EXHIBIT 10.1


 


SECURITIES
PURCHASE AGREEMENT


 


This Securities Purchase Agreement (this “Agreement”) is dated
as of March 15, 2005, among Wave Systems Corp., a Delaware corporation
(the “Company”), and each purchaser identified on the signature pages
hereto (each, including its successors and assigns, a “Purchaser” and
collectively the “Purchasers”); and


 


WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company in
the aggregate, up to $4,100,000 of shares of Common Stock on the Closing Date
pursuant to an effective Registration Statement on Form S-3, file no.
333-114476.


 


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


 


ARTICLE I

DEFINITIONS


 


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


 


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


 


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


 


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


 


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


 


“Closing Price” means, for any date, the price
determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the closing bid
price of the Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted as reported
by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m.


 





















 


Eastern Time to 4:02 p.m. Eastern Time); (b)  if the Common Stock
is not then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the closing bid price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.


 


“Commission” means the Securities and Exchange
Commission.


 


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


 


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


 


“Company Counsel” means Bingham
McCutchen LLP.


 


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


 


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


 


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


 


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


 





















 


in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities; and (d) up to, in the
aggregate, 250,000 shares of Common Stock or Common Stock Equivalents in any 12
month period to consultants as payment for services rendered.


 


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


 


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


 


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


 


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


 


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


 


“Per Share Purchase Price” equals $0.88, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the
Common Stock that occur after the date of this Agreement.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Securities” means the Shares.


 





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE II

PURCHASE AND SALE


 


Section 2.1.                                   Closing.  On the Closing Date, each Purchaser shall
purchase from the Company, severally and not jointly with the other Purchasers,
and the Company shall issue and sell to each Purchaser a number of Shares equal
to such Purchaser’s Subscription Amount divided by the Per Share Purchase
Price.  The aggregate Subscription
Amounts for Shares sold hereunder shall be up to $4,100,000.  Upon satisfaction of the conditions set forth
in Section 2.2, the Closing shall occur at the offices of Company Counsel
or such other location as the parties shall mutually agree.


 


Section 2.2.                                   Deliveries.  (a) On the Closing Date, the Company shall
deliver or cause to be delivered to each Purchaser the following:


 


(i)                                     this
Agreement duly executed by the Company;


 


(ii)                                  the
receipt by each Purchaser, via the DTC DWAC system, of the number of Shares
equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase
Price, registered in the name of such Purchaser;


 


(iii)                               an
officer’s certificate of the Company’s Chief Executive Officer or Chief
Financial Officer, in form reasonably acceptable to the Purchasers, certifying
the continuing accuracy of the Company’s representations and warranties made in
this


 





















 


Agreement and the Company’s performance of the covenants to be
performed by it pursuant to this Agreement at or prior to Closing;  and


 


(iv)                              a
legal opinion of Company Counsel, in the form of Exhibit B attached hereto.


 


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


 


(i)                                     this
Agreement duly executed by such Purchaser; and


 


(ii)                                  such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company.


 


Section 2.3.                                   Closing
Conditions.  (a) The obligations of
the Company hereunder in connection with the Closing are subject to the
following conditions being met:


 


(i)                                     the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;


 


(ii)                                  all
obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed;


 


(iii)                               the
delivery by the Purchasers of the items set forth in Section 2.2(b) of
this Agreement; and


 


(iv)                              by
9:00 am ET on March 16, 2005 the Company shall be reasonably satisfied
that the transactions contemplated hereunder meet the requirements of The
NASDAQ Marketplace Rules, it being acknowledged and agreed by the parties that
the issuance of a press release pursuant to Section 4.3 disclosing the
material terms of this transaction by 9:00 am ET on March 16, 2005 shall
be deemed a satisfaction of this condition.


 


(b)                                 The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:


 


(i)                                     the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Company contained herein;


 


(ii)                                  all
obligations, covenants and agreements of the Company required to be performed
at or prior to the Closing Date shall have been performed;


 


(iii)                               the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;


 





















 


(iv)                              there
shall have been no Material Adverse Effect with respect to the Company since
the date hereof, which shall not have been reasonably cured by the Company;


 


(v)                                 from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be terminated
prior to the Closing), and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States
or New York State authorities nor shall there have occurred any material
outbreak or escalation of hostilities or other national or international
calamity of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment of each
Purchaser, makes it impracticable or inadvisable to purchase the Shares at the
Closing; and


 


(vi)                              by
9:00 am ET on March 16, 2005 the Company shall be reasonably satisfied
that the transactions contemplated hereunder meet the requirements of The
NASDAQ Marketplace Rules, it being acknowledged and agreed by the parties that
the issuance of a press release pursuant to Section 4.3 disclosing the
material terms of this transaction by 9:00 am ET on March 16, 2005 shall
be deemed a satisfaction of this condition.


