EXHIBIT 10.1


 


SECURITIES PURCHASE AGREEMENT


 


This Securities Purchase Agreement (this “Agreement”)
is dated as of November 18, 2003, among Wave Systems Corp., a Delaware
corporation (the “Company”), and the purchasers 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 and pursuant to Section 4(2) of the Securities Act of
1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder,
the Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company, securities of
the Company as more fully described in this Agreement.


 


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


 


I.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.


 


“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 New York are authorized or required by law or other
governmental action to close.


 


“Closing” means the closing of the purchase and sale of the
Common Stock and the Warrants 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 the Purchasers’ obligations to pay the
Subscription Amount have been satisfied or waived.


 


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“Closing Price” means on any particular date (a) the last
reported closing bid price per share of Common Stock on such date on the
Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or
(b) if there is no such price on such date, then the closing bid price on the
Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 PM (New York time) for the closing bid price for regular
session trading on such day), or (c) 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 (as reported by
Bloomberg L.P. at 4:15 PM (New York time), (d) if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are
then reported in the “pink sheets” published by the Pink Sheets LLC (formerly
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 (e) if the shares of Common Stock are
not then publicly traded the fair market value of a share of Common Stock as
determined by a qualified independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Shares then outstanding.


 


“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.


 


“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 delivered
concurrently herewith.


 


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


 


“Escrow Agreement” shall mean the Escrow Agreement dated the
date of this Agreement among the Company, each Purchaser and the Escrow Agent,
in the form of Exhibit D hereto.


 


“Escrow Agent” shall mean Feldman Weinstein LLP with offices
located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Per Share Purchase Price” equals $1.90 , 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 to be
filed by the Company pursuant to the Registration Rights Agreement.


 


“Registration Rights Agreement” means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and each
Purchaser, in the form of Exhibit A hereto.


 


“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, the Warrants and the Warrant
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.


 


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“Subsidiary” shall mean the subsidiaries of the Company, if any,
set forth on Schedule 3.1(a).


 


“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 is traded on the over the
counter market, as reported by the OTC Bulletin Board, or (iii) if the Common
Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock
is quoted in the over the counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.


 


“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 American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market or the over-the-counter bulletin board.


 


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


 


“VWAP” 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 daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the primary
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. ET to 4:02
p.m. Eastern Time) using the VAP function; (b) if the Common Stock is not then
listed or quoted on an Trading Market and if prices for the Common Stock are
then quoted on the OTC Bulletin Board, the volume weighted average 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 a nationally recognized-independent
appraiser selected in good faith by Purchasers holding a majority of Shares
then outstanding.


 


“Warrants” means the Common Stock purchase warrants, in the form
of Exhibit C, issuable to the Purchasers at the Closing.


 


“Warrant Shares” means the shares of Common Stock issuable upon
exercise of the Warrants.


 


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ARTICLE II

PURCHASE AND SALE


 


II.1                               Closing.    At the Closing, 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) a number of Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price and (b)
the Warrants as determined pursuant to Section 2.2(a)(iii) – (v).  The maximum aggregate Subscription Amounts
shall not exceed $20,000,000.  Upon
satisfaction of the conditions set forth in Section 2.2, the Closing shall
occur at the offices of the Escrow Agent, or such other location as the parties
shall mutually agree.


 


II.2                               Closing Conditions.


 


(a)                                  At the Closing the Company shall
deliver or cause to be delivered to the Escrow Agent (except as otherwise
provided below):


 


(i)                                     this Agreement duly executed by the
Company;


 


(ii)                                  a certificate evidencing a 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)                               a Warrant, registered in the name of
such Purchaser, pursuant to which such Purchaser shall have the right to
purchase up to the number of shares of Common Stock equal to 25% of the Shares
to be issued to such Purchaser at the Closing, which shall be exercisable
immediately and have an exercise price equal to $ 2.62 and be exercisable for a
period of 3 years;


 


(iv)                              the Registration Rights Agreement
duly executed by the Company;


 


(v)                                 the Escrow Agreement and Release
Notice; and


 


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


 


(b)                                 At the Closing each Purchaser shall
deliver or cause to be delivered by the Escrow Agent to the Company the following:


 


(i)                                     this Agreement duly executed by such
Purchaser;


 


(ii)                                  such Purchaser’s Subscription Amount
by wire transfer to the account of the Company using the instructions attached
hereto as Exhibit A; and


 


(iii)                               the Registration Rights Agreement
duly executed by such Purchaser.


