EXHIBIT 10.17
THE SECURITIES REPRESENTED BY THIS NOTE AND ANY SECURITIES ISSUABLE UPON
CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED
OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE MAKER THAT REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT.
WAVE SYSTEMS CORP.
CONVERTIBLE PROMISSORY NOTE
I. Principal. FOR VALUE RECEIVED, the undersigned, Wave Systems Corp., a
Delaware corporation (the "Maker"), hereby unconditionally promises to pay to
Carriage Partners, LLC, a Delaware limited liability company (the "Payee"), the
aggregate principal sum of US$2,000,000.00.
II. Interest. This Note will accrue no interest.
III. Time of Payment. Payment of the unpaid principal amount of this Note
shall be due and payable on January 26, 2002.
IV. Place of Payment. The principal of this Note shall be payable at such
bank account as may be designated by the Payee by written notice to the Maker.
V. Payment Without Setoff. The principal of this Note shall be paid without
setoff or counterclaim and free and clear of and exempt from, and without
deduction for or on account of, any present or future taxes, levies, imposts,
duties, deductions, withholdings or other charges of whatsoever nature imposed,
levied, collected, withheld or assessed by any government or any political
subdivision or taxing authority thereof. In the event that, subject to the
provisions of the preceding sentence, any payments made under this Note on
account of principal shall not be made free and clear and exempt from and
without deduction for, or on account of, any such taxes, then in any such event
the Maker shall pay such additional amounts as may be necessary in order that
each net payment made hereunder, after payment or deduction or withholding for,
or on account of, any such taxes will not be less than the amount otherwise
provided in this Note to be then due and payable.
VI. Mandatory Prepayment. If the Maker closes a financing or financings in
the aggregate amount of at least $5 million through public or private sale of
its debt or equity securities before July 26, 1999, the Maker will repay any
unpaid principal of this Note within five (5) business days of such closing.
VII. Optional Prepayments. Until 5:00 P.M., New York Time, on July 26,
1999, the Maker shall have the right, on two (2) days' prior written notice to
the Payee, to prepay this Note in whole or in part without premium or penalty.
VIII. Optional Conversion. If, at 5:00 P.M., New York Time, on July 26,
1999, there remains unpaid principal on this Note, the Payee shall have the
option to convert such unpaid principal into a convertible preferred security of
the Maker on substantially the same terms and conditions as the Maker's Series G
Convertible Preferred Stock (such Convertible Preferred Stock and the shares of
Common Stock underlying the Convertible Preferred Stock, collectively
"Conversion Shares").
IX. Registration Rights. The Maker shall use its best efforts to file, at
its own expense, a "shelf" registration statement under Rule 415 of the
Securities Act for the shares underlying the Convertible Preferred Stock within
thirty (30) days of the execution of the Convertible Preferred Stock agreements
(the "Filing Date"). The Maker shall further use its best efforts to cause such
registration statement to become effective as soon as possible after the Filing
Date, and in any event to have such registration statement effective within
ninety (90) days of the Filing Date.
X. Payee Trading Restrictions. The Payee covenants that, while principal
remains outstanding on this Note, it will not sell a number of shares in excess
of the greater of (i) 20% of the weekly volume (calculated based on the five (5)
trading day period immediately prior to the date of any given sale) in any given
five (5) day trading period, and (ii) on any given day, 20% of the volume on
such day. Unintentional violations of the limitation set forth in the
immediately preceding sentence shall not be a breach of this covenant to the
extent such violations occur infrequently and are not substantially in excess of
such limitation. In order for the Maker to monitor the Payee's compliance with
this Section 9, the Payee shall provide the Maker with notice of its daily sales
of Common Stock within ten (10) business days of the end of each month in which
any such restricted sales occur.
XI. Investment Purpose. The Payee represents and warrants to the Maker that
it:
(i) is purchasing this Note (and will accede to any Conversion Shares)
for its own account for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales
registered under the Securities Act of 1933; and
(ii) is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D.
XII. Governing Law. This Note shall be construed in accordance with and
governed by the laws of the State of New York.
XIII. No Waiver. No course of dealings between the Maker and the Payee or
any delay on the part of the Payee in exercising any rights hereunder shall
operate as a waiver of any rights of the Payee, except to the extent expressly
waived in writing by the Payee.