 


ARTICLE III

REPRESENTATIONS AND WARRANTIES


 


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


 


(a)                                  Subsidiaries.  All of the direct and indirect subsidiaries
of the Company are set forth in the SEC Reports as filed with the
Commission.  The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.  If the Company
has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.


 


(b)                                 Organization
and Qualification.  Each of the
Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Neither the Company nor any Subsidiary is in violation or


 





















 


default
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case
may be, could not have or reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets,
business, prospects or financial condition of the Company and the Subsidiaries,
taken as a whole, or (iii) a material adverse effect on the Company’s ability
to perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.


 


(c)                                  Authorization;
Enforcement.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and otherwise to
carry out its obligations thereunder. 
The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company in connection therewith other
than in connection with the Required Approvals. 
Each Transaction Document has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.


 


(d)                                 No
Conflicts.  The execution, delivery
and performance of the Transaction Documents by the Company, the issuance and
sale of the Shares and the consummation by the Company of the other
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation of
any Lien upon any of the properties or assets of the Company or any Subsidiary,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement,
credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations), or by which any property or asset
of the Company or a Subsidiary is bound or affected, or (iv) conflict with or
violate the terms of any agreement by which the Company or any Subsidiary is
bound or to which any property or asset of the Company or any Subsidiary is
bound or affected;


 





















 


except
in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.


 


(e)                                  Filings,
Consents and Approvals.  The Company
is not required to obtain any consent, waiver, authorization or order of, give
any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the Notification Form: Listing of
Additional Shares required by the NASDAQ Stock Market, (ii) filings required
pursuant to Section 4.3 of this Agreement, and (iii) such filings as are
required to be made under applicable state securities laws (collectively, the “Required
Approvals”).


 


(f)                                    Issuance
of the Securities.  The Shares are
duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents.  The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement.


 


(g)                                 Capitalization.  The capitalization of the Company is as
described in the Company’s most recent periodic report filed with the
Commission.  The Company has not issued
any capital stock since such filing other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plan and pursuant to the conversion or exercise of outstanding Common
Stock Equivalents.  No Person has any
right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the
Transaction Documents.  There are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  The issue and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Shares.  There are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the knowledge of the Company,
between or among any of the Company’s stockholders.


 





















 


(h)                                 SEC
Reports; Financial Statements.  The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as
the Company was required by law to file such material) (the foregoing
materials, including the exhibits thereto, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to
the expiration of any such extension.  As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing.  Such financial statements have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.


 


(i)                                     Material
Changes.  Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, except as has been reasonably cured by the
Company (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
existing Company stock option plans.  The
Company does not have pending before the Commission any request for
confidential treatment of information.


 


(j)                                     Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect.  Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has


 





















 


been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.


 


(k)                                  Labor
Relations.  No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of
the employees of the Company which could reasonably be expected to result in a
Material Adverse Effect.


 


(l)                                     Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal,
state and local laws applicable to its business except in each case as could
not have a Material Adverse Effect.


 


(m)                               Regulatory
Permits.  The Company and the
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary
to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not have or reasonably be
expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.


 


(n)                                 Title
to Assets.  The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them that is material to the business of the Company and the
Subsidiaries and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries are
in compliance.


 


(o)                                 Patents
and Trademarks.  The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights necessary or material for use in connection
with their respective businesses as described in the SEC Reports and which the


 





















 


failure
to so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).  Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes
upon the rights of any Person.  To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights of others.


 


(p)                                 Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including but not limited
to, directors and officers insurance coverage of $5,000,000.  To the best of Company’s knowledge, such
insurance contracts and policies are accurate and complete.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.


 


(q)                                 Transactions
With Affiliates and Employees. 
Except as set forth in the SEC Reports, none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company.