 


(c)                                  All representations and warranties
of the other party contained herein shall remain true and correct as of the
Closing Date and all covenants of the other party shall have been performed if
due prior to such date.


 


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(d)                                 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 new 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 such Closing.


 


ARTICLE III

REPRESENTATIONS AND WARRANTIES


 


III.1                           Representations and Warranties of
the Company.  Except as set forth under the corresponding
section of the disclosure schedules attached hereto (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. 
The Company has no direct or indirect subsidiaries.  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. 
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 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 do
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, (i) could not,
individually or in the aggregate adversely affect the legality, validity or
enforceability of any Transaction Document, (ii) has had or could not reasonably
be expected to result in a material adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) could not,
individually or in the aggregate, adversely impair the Company’s ability


 


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to perform fully on a timely basis its obligations under any
of the Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse
Effect”).


 


(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 hereunder or
thereunder.  The execution and delivery
of each of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby or thereby have been duly authorized by
all necessary action on the part of the Company and no further consent or
action is required by the Company other than Required Approvals.  Each of the Transaction Documents has been
(or upon delivery will be) 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, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors’ rights and
remedies generally and general principles of equity.  Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of incorporation,
by-laws or other organizational or charter documents.


 


(d)                                 No Conflicts. 
The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
subject to obtaining the Required Approvals, conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (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) result, in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii),
such as has not had or could not 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) filings required pursuant to
Section 4.6 of this Agreement, (ii) the filing with the Commission of the
Registration Statement, (iii) application(s) to each applicable Trading Market
for the listing of the Shares and Warrant Shares for trading thereon in the
time and manner required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under


 


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applicable state securities laws ((i) through (iv) above are
collectively referred to herein as the “Required Approvals”).


 


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


 


(g)                                 Capitalization. 
The capitalization of the Company as of November 5, 2003 is as
described on Schedule 3.1(g).  The
Company has not issued any capital stock since such date 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. 
Except as set forth on Schedule 3.1(g), 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.  Except as set forth on Schedule 3.1(g)
and except as a result of the purchase and sale of the Securities, 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.  Except as set forth on
Schedule 3.1(g), the issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the 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.


 


(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 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.  The Company has identified and made
available to the Purchasers a copy of all SEC Reports filed within the 10 days
preceding the date hereof.  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


 


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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 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 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 could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or required to be
disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the identity of its auditors, (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 or similar plans.


 


(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 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 that has had or
could reasonably be expected to result in a Material Adverse Effect. The
Company does not have pending before the Commission any request for
confidential treatment of information. 
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 that has
had or could reasonably be expected to result in a Material Adverse
Effect.  The Commission has not issued
any stop order or other order suspending the effectiveness of any


 


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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 has had or
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) that has had or could
reasonably be expected to result in a Material Adverse Effect, (ii) is in
violation of any order of any court, arbitrator or governmental body that has
had or could reasonably be expected to result in a Material Adverse Effect, or
(iii) is or has been in violation of any statute, rule or regulation of any
governmental authority that has had or could reasonably be expected to result
in 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 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, except where the failure to be in
compliance would not reasonably be expected to result in a Material Adverse
Effect.


 


(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 has had or could reasonably be
expected to result in a


 


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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 that has had or could reasonably be expected to result
in a Material Adverse Effect.  To the
knowledge of the Company, all such Intellectual Property Rights are enforceable
and there is no existing infringement by another Person of any of the
Intellectual Property Rights that has had or could reasonably be expected to
result in a Material Adverse Effect.


 


(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.  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 required to be 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 that has had or could reasonably be
expected to result in a Material Adverse Effect 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 and that has had or could reasonably be expected to result
in a Material Adverse Effect.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such


 


11

















 


disclosures 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 period 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 of its most recently
filed period report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently
filed period 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, the Company’s knowledge, in other
factors that could significantly affect the Company’s internal controls and
that had had or could reasonably be expected to result in a Material Adverse
Effect.


