investor is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction Documents
and otherwise to carry out its obligations thereunder.
 
(b) No Registration.  Such Investor understands that the Securities have not
been, and will not be, registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Investor’s representations as
expressed herein or otherwise made pursuant hereto.
 
(c) Investment Intent.  Such Investor is acquiring the Securities for investment
for its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof, and such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same.  Such Investor further represents that it does not have
any contract, undertaking, agreement or arrangement with any person or entity to
sell, transfer or grant participation to such person or entity or to any third
person or entity with respect to any of the Securities.
 
 
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(d) Investment Experience.  Such Investor has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company and acknowledges that the Investor can protect
its own interests.  Such Investor has such knowledge and experience in financial
and business matters so that the Investor is capable of evaluating the merits
and risks of its investment in the Company.
 
(e) Speculative Nature of Investment.  Such Investor understands and
acknowledges that an investment in the Company is highly speculative and
involves substantial risks. Such Investor can bear the economic risk of the
Investor’s investment and is able, without impairing the Investor’s financial
condition, to hold the Securities for an indefinite period of time and to suffer
a complete loss of the Investor’s investment.
 
(f) Access to Data.  Such Investor has had an opportunity to ask questions of,
and receive answers from, the officers of the Company concerning the Securities,
the Agreement, the exhibits and schedules attached hereto and the transactions
contemplated by the Agreement, as well as the Company’s business, management and
financial affairs, which questions were answered to its satisfaction. Such
Investor believes that it has received all the information the Investor
considers necessary or appropriate for deciding whether to purchase the
Securities.  Such Investor acknowledges that any business plans prepared by the
Company have been, and continue to be, subject to change and that any
projections included in such business plans or otherwise are necessarily
speculative in nature, and it can be expected that some or all of the
assumptions underlying the projections will not materialize or will vary
significantly from actual results.  Such Investor also acknowledges that it is
relying solely on its own counsel and not on any statements or representations
of the Company or its agents for legal advice with respect to this investment or
the transactions contemplated by the Agreement.
 
(g) Accredited Investor.  Such Investor is an “accredited investor” within the
meaning of Regulation D, Rule 501(a), promulgated by the Commission under the
Securities Act and shall submit to the Company such further assurances of such
status as may be reasonably requested by the Company, including without
limitation, the residency or principal place of business of the Investor.
 
(h) Rule 144.  Such Investor acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available.  Such Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit resale
of shares purchased in a private placement subject to the satisfaction of
certain conditions, which may include, among other things, the availability of
certain current public information about the Company; the resale occurring not
less than a specified period after a party has purchased and paid for the
security to be sold; the number of shares being sold during any three-month
period not exceeding specified limitations; the sale being effected through a
“brokers’ transaction,” a transaction directly with a “market maker” or a
“riskless principal transaction” (as those terms are defined in the Securities
Act or the Exchange Act and the rules and regulations promulgated thereunder);
and the filing of a Form 144 notice, if applicable.  Such Investor acknowledges
that, in the event the applicable requirements of Rule 144 are not met,
registration under the Securities Act or an exemption from registration will be
required for any disposition of the Securities. Such Investor understands that,
although Rule 144 is not exclusive, the Commission has expressed its opinion
that persons proposing to sell restricted securities received in a private
offering other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
 
 
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(i) Authorization.  Such Investor has all requisite power and authority to
execute and deliver the Agreement, to receive the Securities hereunder as
contemplated herein and to carry out and perform its obligations under the terms
of the Agreement.  All action on the part of the Investor necessary for the
authorization, execution, delivery and performance of the Agreement, and the
performance of all of the Investor’s obligations under the Agreement, has been
taken or will be taken prior to the applicable Closing Date.  The Agreement,
when executed and delivered by the Investor, will constitute valid and legally
binding obligations of the Investor, enforceable in accordance with their terms
except: (i) to the extent that the indemnification provisions contained in the
Agreement may be limited by applicable law and principles of public policy,
(ii) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights
generally, and (iii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies or by general
principles of equity.  No consent, approval, authorization, order, filing,
registration or qualification of or with any court, governmental authority or
third person is required to be obtained by the Investor in connection with the
execution and delivery of the Agreement by the Investor or the performance of
the Investor’s obligations hereunder.
 
(j) Brokers or Finders.  Such Investor has not engaged any brokers, finders or
agents, and neither the Company nor any other Investor has, nor will, incur,
directly or indirectly, as a result of any action taken by the Investor, any
liability for brokerage or finders’ fees or agents’ commissions or any similar
charges in connection with the Agreement.
 