 


(r)                                    Sarbanes-Oxley;
Internal Accounting Controls.  The
Company is in material compliance with all provisions of the Sarbanes-Oxley Act
of 2002 which are applicable to it as of the Closing Date.  The Company has established disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as such term is defined
in Item 307(b) of Regulation S-K under the Exchange Act) or, to the


 





















 


Company’s
knowledge, in other factors that could significantly affect the Company’s
internal controls.


 


(s)                                  Certain
Fees.  No brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this Agreement,
other than a fee to Corpfin Inc. in connection with the sale of the Shares at
Closing.  The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this Agreement.


 


(t)                                    Listing
and Maintenance Requirements.  The
Company’s Common Stock is registered pursuant to Section 12(g) of the
Exchange Act, and the Company has taken no action designed to, or which to its
knowledge is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such
registration.  The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is in compliance with all such
listing and maintenance requirements.


 


(u)                                 Application
of Takeover Protections.  The Company
and its Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.


 


(v)                                 Disclosure.  The Company confirms that, neither the
Company nor any officer, director or employee of the Company acting on its
behalf has provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, non-public
information.  The Company understands and
confirms that the Purchasers will rely on the foregoing representations and covenants
in effecting transactions in securities of the Company.  All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby
furnished by or on behalf of the Company with respect to the representations
and warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company acknowledges and agrees that no Purchaser
makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in Section 3.2
hereof.


 





















 


(w)                               No
Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would, to
the best of the Company’s knowledge, cause this offering of the Securities,
when, and if, integrated with prior offerings by the Company, to require
shareholder approval, including, without limitation, under the rules and
regulations of any exchange or automated quotation system on which any of the
securities of the Company are listed or designated.


 


(x)                                   Solvency.  Based on the financial condition of the
Company as of the Closing Date after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the
Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular
capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current
cash flow of the Company through the current fiscal year, together with the
proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of its debt when such amounts are required
to be paid.  The Company does not intend
to incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of its
debt).  The Company has no knowledge of
any facts or circumstances which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of
any jurisdiction within one year from the Closing Date.  The SEC Reports set forth, as of the dates
thereof, all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this
Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed
money or amounts owed in excess of $50,000 (other than trade accounts payable
incurred in the ordinary course of business), (b) all guaranties, endorsements
and other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company’s balance sheet (or
the notes thereto), except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business; and (c) the present value of any lease payments in excess of $50,000
due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.


 


(y)                                 Effective
Registration Statement.  The
Registration Statement has been declared effective by the Commission and the
Company knows of no reason why the Registration Statement will not continue to
remain effective for the foreseeable future.


 


(z)                                   Taxes.  Except for matters that would not,
individually or in the aggregate, have, or reasonably be expected to result in,
a Material Adverse Effect, to the best of the Company’s knowledge, the Company
and each Subsidiary has filed all necessary federal, state and foreign income
and franchise tax returns and has paid or accrued all taxes shown as due


 





















 


thereon,
and the Company has no knowledge of a tax deficiency which has been asserted or
threatened against the Company or any Subsidiary.


 


(aa)                            Foreign
Corrupt Practices.  Neither the
Company, nor to the knowledge of the Company, any agent or other person acting
on behalf of the Company, has (i) directly or indirectly, used any corrupt
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.


 


(bb)                          Acknowledgment
Regarding Purchasers’ Purchase of Shares. 
The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby.  The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Shares.  The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.


 


(cc)                            Approvals.  The issuance and listing on the Nasdaq
National Market of the Shares requires no further approvals, including but not
limited to, the approval of shareholders.


 


(dd)                          Accountants.  The Company’s accountants are set forth on Schedule 3.1(dd)
of the Disclosure Schedule.  To the
Company’s knowledge, such accountants, who the Company expects will express
their opinion with respect to the financial statements to be included in the
Company’s Annual Report on Form 10-K for the year ending December 31,
2004, are a registered public accounting firm as required by the Securities
Act.


 


(ee)                            Acknowledgement
Regarding Purchasers’ Trading Activity. 
Anything in this Agreement or elsewhere herein to the contrary
notwithstanding, it is understood and agreed by the Company (i) that none of
the Purchasers have been asked to agree, nor has any Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company
or to hold the Securities for any specified term; (ii) that past or future open
market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Purchaser, and counter parties in “derivative”
transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a “short” position in the Common Stock, and (iv)


 





















 


that
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction.


 


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


 


(a)                                  Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser.  Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may
be limited by applicable law.