 


(s)                                  Certain Fees. 
Except as set forth in this Agreement and on Schedule 3.1(s), 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 to JP Carey Securities Inc.,
pursuant to a Placement Agency Agreement, dated October 23, 2003, and the
Company has not taken any action that would cause any Purchaser to be liable
for any such fees or commissions.  The
Company agrees that the Purchasers shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of any Person for fees
of the type contemplated by this Section with the transactions
contemplated by this Agreement.


 


(t)                                    Private Placement. 
Assuming the accuracy of the Purchasers representations and warranties
set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby in accordance with the terms of the
Transaction Documents. The issuance and sale of the Securities hereunder does
not contravene the rules and regulations of the Trading Market.


 


(u)                                 Investment Company. 
The Company is not, and is not an Affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.


 


(v)                                 Registration Rights. 
Except as set forth on the disclosure schedule to the Registration
Rights Agreement, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company that
have not been satisfied.


 


(w)                               Listing. 
The Company is currently in compliance with Nasdaq’s listing
requirements.


 


12

















 


(x)                                   Tax Status. 
The Company and each of its Subsidiaries has made or filed all federal,
state and foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only to the
extent that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has
set aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply.  There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.  The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, statue or local tax.  None of the Company’s tax returns is
presently being audited by any taxing authority.


 


(y)                                 Disclosure. 
The Company confirms that, neither the Company nor any other Person
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,
including the Schedules to this Agreement, 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.


 


(z)                                   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 cause this offering of the Securities
to be integrated with prior offerings by the Company for purposes of the
Securities Act.


 


(aa)                            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


 


13

















 


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, 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).


 


(bb)                          Acknowledgment Regarding Purchasers’
Purchase of Securities.  The Company
acknowledges and agrees that the Purchasers are acting solely in the capacity
of arm’s length purchasers with respect to this Agreement 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 statement made by any
Purchaser or any of their respective representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers’ purchase of the
Securities.  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 Company
and its representatives.


 


(cc)                            Form S-3 Eligibility. 
The Company is eligible to register the resale of its Common Stock by
the Purchasers under Form S-3 promulgated under the Securities Act.


 


(dd)                          No Disagreements with Accountants
and Lawyers.  There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise that has
had or could reasonably be expected to result in a Material Adverse Effect,
between the accountants and lawyers formerly or presently employed by the
Company and the Company is current with respect to any fees owed to its
accountants and lawyers.


 


III.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. 
If a Purchaser is an entity, 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 action on
the part of such Purchaser.  Each
Transaction Document to which it is 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


 


14

















 


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)                                 Investment Intent. 
Such Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof, has no present
intention of distributing any of such Securities and has no arrangement or
understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s
right to sell the Securities pursuant to the Registration Statement or otherwise
in compliance with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business. Such Purchaser does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.


 


(c)                                  Purchaser Status. 
At the time such Purchaser was offered the Securities, it was, and at
the date hereof it is, and on each date on which it exercises any Warrants, it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.


 


(d)                                 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.


 


(e)                                  General Solicitation. 
Such Purchaser is not purchasing the Securities as a result of any
advertisement, article, notice, general solicitation or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.


 


(f)                                    Residence. 
If such Purchaser is an individual, then such Purchaser resides in the
state or province identified in the address of such Purchaser set forth on the
signature page hereto; if such Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of such Purchaser
in which its


 


15

















 


investment decision was made is located at the address or
addresses of such Purchaser set forth on the signature page hereto.


 


(g)                                 Rule 144. 
Subject to Section 4.1(a), such Purchaser acknowledges and agrees
that the Securities are “restricted securities” as defined in Rule 144
promulgated under the Securities Act as in effect from time to time and must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available.  Such Purchaser has been advised or is aware
of the provisions of Rule 144, which permits limited resale of shares purchased
in a private placement subject to the satisfaction of certain conditions,
including, among other things: the availability of certain current public
information about the Company, the resale occurring following the required
holding period under Rule 144 and the number of shares being sold during any
three-month period not exceeding specified limitations.


 


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


 


IV.1                           Transfer Restrictions.