(k) Tax Advisors.  Such Investor has reviewed with its own tax advisors the U.S.
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by the Agreements. With respect to such matters, such
Investor relies solely on such advisors and not on any statements or
representations of the Company or any of its agents, written or oral. Such
Investor understands that it (and not the Company) shall be responsible for its
own tax liability that may arise as a result of this investment or the
transactions contemplated by the Agreements.
 
 
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ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1 (a)  Except with respect to any sale or transfer of the Notes to any
Affiliate of an Investor, any such Investor desiring to sell or transfer such
Investor’s Notes shall obtain the prior written consent of the Company.  The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of the Securities other than
pursuant to an effective registration statement, to the Company, or to an
Affiliate of an Investor, the Company may also require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.
 
(b)  Certificates evidencing the Notes will contain a legend in substantially
the following form:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY NOT BE PLEDGED AS COLLATERAL FOR ANY SHORT SALE OF THE
SHARES OF THE COMPANY.
 
Certificates evidencing the Conversion Shares will contain a legend in
substantially the following form, until such time as they are not required under
Section 4.1(c):
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
 
 
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(c)  Certificates evidencing the Conversion Shares shall not contain any legend
(including the legend set forth in Section 4.1(b)): (i) following a sale of such
Conversion Shares pursuant to an effective registration statement so long as the
purchaser of the Conversion Shares is not an Affiliate of the Company, or (ii)
following a sale of such Conversion Shares pursuant to Rule 144 (or any
successor provision), subject to receipt by the Company of customary
documentation reasonably acceptable to the Company in connection therewith or
(iii) while such Conversion Shares are eligible for resale under Rule 144 (or
any successor provision) without regard to the number of shares that may be
sold.  Following such time as restrictive legends are not required to be placed
on certificates representing Conversion Shares, the Company will, not later than
five Trading Days following the delivery by an Investor to the Company or the
Company’s transfer agent of a request for legend removal and a certificate
representing such Conversion Shares containing a restrictive legend, deliver or
cause to be delivered to such Investor a certificate representing such
Conversion Shares that is free from all restrictive and other legends, subject
to the Company’s receipt of all reasonably required representations and
documentation from the Investor.
 
4.2 Securities Laws Disclosure; Publicity.  Within four Business Days following
the date of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the Exchange Act and attaching the material
Transaction Documents (including, without limitation, this Agreement, the form
of the Note) as exhibits to such filing.  Except as may be required by
applicable law and/or this Agreement, the Company shall not use, directly or
indirectly, any Investor’s name or the name of any of its Affiliates in any
advertisement, announcement, press release or other similar communication unless
it has received the prior written consent of such Investor or its Affiliate, as
the case may be, for the specific use contemplated or as otherwise required by
applicable law or regulation.
 
4.3 Non-Public Information.  The Company covenants and agrees that neither it
nor any other Person acting on its behalf will provide any Investor or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Investor shall have
executed a written agreement regarding the confidentiality and use of such
information.  The Company understands and confirms that each Investor shall be
relying on the foregoing representations in effecting transactions in securities
of the Company.
 
4.4 Use of Proceeds.  The Company shall use the net proceeds from the sale of
the Securities hereunder for working capital purposes.
 
4.5 Reservation of Shares.  The Company shall at all times have authorized, and
reserved for the purpose of issuance, such number of shares of Common Stock as
shall be necessary to effect the full conversion of the Notes that have been
issued hereunder (the “Share Reserve”).  If at any time the Share Reserve is
insufficient to effect the full conversion of the Notes then outstanding the
Company shall, promptly (and in any event within 90 days) increase the Share
Reserve accordingly.
 
 
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4.6 Company’s Instructions to Transfer Agent.  On or prior to the applicable
Closing Date, the Company shall execute and deliver irrevocable written
instructions to the transfer agent for its Common Stock (the “Transfer Agent”),
and provide each Investor with a copy thereof, directing the Transfer Agent (i)
to issue certificates representing Conversion Shares upon conversion of the
Notes and receipt of a valid Conversion Notice (as defined in the Notes) from an
Investor, in the amount specified in such Conversion Notice, in the name of such
Investor or its nominee, and (ii) to deliver such certificates to such Investor
no later than the close of business on the third (3rd) Trading Day following the
related Conversion Date (as defined in the Notes).  Such certificates may bear
legends pursuant to applicable provisions of this Agreement or applicable
law.  The Company shall instruct the transfer agent that, in lieu of delivering
physical certificates representing shares of Common Stock to an Investor upon
conversion of the Notes, and as long as the Transfer Agent is a participant in
the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
and such Investor has not informed the Company that it wishes to receive
physical certificates therefor, and no restrictive legend is required to appear
on any physical certificate if issued, the transfer agent may effect delivery of
Conversion Shares by crediting the account of such Investor or its nominee at
DTC for the number of shares for which delivery is required hereunder within the
time frame specified above for delivery of certificates.  The Company represents
to and agrees with each Investor that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Investor’s right to convert the Notes or to receive Conversion
Shares in accordance with the terms of the Notes.  In the event that the
Company’s relationship with the Transfer Agent should be terminated for any
reason, the Company shall use its commercially reasonable efforts to cause the
Transfer Agent to continue acting as transfer agent pursuant to the terms hereof
until such time that a successor transfer agent is appointed by the Company and
receives the instructions described above.
 