XIV. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Maker of evidence reasonably satisfactory to the Maker of the loss, theft,
destruction or mutilation of this Note, and, in case of loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Maker or, in case of mutilation, upon surrendering of this
Note for cancellation, and upon reimbursement to the Maker of all reasonable
expenses incidental thereto, the Maker will make and deliver a new note of like
tenor in lieu of this Note.
XV. Legal Holidays. In any case where the date of maturity of the principal
of this Note or the date fixed for payment or prepayment of this Note shall be,
at any place of payment, a Sunday, a legal holiday or a day on which banking
institutions are authorized or obligated by law or regulation to close, then
payment of principal need not be made on such date at such place but may be made
on the next succeeding day that is not at such place of payment a Sunday, a
legal holiday or a day on which banking institutions are authorized or obligated
by law or regulation to close, with the same force and effect as if made on the
date of maturity or the date fixed for payment or prepayment.
XVI. Waiver of Presentment, etc. The Maker hereby waives presentment,
demand for payment, notice of dishonor, notice of protest and protest, and all
other notices or demands in connection with the delivery, acceptance,
performance or default of this Note, except as herein set forth.
XVII. Headings. The headings of the paragraphs and subparagraphs of this
Note are for convenience only and shall not be deemed to constitute a part
hereof.
XVIII. Assignment. The Payee may assign this note at any time, provided
that it only assign this note (i) to no more than two (2) transferees, and (ii)
in accordance with Section 19 hereof. The Maker may not assign this Note without
the prior written consent of the Payee. The obligations of this Note shall bind
the successors and assigns of the Maker and the Payee.
XIX. Concerning this Note and Conversion Shares. This Note and the
Conversion Shares may not be sold or transferred unless (i) they first shall
have been registered under the Securities Act and applicable state securities
laws; or (ii) the Maker has been furnished with an opinion of legal counsel to
the effect that such sale or transfer is exempt from the registration
requirements of the Securities Act.
Any Conversion Shares not subject to an effective registration statement
issued upon conversion of this Note shall bear a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR
AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE
MAKER THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT. ANY SUCH SALE,
ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH STATE SECURITIES LAWS.
Upon the request of a holder of certificates representing Conversion
Shares, the Maker shall remove the foregoing legend from the certificate or
issue a new certificate to such holder free of any transfer legend if (i) with
such request, the Maker shall have received either (A) an opinion of counsel,
reasonably satisfactory to the Maker in form, substance and scope, to the effect
that the legend may be removed from such certificate, or (B) satisfactory
representations
from the holder that such holder is eligible immediately to sell all of the
Conversion Shares pursuant to Rule 144 (or a successor rule) or (ii) a
registration statement under the Securities Act covering such securities is in
effect. Nothing in this Note shall affect in any way the Payee's obligations to
comply with applicable securities laws upon the any resale of this Note or the
Conversion Shares.
XX. Portfolio Debt Exception. The Maker has registered this Note, and it
can therefore be transferred only through a book entry maintained in the Maker's
records. A transfer of ownership of this Note will only be recorded in the
Maker's records, through a book entry, upon the Maker's receipt of a Department
of the Treasury, Internal Revenue Service Form W-8BEN or Form W-9, as the case
may be, properly executed by either the transferee of this Note or a securities
clearing organization, a bank, or other financial institution that will hold the
Note in the ordinary course of its business for the benefit of the transferee.
After the Maker has completed the proper book entry, a replacement Note will be
issued to the transferee and this Note will be canceled. This Note may be
assigned by the Payee in accordance with its terms.
XXI. Proof of Citizenship. Concurrent with the execution and delivery of
this Note, the Payee shall deliver to the Maker a Department of Treasury,
Internal Revenue Service Form W-9 properly executed by either (i) the Payee (or
by the beneficial owner(s) if Payee is not the beneficial owner(s)) or (ii) a
securities clearing organization, a bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business. If
any change occurs in the information previously provided to the Maker on the
Form W-8BEN or Form W-9, as the case may be, Payee (or the beneficial owner(s)
if Payee is not the beneficial owner(s)) must file with the Maker a replacement
Form W-8BEN or Form W-9, as the case may be, within thirty (30) days of such
change.
IN WITNESS WHEREOF, the Maker and Payee have duly executed this Note on the
26th day of January, 1999.
CARRIAGE PARTNERS, LLC WAVE SYSTEMS CORP.
By: /s/ Jules Nordlicht By: /s/ Steven Sprague
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Name: Jules Nordlicht Name: Steven Sprague
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Title: President Title: President and Chief Operating Officer
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