 


(a)                                  The Securities may only be disposed
of in compliance with state and federal securities laws.  In connection with any transfer of
Securities other than pursuant to an effective registration statement or Rule
144, to the Company or to an Affiliate of a Purchaser, the Company may require
the transferor thereof to provide to the Company an opinion of counsel selected
by the transferor and reasonably acceptable to the Company, 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.  As
a condition of transfer, any such transferee shall agree in writing to be bound
by the terms of this Agreement and shall have the rights of a Purchaser under
this Agreement and the Registration Rights Agreement.


 


(b)                                 Each Purchaser agrees to the
imprinting, so long as is required by this Section 4.1(b), of the
following legend on any certificate evidencing Securities:


 


THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE


 


16

















 


EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT
IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.


 


The Company acknowledges and agrees that a Purchaser
may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. 
Such a pledge or transfer would not be subject to approval of the
Company and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the
Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge
or transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.


 


(c)                                  Certificates evidencing the Shares
and Warrant Shares shall not contain any legend (including the legend set forth
in Section 4.1(b)), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).  The Company shall cause its counsel to issue
a legal opinion to the Company’s transfer agent promptly after the Effective
Date if required by the Company’s transfer agent to effect the removal of the
legend hereunder.  If all or any portion
of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, such Warrant Shares shall
be issued free of all legends.  The
Company agrees that following the Effective Date relating to the Shares and
Warrant Shares or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading Days following the
delivery by a Purchaser to the Company or the Company’s transfer agent of a certificate
representing Shares or Warrant Shares, as the case may be, issued with a
restrictive legend (such date, the “Legend Removal Date”), deliver or cause to
be delivered to such Purchaser, either directly or to the Depository Trust
Company account on the Holder’s behalf via the


 


17

















 


Deposit Withdrawal Agent Commission System, a certificate
representing such Securities that is free from all restrictive and other
legends.  The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.


 


(d)                                 In addition to such Purchaser’s
other available remedies, the Company shall pay to a Purchaser, in cash, as liquidated
damages and not as a penalty, for each $1,000 of Shares or Warrant Shares
(based on the VWAP of the Common Stock on the date such Securities are
submitted to the Company’s transfer agent) subject to Section 4.1(c), $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 such fifth
Trading Day after the Legend Removal Date until such certificate is 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.


 


(e)                                  Each Purchaser, severally and not
jointly with the other Purchasers, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this
Section 4.1 is predicated upon the Company’s reliance that the Purchaser
will sell any Securities pursuant to either the registration requirements of
the Securities Act, including any applicable prospectus delivery requirements,
or an exemption therefrom.


 


IV.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 such laws, 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.


 


IV.3                           Integration. 
The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.


 


IV.4                           Securities Laws Disclosure;
Publicity.  The Company shall, by 8:30 a.m. Eastern time
on the Trading Day following the Closing Date, issue a press release or file a


 


18

















 


Current
Report on Form 8-K, in each case reasonably acceptable to counsel for the
placement agent disclosing the transactions contemplated hereby.  The Company and such counsel for the
placement agent shall consult with each other in issuing any press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of counsel to the
placement agent, with respect to any press release of the Company, which
consent shall not unreasonably be withheld, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.  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, without the prior written consent of such Purchaser, except (i)
as required by federal securities law in connection with the registration
statement contemplated by the Registration Rights Agreement 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).


 


IV.5                           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.


 


IV.6                           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.


 


IV.7                           Use of Proceeds. 
Except as set forth on Schedule 4.7 attached hereto, the Company
shall use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables in the ordinary course of the
Company’s business and prior practices), to redeem any Company equity or equity
equivalent securities or to settle any outstanding litigation.


 


IV.8                           Indemnification of Purchasers. 
Subject to the provisions of this Section 4.8, 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


 


19

















 


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 representation, 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 an 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.


 


IV.9                           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 and Warrant Shares pursuant
to any exercise of the Warrants.


 


IV.10                     Listing of Common Stock. 
The Company hereby agrees to use commercially reasonably efforts to
maintain the listing of the Common Stock on the Trading Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of
the Effective Date and the first anniversary of the Closing Date) to list all
of the Shares and Warrant Shares on the 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
Warrant Shares, and will take such other action as is necessary to cause the
Shares and Warrant 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.