 


(b)                                 Purchaser
Representation.  Such Purchaser does
not have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities. Such Purchaser is not required to
be registered as a broker-dealer under Section 15 of the Exchange Act.


 


(c)                                  Experience
of Such Purchaser.  Such Purchaser,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment. 
Such Purchaser acknowledges that on the date hereof, the Company
conducted a public telephonic conference call to which such Purchaser is deemed
to have attended for purposes of obtaining the information provided on such
call and for purposes of making an investment decision to enter into the
Transaction Documents.


 


(d)                                 Short
Sales.  Each Purchaser represents
that from the date that it was approached to participate in the transaction
contemplated by this Agreement (which the Company acknowledges was no earlier
than 7:00 pm ET on March 9, 2005) through the moment this transaction is
publicly disclosed pursuant to Section 4.3 or otherwise, neither it nor
any of its Affiliates over which Purchaser exercises investment discretion have
made any net short sales of, or granted any option for the purchase of or
entered into any hedging or similar transaction with the same economic effect
as a net short sale, in the Common Stock. 
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby


 





















 


separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed (i) by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement and/or (ii) by any portfolio
manager with knowledge of that investment decision or who has been instructed
to take actions in contemplation of that investment decision.


 


(e)                                  Securities
Laws.  If a Purchaser engaged in any
of the trading activities described in Section 3.1(d) above, such
Purchaser did so in compliance with federal securities laws.


 


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


 


ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES


 


Section 4.1.                                   No
Transfer Restrictions.  (a)
Certificates evidencing the Shares shall not contain any legend restricting
their transferability by the Purchaser. The Company shall cause its counsel to
issue a legal opinion to the Company’s transfer agent if required by the
Company’s transfer agent to effect a transfer of any of the Securities.


 


(b)                                 In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares (based on the Market Price of the Common Stock on the
date such Securities are submitted to the Company’s transfer agent) for
transfer, $10 per Trading Day (increasing to $20 per Trading Day five (5)
Trading Days after such damages have begun to accrue) for each Trading Day
after three (3) Trading Days until such Securities are delivered. Nothing
herein shall limit such Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.


 


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


 





















 


Section 4.3.                                   Securities
Laws Disclosure; Publicity.  The
Company shall, by 9:00 a.m. Eastern time on the Trading Day following the date
hereof issue a press release disclosing the material terms of this Agreement
and within 2 Trading Days of the date hereof, file a Current Report on Form 8-K
which attaches as exhibits all agreements relating to this transaction, in each
case reasonably acceptable to each Purchaser, if such Purchaser is readily
available to review such public disclosure in a timely manner, disclosing the
material terms of the transactions contemplated hereby.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, except as set forth in the exhibits to be attached to the Form
8-K contemplated above, without the prior written consent of such Purchaser
(such consent not to be unreasonably withheld), except (i) as required by
federal securities law and (ii) to the extent such disclosure is required by
law or Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under subclause (i)
or (ii).


 


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


 


Section 4.5.                                   Non-Public
Information.  The Company covenants
and agrees that neither it nor any other Person acting on its behalf will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. 
The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in
securities of the Company.


 


Section 4.6.                                   Reimbursement.  If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser’s acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.  The reimbursement obligations
of the Company under this paragraph shall be in addition to any liability which
the Company may otherwise have, shall extend upon the same terms and conditions
to any Affiliates of the Purchasers who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Purchasers and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchasers and any such Affiliate and any such Person.  The Company also agrees that neither the
Purchasers nor


 





















 


any
such Affiliates, partners, directors, agents, employees or controlling persons
shall have any liability to the Company or any Person asserting claims on
behalf of or in right of the Company solely as a result of acquiring the
Securities under this Agreement.


 


Section 4.7.                                   Indemnification
of Purchasers.  Subject to the
provisions of this Section 4.7, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any
of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance).  If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party.  The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser
Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.


 


Section 4.8.                                   Reservation
of Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Shares pursuant to this Agreement.


 


Section 4.9.                                   Listing
of Common Stock.  The Company hereby
agrees to use best efforts to maintain the listing of the Common Stock on a
Trading Market. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Trading Market, it will include in such
application all of the Shares and will take such other action as is necessary
to cause all of the Shares to be listed on such other Trading Market as
promptly as possible.  The


 





















 


Company
will take all action reasonably necessary to continue the listing and trading
of its Common Stock on a Trading Market and will comply in all respects with
the Company’s reporting, filing and other obligations under the bylaws or rules
of the Trading Market.


