EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of August 5,
2005, among Wave Systems Corp., a Delaware corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”); and

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company in the
aggregate, up to $3,600,000 of shares of Common Stock pursuant to an effective
Registration Statement on Form S-3, file no. 333-114476.

 

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

 

ARTICLE I.
DEFINITIONS

 

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

 

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

 

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

 

“Closing Date” means the Trading Day when all conditions precedent to (i) the
Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Securities have been satisfied or waived.

 

“Commission” means the Securities and Exchange Commission.

 

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

 

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

 

“Company Counsel” means Bingham McCutchen LLP.

 

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

 

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

 

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

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder, convertible
securities, options or warrants issued and outstanding on the date of this
Agreement, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise or conversion price of any such securities, other than by express
mechanics contained in such convertible securities, options or warrants prior to
the date of this Agreement, (c) securities issued pursuant to acquisitions or
strategic transactions, including such a transaction involving Wavexpress, Inc.,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business synergistic with the
business of the Company and in which the Company receives benefits in addition
to the investment of funds, but shall not include a transaction in which the
Company is issuing securities primarily for the purpose of raising capital or to
an entity whose primary business is investing in securities; and (d) up to, in
the aggregate, 250,000 shares of Common Stock or Common Stock Equivalents in any
12 month period to consultants as payment for services rendered.

 

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

 

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

 

“Per Share Purchase Price” equals $.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.

 

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

 

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

 

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

 

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

 

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

 

“Securities” means the Shares.

 

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

 

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

 

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

 

“Subsidiary” shall mean the subsidiaries of the Company, if any, set forth in
the Company’s most recent Annual Report on Form 10-K.

 

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

 

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

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           Closing.  On the Closing Date, each Purchaser shall purchase from
the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser a number of Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price.  The
aggregate Subscription Amounts for Shares sold hereunder shall be

 

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up to $3,600,000.  Upon satisfaction of the conditions set forth in Section 2.2,
the Closing shall occur at the offices of Company Counsel or such other location
as the parties shall mutually agree.

 

2.2           Deliveries On the Closing Date, the Company shall deliver or cause
to be delivered to each Purchaser the following:

 

(i)            this Agreement duly executed by the Company;

 

(ii)           a prospectus supplement to the Registration Statement;

 

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

 

(iv)          an officer’s certificate of the Company’s Chief Executive Officer
or Chief Financial Officer, in form reasonably acceptable to the Purchasers,
certifying the continuing accuracy of the Company’s representations and
warranties made in this Agreement and the Company’s performance of the covenants
to be performed by it pursuant to this Agreement at or prior to Closing; and

 

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

 

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

 

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

 

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

 

2.3           Closing Conditions.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

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

 

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

 

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

 

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which any property or asset of the Company or any Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.

 

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

 

(d)           Issuance of the Securities.  The Shares are duly authorized and,
when issued and paid for in accordance with this Agreement, will be duly and
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.

 

(e)           Capitalization.  The Company has issued and outstanding 83,120,182
shares of Common Stock. The capitalization of the Company is as described in the
Company’s most recent periodic report filed with the Commission.  The Company
has not issued any capital stock since such filing other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plan and pursuant to the conversion or exercise of
outstanding Common Stock Equivalents.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by this Agreement.  The issue and sale of the
Shares 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. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Shares.

 

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

 

(g)           Disclosure.  The Company confirms that, neither the Company nor
any officer, director or employee of the Company acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that constitutes or might

 

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constitute material, non-public information.  The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.  All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby furnished by or on behalf of the Company,
including the prospectus supplement delivered at the Closing, 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.

 

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

 

(i)            Acknowledgment Regarding Purchasers’ Purchase of Shares.  The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm’s length purchaser with respect to 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 advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Shares.  The Company further represents to each Purchaser that
the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)           Short Sales.  Each Purchaser represents that from the date that it
was approached to participate in the transaction contemplated by this Agreement
through the moment this transaction is publicly disclosed pursuant to
Section 4.3 or otherwise, neither it nor any of its Affiliates over which
Purchaser exercises investment discretion have made any net short sales of, or
granted any option for the purchase of or entered into any hedging or similar
transaction with the same economic effect as a net short sale, in the Common
Stock.

 

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

 

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.

 

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ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1           No Transfer Restrictions.  If the Shares are issued in
certificated form, then

 

(a)           Certificates evidencing the Shares shall not contain any legend
restricting their transferability by the Purchaser. The Company shall cause its
counsel to issue a legal opinion to the Company’s transfer agent if required by
the Company’s transfer agent to effect a transfer of any of the Securities. The
Company shall not give any instructions to its transfer agent which would impair
the free transferability of the Shares by any Purchaser.

 

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

 

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

 

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

 

4.5           Non-Public Information.  The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any

 

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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.

 

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

 

4.7           Indemnification of Purchasers.  Subject to the provisions of this
Section 4.7, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or
(b) any action instituted against a Purchaser, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an Affiliate
of such Purchaser, with respect to any of the transactions contemplated by this
Agreement (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under this Agreement 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

 

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will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement.