 


IV.11                     Participation in Future Financing. 
From the date hereof until 90 days after the Effective Date, the Company
shall not effect a financing of its Common Stock or Common Stock Equivalents (a
“Subsequent Financing”) unless (i) the Company delivers to each of the
Purchasers hereunder a written notice at least 10 Trading Days prior to the
closing of such


 


20

















 


Subsequent
Financing (the “Subsequent Financing Notice”) of its intention to effect such
Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount
of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Financing is proposed to be effected, and attached to which shall be
a term sheet or similar document relating thereto and (ii) such Purchaser shall
not have notified the Company by 6:30 p.m. (New York City time) on the fifth
(5th) Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to provide (or to cause its designee to provide), subject to
completion of mutually acceptable documentation, up to its Pro-Rata Portion (as
defined below) of 50% of proceeds to be raised in such Subsequent Financing
(the “Subsequent Financing Percentage”) to the Company on the same terms set
forth in the Subsequent Financing Notice. If one or more Purchasers shall fail
to so notify the Company of their willingness to participate in their Pro-Rata
Portion of the Subsequent Financing Percentage, the Company may effect the remaining
portion of such Subsequent Financing on the terms and to the Persons set forth
in the Subsequent Financing Notice; provided that the Company must provide the
Purchasers with a second Subsequent Financing Notice, and the Purchasers will
again have the right of first refusal set forth above in this
Section 4.11, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Trading Days after the date
of the initial Subsequent Financing Notice with the Person identified in the
Subsequent Financing Notice.  “Pro Rata
Portion” is the ratio of (x) such Purchaser’s Subscription Amount and (y) the
aggregate sum of all of the Subscription Amounts.  If any Purchaser no longer holds any Shares, then the Pro Rata
Portions shall be re-allocated among the remaining Purchasers.  Notwithstanding anything to the contrary herein,
this Section 4.11 shall not apply in respect of the issuance of the following:
(a) shares of Common Stock, options or warrants to employees, key consultants,
service providers, advisors, 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 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, (c) securities in connection with acquisitions or strategic
investments (including, without limitation, any licensing or distribution
arrangements), the primary purpose of which is not to raise capital (except as
in (e) below), (d) securities to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions, where the principal consideration for such transaction is not the
issuance of such securities, or (e) any warrants issued to JP Carey Securities
Inc. and the shares of Common Stock issuable upon exercise thereof.


 


IV.12                     Subsequent Equity Sales. 
From the date hereof until 30 days after the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents; provided, however, the 30 day period set forth in
this Section 4.12 shall be extended for the number of Trading Days during
such period in which (y) trading in the Common Stock is suspended by any
Trading Market, or (z) following the Effective Date, the Registration Statement
is not effective or the prospectus included in the Registration Statement may
not be used by the Purchasers for the resale of the Shares and Warrant Shares.


 


21

















 


Notwithstanding
the foregoing, this Section 4.12 shall not apply in respect of the
issuance of: (a) shares of Common Stock, options or warrants to employees, key
consultants, service providers, advisors, 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 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, (c) securities in connection with acquisitions or strategic
investments (including, without limitation, any licensing or distribution
arrangements), the primary purpose of which is not to raise capital (except as
in (e) below), (d) securities to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions, where the principal consideration for such transaction is not the
issuance of such securities or (e) any warrants issued to JP Carey Securities
Inc. and the shares of Common Stock issuable upon exercise thereof.


 


IV.13                     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.


 


ARTICLE V

MISCELLANEOUS


 


V.1                               Fees and Expenses. 
The Company agrees to pay $20,000 to J.P. Carey Securities, Inc. for its
legal fees and expenses incurred in connection with the investigation and
negotiation of the transaction and the preparation and negotiation of the
Transaction Documents.  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.


 


V.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.


 


V.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 set
forth on the signature pages attached hereto


 


22

















 


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.


 


V.4                               Amendments; Waivers. 
No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and each
of the Purchaser or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. 
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any 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.


 


V.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.


 


V.6                               Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers. Any
Purchaser may assign its rights under this Agreement and the Registration
Rights Agreement to any Person to whom such Purchaser assigns or transfers any
Securities.