 


Section 4.10.                             Equal
Treatment of Purchasers.  No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents.  For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.


 


Section 4.11.                             Subsequent
Equity Sales.  From the date hereof
until 30 days after the Closing Date, neither the Company nor any Subsidiary
shall issue shares of Common Stock or Common Stock Equivalents; without the
prior written consent of each Purchaser (such consent not to be unreasonably
withheld).  Notwithstanding the
foregoing, this Section 4.11 shall not apply in respect of an Exempt
Issuance or in respect of shares of Common Stock and Common Stock Equivalents
which the Company is not permitted to register under the Securities Act for at
least 12 months following the Closing Date.


 


Section 4.12.                             Approval
of Subsequent Equity Sales.  The
Company shall not issue shares of Common Stock or Common Stock Equivalents if
such issuance would require shareholder approval pursuant to Rule 4350 of the
NASD Marketplace Rules, unless and until such shareholder approval is obtained.


 


ARTICLE V

MISCELLANEOUS


 


Section 5.1.                                   Termination.  This Agreement may be terminated by any
Purchaser, as applied to such Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before March 18,
2005 provided however that no such termination will affect the right of any
party to sue for any breach by the other party (or parties).  Either party can terminate if the closing
conditions in Section 2.3(a)(iv) and 2.3(b)(vi) are not met by the time
period specified therein.


 


Section 5.2.                                   Fees
and Expenses.  The Company shall
deliver, prior to the Closing, a completed and executed copy of the Closing
Statement, attached hereto as Annex A. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The
Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.


 


Section 5.3.                                   Entire
Agreement.  The Transaction
Documents, together with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with


 





















 


respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.


 


Section 5.4.                                   Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or later than 6:30 p.m. (New York
City time) on any Trading Day, (c) the second Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and
communications shall be as set forth on the signature pages attached hereto.


 


Section 5.5.                                   Amendments;
Waivers.  No provision of this
Agreement may be waived or amended except in a written instrument signed, in
the case of an amendment, by the Company and each Purchaser or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.


 


Section 5.6.                                   Construction.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction
will be applied against any party.


 


Section 5.7.                                   Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser.  Any
Purchaser may assign any or all of its rights under this Agreement to any
Person to whom such Purchaser assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the “Purchasers”.


 


Section 5.8.                                   No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.7.


 


Section 5.9.                                   Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without


 





















 


regard
to the principles of conflicts of law thereof. 
Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders, employees
or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York.  Each
party hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of  any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  The parties hereby
waive all rights to a trial by jury.  If
either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.


 


Section 5.10.                             Survival.  The representations and warranties herein
shall survive the Closing and delivery of the Shares.


 


Section 5.11.                             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.


 


Section 5.12.                             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.


 


Section 5.13.                             Rescission
and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without limiting
any similar provisions of) the Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction Document and
the Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion


 





















 


from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.


 


Section 5.14.                             Replacement
of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary
and reasonable indemnity, if requested. 
The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.


 


Section 5.15.                             Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.


 


Section 5.16.                             Payment
Set Aside.  To the extent that the
Company makes a payment or payments to any Purchaser pursuant to any
Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.


 


Section 5.17.                             Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under any Transaction
Document.  Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document.  Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of the Transaction Documents.  For
reasons of administrative convenience only, Purchasers and their respective
counsel have chosen to communicate with the Company through Feldman


 





















 


Weinstein
LLP (“FW”).  FW does not represent
all of the Purchasers but only Corpfin Inc., who has acted as placement agent
to the transaction.  The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.


 


Section 5.18.                             Liquidated
Damages.  The Company’s obligations
to pay any partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other amounts have
been paid notwithstanding the fact that the instrument or security pursuant to
which such partial liquidated damages or other amounts are due and payable
shall have been canceled.


 


Section 5.19.                             Construction.  The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments hereto.


 


(Signature Page Follows)


 





















 


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


 


	
  Wave Systems Corp.