4.7 Grant of Security Interest.  As collateral security for the payment and
performance of all debts owed to the Investors under the Notes, Company hereby
grants to the Investors a security interest in all of Company’s personal
property and assets, tangible or intangible, in each case whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title, or interest, including all of the following property
in which it now has or at any time in the future may acquire any right, title or
interest (such terms having the meanings ascribed thereto in the Uniform
Commercial Code as the same may, from time to time, be in effect in the State of
California): all accounts; all deposit accounts; all money; all commodity
contracts; all investment property; all inventory; all equipment; all goods; all
chattel paper; all documents; all instruments; all general intangibles; all
letter-of-credit rights; all letters of credit; all commercial tort claims; and
to the extent not otherwise included, all proceeds and products of all and any
of the foregoing, and all collateral security and guarantees given by any person
with respect to any of the foregoing (collectively, the “Collateral”).  Company
agrees that the Notes and all other monies owed to Investors creates, and is
intended to create, valid and continuing liens upon the Collateral in favor of
the Investors. The Company agrees to execute and file an initial UCC financing
statement in Delaware indicating the Investor’s security interest in the
Collateral and agrees to use its best commercial efforts to execute and to file
in all applicable Uniform Commercial Code jurisdictions any financing statements
and amendments thereto required to perfect the Investor’s interest in the
Collateral (subject to the liens of SVB or other potential senior creditors) and
further covenants and agrees to use its best commercial efforts to execute and
file the appropriate financing statements and other documents reasonably
necessary to perfect the security interest of the Investors in the Collateral.
 
 
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ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
 
5.1 Conditions Precedent to the Obligations of Investors.  The obligations of
each Investor to purchase its respective Note at each Closing are subject to the
fulfillment, on or before such Closing, of each of the following conditions,
unless otherwise waived:
 
(a)   Representations, Warranties and Covenants.  The representations and
warranties of the Company contained in this Agreement shall have been true and
correct when made and shall be true and correct in all material respects as of
the Closing (other than such representations and warranties that are qualified
by materiality, which shall be true and correct as of the Closing), with the
same force and effect as if made as of the Closing Date, other than such
representations and warranties that are expressly made as of another date, in
which case such representations and warranties shall be true only as of such
date.
 
(b)   Performance.  The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by the Company on or before
such Closing.
 
(c)   SVB Consent.  Silicon Valley Bank shall have consented in writing to the
consummation of the transactions contemplated by this Agreement and the Notes.
 
5.2 Conditions Precedent to the Obligations of the Company.  The obligations of
the Company to sell the Notes to the Investors at each Closing are subject to
the fulfillment, on or before such Closing, of each of the following conditions,
unless otherwise waived:
 
(a)   Representations, Warranties and Covenants.  The representations and
warranties of each Investor contained in this Agreement shall have been true and
correct when made and shall be true and correct in all material respects as of
the Closing (other than such representations and warranties that are qualified
by materiality, which shall be true and correct as of the Closing), with the
same force and effect as if made as of the Closing Date, other than such
representations and warranties that are expressly made as of another date, in
which case such representations and warranties shall be true only as of such
date.
 
 
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(b)   Performance.  The Investors shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by the Investors on or before
such Closing.
 
(c)   SVB Consent.  Silicon Valley Bank shall have consented in writing to the
consummation of the transactions contemplated by this Agreement and the Notes.
 
ARTICLE VI.
MISCELLANEOUS
 
6.1 Fees and Expenses.  Unless agreed otherwise on a case-by-case basis, each
Investor and the Company shall pay the fees and expenses of its own 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 the Transaction Documents.  The Company will reimburse up to
$5,000 in legal fees for every Investor who purchases Notes as part of a Closing
in excess of $500,000. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Securities under this
Agreement.
 
6.2 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.
 
6.3 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
specified in this Section prior to 5:00 p.m. (eastern 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 specified in
this Section on a day that is not a Trading Day or later than 5:00 p.m. (eastern
time) on any Trading Day, (c) the 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 follows:
 

 
If to the Company:
 
EdgeWave, Inc.
     