 


V.7                               No Third-Party Beneficiaries. 
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.5.


 


V.8                               Governing Law; Venue; Waiver of Jury
Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.  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


 


23

















 


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 this Agreement, 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.


 


V.9                               Survival. 
The representations, warranties and covenants contained herein shall
survive the Closing and delivery and/or exercise of the Securities, as
applicable.


 


V.10                         Execution. 
This Agreement may be executed in two or more counterparts, all of which
when taken together shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party, it being understood that both parties need not sign the
same counterpart.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding 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.


 


V.11                         Severability. 
If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.


 


V.12                         Rescission and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.


 


V.13                         Replacement of Securities. 
If any certificate or instrument evidencing any Securities is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.


 


V.14                         Remedies. 
In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the


 


24

















 


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.


 


V.15                         Payment Set Aside. 
To the extent that the Company makes a payment or payments to any
Purchaser pursuant to any Transaction Document or a Purchaser enforces or
exercises its rights thereunder, and such payment or payments or the proceeds
of such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.


 


V.16                         Independent Nature of Purchasers’
Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of 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. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any other Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions.  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. 
Feldman Weinstein LLP does not represent the Purchasers but only J.P.
Carey Securities, Inc.  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.


 


V.17                         Liquidated Damages. 
The Company’s obligations to pay any liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of


 


25

















 


the
Company and shall not terminate until all unpaid liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such liquidated damages or other amounts are due and payable
shall have been canceled.


 


(Signature Page Follows)


 


26

















 


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.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [REMAINDER OF PAGE INTENTIONALLY

  	
   

  
	
   

  	
  LEFT BLANK SIGNATURE PAGE FOR

  	
   

  
	
   

  	
  PURCHASER FOLLOWS]

  	
   

  



 


27

















 


[PURCHASERS SIGNATURE PAGE – WAVX]


 


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.


 


	
  [PURCHASER]

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Subscription Amount:  $

  	
   

  
	
  Shares:

  	
   

  
	
  Warrant Shares:

  	
   

  
				



 


 


[PURCHASER’S SIGNATURE PAGES FOLLOW]


 


28

















 


[PURCHASERS SIGNATURE PAGE – WAVX]


 


	
  [PURCHASER]

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Subscription Amount:  $

  	
   

  
	
  Shares:

  	
   

  
	
  Warrant Shares:

  	
   

  
				



 


29

















 


EXHIBIT A


 


	
  Wave Systems Corp.

  
	
  Bank ABA/Routing #:  021001088

  
	
  Account #: 
  610185055

  
	
   

  
	
   

  
	
  HSBC Bank

  
	
  452 Fifth Avenue

  
	
  New York, NY  10018

  



 


30

















 


SCHEDULE 3.1(a) to the


STOCK PURCHASE AGREEMENT FOR


WAVE SYSTEMS CORP.


 


LIST OF SUBSIDIARIES


 


	
  Name of Subsidiary

  	
   

  	
  State or Country of Incorporation

  
	
   

  	
   

  	
   

  
	
  Wave Systems Holdings, Inc. (1)

  	
   

  	
  Delaware

  
	
  WaveXpress, Inc. (2)(3)

  	
   

  	
  Delaware

  
	
  Earthquest, Ltd. (1)

  	
   

  	
  England

  
	
  GlobalWave Limited (1)

  	
   

  	
  England

  



 












(1)           Wholly-owned
subsidiary of Wave Systems Corp.


 


(2)           WaveXpress
ownership:


 


	
  5.16

  	
   

  	
  Shareholder

  	
   

  	
  Ownership Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wave Systems Corp.

  	
   

  	
   

  	
   

  	
  69.1

  	
  %

  
	
  Sarnoff Corporation

  	
   

  	
   

  	
   

  	
  25.6

  	
  %

  
	
  Others

  	
   

  	
   

  	
   

  	
  5.3

  	
  %

  
	
  Total

  	
   

  	
   

  	
   

  	
  100.0

  	
  %

  



 


(3)           WaveXpress,
Inc. convertible securities, options and warrants:


 


	
  Description

  	
   

  	
  Security
  Holder

  	
   

  	
  Number of
  Shares issuable

  upon exercise or conversion

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Convertible Notes

  	
   

  	
  Wave Systems Corp.