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Wave Systems Corp

  
	
  Name: Gerard T. Feeney 

  	
  480 Pleasant Street

  
	
  Title: Chief Financial Officer

  	
  Lee, MA 01238

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

  	
   

  
					



 


 


[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK


 


SIGNATURE PAGES FOR PURCHASERS
FOLLOW]


 





















 


[PURCHASER SIGNATURE PAGES TO
WAVX SECURITIES PURCHASE AGREEMENT]


 


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


 


 


Name of Investing Entity:


 


Signature of Authorized Signatory of
Investing Entity:


 


Name of Authorized Signatory:


 


Title of Authorized Signatory:


 


Email Address of Authorized Entity:


 


Address for Notice of Investing Entity:


 


 


 


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


 


DWAC Instructions for Common Stock:


 


 


Subscription Amount: $


 


EIN Number:  [PROVIDE
THIS UNDER SEPARATE COVER]


 


[SIGNATURE PAGES CONTINUE]


 





















 


Annex A


 


CLOSING
STATEMENT


 


Pursuant to the attached Securities Purchase Agreement, dated as of the
date hereto, the purchasers shall purchase up to $4,100,000 of Common Stock from
Wave Systems Corp., a Delaware corporation (the “Company”).  All funds will be wired into the Company’s
account.  All funds will be disbursed in
accordance with this Closing Statement.


 


Disbursement
Date:   March 17, 2005  


 


	
  I. PURCHASE PRICE

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Gross Proceeds to be Received

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  II.DISBURSEMENTS

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Corpfin Inc.

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Feldman Weinstein LLP

  	
   

  	
  $

  	
  5,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Amount Disbursed:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  WIRE INSTRUCTIONS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  See attached

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  To:                                                         

  	
   

  	
   

  



 





















 


SCHEDULE 3.1(j)
to the

SECURITIES PURCHASE AGREEMENT DATED MARCH 15, 2005

FOR

WAVE SYSTEMS CORP.


 


LITIGATION:


 


Securities and Exchange Commission Investigation


 


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


 


Purported Class Actions


 


Several (9 known) similar purported class
action complaints have been filed between January 23, 2004, and February 23,
2004, most in the United States District Court for the District of
Massachusetts, seven (7) of which name Wave, its Chief Executive Officer, its
Chief Financial Officer and two (2) of which also name Wave’s Chairman of the
Board, as defendants.  The purported
class action complaints have been filed by alleged purchasers of Wave’s Class A
Common Stock during the purported class period July 31, 2003, through February 2,
2004.  The plaintiffs have since filed
consolidated amended complaints.  The
complaints claim that Wave and the named individuals violated the federal
securities laws by publicly disseminating materially false and misleading
statements regarding Wave, relating to Intel and IBM agreements, resulting in
the artificial inflation of Wave’s Class A Common Stock price during the
purported class periods.  The complaints
do not specify the amount of alleged damages plaintiffs seek to recover.


 


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


 


Derivative Actions


 


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


 


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


 





















 


SCHEDULE 3.1(g)
to the

SECURITIES PURCHASE AGREEMENT DATED MARCH 15,
2005

FOR

WAVE SYSTEMS CORP.


 


OPTIONS AND WARRANTS OUTSTANDING:


 


	
  Options granted pursuant to Employee and
  Non-employee Director Stock Option plans

  	
   

  	
  12,201,056

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Options granted pursuant to Employee Stock
  Purchase Plan

  	
   

  	
  332,931

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Warrants
  Outstanding(1)

  	
   

  	
  5,744,824

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  18,278,811

  	
   

  



 


 










(1) Includes warrants granted in connection with the August 2,
2004 offering, pursuant to a Series A Common Stock Purchase Warrant, to
purchase 3,529,412 Class A Common Shares initially granted with an exercise
price of $1.15 adjusted to an exercise price of $1.1277; and warrants granted,
pursuant to a Series B Common Stock Purchase Warrant, to purchase 882,353 Class
A Common Shares, initially granted with an exercise price of $1.30 adjusted to
an exercise price of $1.2588.  The Series
A and Series B Stock Purchase Warrants contained a provision whereby their
exercise price would be adjusted in the event that Wave sold additional shares
at prices below the exercise prices contained therein.  


 





















 


SCHEDULE 3.1(x)
to the

SECURITIES PURCHASE AGREEMENT DATED MARCH 15,
2005

FOR

WAVE SYSTEMS CORP.


 


Solvency:


 


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


 





















 


SCHEDULE 3.1(dd)
to the

SECURITIES PURCHASE AGREEMENT DATED MARCH 15,
2005

FOR

WAVE SYSTEMS CORP.


 


ACCOUNTANTS:


 


KPMG, LLP