15333 Avenue of Science
     
San Diego, CA 92128
     
Attn: President
     
Facsimile: 858-676-2299
                  With a copy to:    Michel Urich, Esq.       7668 El Camino
Real, Suite 104-238       Carlsbad, CA 92009       Facsimile: 213-341-0974      
            If to an Investor:  
To the address set forth under such Investor’s name
on the signature pages hereof;
       

                                               
 

 
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or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
 
6.4 Amendments; Waivers.  No provision of this Agreement may be waived or
amended except in a written instrument signed by the Company and the Investors
holding at least fifty one percent (51%) of the outstanding and unpaid principal
amount of the Notes; provided that any amendment or waiver which adversely
affects the rights of any of the Investors in a manner that is disproportionate
to the adverse effect on the rights of the other Investors, respectively, shall
require the written consent of fifty one percent (51%) of the outstanding and
unpaid principal amount of the Notes held by such disproportionately affected
Investors.  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.  Each Investor acknowledges that by the operation of this paragraph, the
holders of fifty one percent (51%) of the outstanding and unpaid principal
amount of the Notes issued hereunder will have the right and power to diminish
or eliminate all rights of such Investor under this Agreement.
 
6.5 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.  This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
 
6.6 Successors and Assigns.  The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. Any transferee of the Notes in accordance
with the terms hereof shall, as a condition precedent to such transfer, execute
an acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term “Investor” shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto.
 
 
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6.7 Governing Law; Jurisdiction. This Agreement and the rights and obligations
of the parties hereunder shall be construed in accordance with and governed by
the Law of the State of California without giving effect to the conflict of law
principles thereof.  Any legal action or proceeding with respect to this
Agreement shall be brought in the courts of State of California or of the United
States of America located in San Diego, California.  By execution and delivery
of this Agreement, each of the parties hereto accepts for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts.  The parties hereby irrevocably waive an objection or defense
that they now or hereafter have to the assertion of personal jurisdiction by any
court in any such action or to the laying of the venue of any such action in any
such court, and hereby waive, to the extent not prohibited by law, and agree not
to assert, by way of motion, as a defense, or otherwise, in any such proceeding,
any claim that it is not subject to the jurisdiction of the above-named courts
for such proceedings.   Each party hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, any and all right to trial by jury
in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.   If either party shall commence a legal
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such legal proceeding shall be entitled to recover its fees and other
costs and expenses (including reasonable attorneys’ fees) incurred with the
investigation, preparation and prosecution of such legal proceeding.
 
6.8 Survival.  The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Securities.
 
6.9 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
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.
 
6.10 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.
 
6.11 Remedies.  In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
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.
 
 
 
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6.12 Independent Nature of Investors’ Obligations and Rights.  The obligations
of each Investor under any Transaction Document are several and not joint with
the obligations of any other Investor, and no Investor shall be responsible in
any way for the performance of the obligations of any other Investor under any
Transaction Document.  The decision of each Investor to purchase Securities
pursuant to the Transaction Documents has been made by such Investor
independently of any other Investor.  Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors 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
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents.  Each Investor 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 Investor to be joined as an additional party in any
proceeding for such purpose.
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
 
 
 
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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 written above.
 
 
EDGEWAVE, INC.
 
By: ___________________________
Louis Ryan
President and Chief Executive Officer
 
 
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
 
 
 
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IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first written above.
 
[INVESTOR]
 
 
By:_____________________________________
Name:
Title:
 
 
Purchase Price:  $[__________]
 
 
Address for Notice:
 
 
 
 
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ANNEX 1

SCHEDULE OF NOTEHOLDERS

Noteholder and Address
 
Amount Credited to Purchase Price from prepayment of previous convertible notes
dated August, 2, 2010 and September 20, 2010
 
Portion of Purchase Price provided by wire transfer
 
Total Purchase Price
1. ATA Affiliates Fund II, L.P.
203 Redwood Shores Parkway, Suite 550
Redwood City, CA 94065
Tel: 650.594.0189
Fax: 650.594.0257
 
$27,190.27
   
$13,073.48
   
$40,263.75
 
2. ATA Investment Fund II, L.P.
203 Redwood Shores Parkway, Suite 550
Redwood City, CA 94065
Tel: 650.594.0189
Fax: 650.594.0257
 
$5,388.74
   
$2,591.44
   
$7,980.18
 
3. ATA Ventures II, L.P.
203 Redwood Shores Parkway, Suite 550
Redwood City, CA 94065
Tel: 650.594.0189
Fax: 650.594.0257
 
$1,858,252.20
   
$893,503.87
   
$2,751,756.07
 
4. RWI Ventures II, L.P.
900 E. Hamilton Avenue, Suite 100
Campbell, CA 95008
Tel: 408.879.7343
Fax: 408.879.7205
 
$1,100,025.75
   
$599,974.25
   
$1,700,000
 
5.
 
$2,990,856.96
   
$1,509,143.04
   
$4,500,000
 

 

 
 
 
 
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