  	
   

  	
  13,834,048

  	
   

  
	
  Warrants

  	
   

  	
  Wave Systems Corp.

  	
   

  	
  694,444

  	
   

  
	
  Convertible preferred Stock

  	
   

  	
  Sarnoff Corporation

  	
   

  	
  946,667

  	
   

  
	
  Employee Stock Options

  	
   

  	
  Employees

  	
   

  	
  1,402,841

  	
   

  



 


The Stockholder Agreement between Wave, WaveXpress and Sarnoff
Corporation dated October 15, 1999 contains certain restrictions on the transfer
of shares or any convertible securities of WaveXpress, Inc.


 


31

















 


SCHEDULE 3.1(g) to the


STOCK PURCHASE AGREEMENT FOR


WAVE SYSTEMS CORP.


 


CAPITAL STOCK ISSUED AND OUTSTANDING AS OF
NOVEMBER 5, 2003:


 


	
   

  	
   

  	
  ARTICLE VI

  Par Value

  	
   

  	
  ARTICLE VII

  Shares Authorized

  	
   

  	
  Shares Issued and

  Outstanding

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Class A Common

  	
   

  	
  $

  	
  0.01

  	
   

  	
  120,000,000

  	
   

  	
  63,374,124

  	
   

  
	
  Class B Common (1) (2)

  	
   

  	
  $

  	
  0.01

  	
   

  	
  13,000,000

  	
   

  	
  205,725

  	
   

  
	
  Preferred

  	
   

  	
  $

  	
  0.01

  	
   

  	
  2,000,000

  	
   

  	
  0

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  135,000,000

  	
   

  	
  63,579,849

  	
   

  



 












(1)     Shares
of Class B Common Stock are convertible into shares of Class A Common Stock on
a one-for-one basis at the option of the holder.


 


(2)     Holders of Class B Common Stock are entitled to
one vote per share on all matters submitted to a vote of the stockholders,
except that holders of Class B Common Stock will have five votes per share in
cases where one or more directors are nominated for election by persons other
than Wave’s Board of Directors and where there is a vote on any merger,
consolidation or other similar transaction which is not recommended by Wave’s
Board of Directors.  In addition,
holders of Class B Common Stock will have five votes per share on all matters
submitted to a vote of the stockholders in the event that any person or group
of persons acquires beneficial ownership of 20% or more of the outstanding
voting securities of Wave.


 


OPTIONS AND WARRANTS OUTSTANDING AND REGISTRATION RIGHTS:


 


	
  Options granted pursuant to Employee Stock
  Option plans

  	
   

  	
  9,119,476

  	
   

  
	
  Warrants Outstanding

  	
   

  	
  195,154

  	
   

  



 


Wave granted registration rights in respect of warrants issued to a
consultant (the “Consultant”) to purchase up to 44,365 shares of its Class A
Common Stock in connection with a Sales Representative Agreement (the “Sales
Rep. Agreement”) between Wave and the Consultant.  Pursuant to the Sales Rep. Agreement, Wave agreed that in the
event that it files a registration statement relating to an offering of
securities, it shall include in such registration statement, all or any part of
the shares issuable pursuant to the Consultant’s warrants except that if, in
connection with any underwritten public offering the managing underwriter(s)
thereof impose a limitation on the number of shares of Common Stock that may be
included in the registration statement because, in such underwriter(s)’
judgment, marketing or other factors dictate such limitation is necessary to
facilitate public distribution, then Wave shall be obligated to include in the
registration statement only such limited portion of the Consultant’s warrant
shares.


 


32

















 


SCHEDULE 3.1(s) to the


STOCK PURCHASE AGREEMENT FOR


WAVE SYSTEMS CORP.


 


CERTAIN FEES:


 


In addition to the fees set forth in the Agreement,  the Company is party to an agreement with
Burnham Hill Partners, LLC (“Burnham Hill”) 
pursuant to which Burnham Hill shall be allowed to participate and earn
up to twenty percent (20%) of the investment banking fees paid by the Company
in the Company’s next equity financing with a minimum of ten percent (10%) in
any offering managed by another firm in respect to Purchasers originally
contacted by Burnham Hill.


 


33