 

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

 

4.9           Listing of Common Stock.  The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Shares and will take such other action as is necessary to cause all of the
Shares to be listed on such other Trading Market as promptly as possible.  The
Company will take all action reasonably necessary to continue the listing and
trading of its Common Stock on a Trading Market and will comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of the Trading Market.

 

4.10         Equal Treatment of Purchasers.  No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of this Agreement unless the same consideration is also offered to all
of the parties to this Agreement.  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.

 

4.11         Subsequent Equity Sales.  From the date hereof until the earlier of
(a) 45 days after the Closing Date or (b) the last day of any five
(5) consecutive Trading Day period during which the closing price per share of
the Company’s Common Stock has equaled or exceeded $1.35, neither the Company
nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents without the prior written consent of each Purchaser (such consent
not to be unreasonably withheld).  Notwithstanding the foregoing, this
Section 4.11 shall not apply in respect of an Exempt Issuance or in respect of
shares of Common Stock and Common Stock Equivalents which the Company is not
permitted to register under the Securities Act for at least 12 months following
the Closing Date.

 

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

 

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ARTICLE V.
MISCELLANEOUS

 

5.1           Termination.  This Agreement may be terminated by any Purchaser,
as applied to such Purchaser, by written notice to the other parties, if the
Closing has not been consummated on or before August 10, 2005 provided however
that no such termination will affect the right of any party to sue for any
breach by the other party (or parties).

 

5.2           Fees and Expenses.  The Company shall pay the Purchasers’ legal
fees of $15,000, which the Purchasers’ may withhold, pro rata, from the Purchase
Price at the Initial Closing. 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.

 

5.3           Entire Agreement.  This Agreement contains 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.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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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.

 

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

 

5.13         Rescission and Withdrawal Right.  Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) this
Agreement, 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.

 

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

 

5.15         Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under this
Agreement.  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.

 

5.16         Independent Nature of Purchasers’ Obligations and Rights.  The
obligations of each Purchaser under this Agreement 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 this Agreement.  Nothing contained herein, 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
this Agreement.  Each Purchaser shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out of this
Agreement, and it shall not be necessary for any other Purchaser to be joined as
an additional party in any proceeding for such purpose.  The Company has elected
to provide all Purchasers with the same Agreement for the convenience of the
Company and not because it was required or requested to do so by the Purchasers.

 

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

 

(Signature Page Follows)

 

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

 

 

Wave Systems Corp.

Address for Notice:

 

 

 

 

By:

/s/ Gerard T. Feeney

 

Wave Systems Corp

     Name: Gerard T. Feeney

480 Pleasant Street

     Title: Chief Financial Officer

Lee, MA 01238

 

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

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

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[PURCHASER SIGNATURE PAGES TO WAVX SECURITIES PURCHASE AGREEMENT]

 

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

 

 

Name of Investing Entity: JMG Capital Partners, L.P.

 

/s/ Jonathan Glaser

 

Signature of Authorized Signatory of Investing Entity:

 

Name of Authorized Signatory: Jonathan Glaser

Title of Authorized Signatory: Managing Member of the Advisor

Email Address of Authorized Entity: jon@jmgcapital.com

 

Address for Notice of Investing Entity:

 

11601 Wilshire Boulevard, Ste 2180

Los Angeles, CA 90025

 

 

DWAC Instructions for Common Stock: [Attached]

 

 

Subscription Amount: $1,800,000

 

EIN Number: [Attached]

 

[SIGNATURE PAGES CONTINUE]

 

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[PURCHASER SIGNATURE PAGES TO WAVX SECURITIES PURCHASE AGREEMENT]

 

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

 

 

Name of Investing Entity: JMG Triton Offshore Fund, Ltd.

 

 

/s/ Jonathan Glaser

 

 

Signature of Authorized Signatory of Investing Entity:

 

Name of Authorized Signatory: Jonathan Glaser

Title of Authorized Signatory: Managing Member of the Advisor

Email Address of Authorized Entity: jon@jmgcapital.com

 

Address for Notice of Investing Entity:

 

11601 Wilshire Boulevard, Ste 2180

Los Angeles, CA 90025

 

 

DWAC Instructions for Common Stock: [Attached]

 

 

Subscription Amount: $1,800,000

 

EIN Number: [Attached]

 

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SCHEDULE 3.1(f) to the

SECURITIES PURCHASE AGREEMENT DATED AUGUST 5, 2005

 

FOR

WAVE SYSTEMS CORP.

 

OPTIONS AND WARRANTS OUTSTANDING:

 

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

 

12,275,680

 

Options granted pursuant to Employee Stock Purchase Plan

 

258,794

 

Warrants Outstanding(1)

 

2,215,412

 

Total

 

14,749,886

 

 

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(1) Includes warrants granted in connection with the August 2, 2004 offering,
pursuant to a Series B Common Stock Purchase Warrant, to purchase 882,353
Class A Common Shares, initially granted with an exercise price of $1.30
adjusted to an exercise price of $1.24.  The Series A and Series B Stock
Purchase Warrants contained a provision whereby their exercise price would be
adjusted in the event that Wave sold additional shares at prices below the
exercise prices contained therein.

 

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