EXHIBIT 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of
February 15, 2006, among Wave Systems Corp., a Delaware corporation (the
“Company”), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”); and

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, desires to purchase from the Company in the
aggregate, up to $4,466,500 of shares of Common Stock and Warrants pursuant to
an effective Registration Statement on Form S-3, file no. 333-130409.

 

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 agree
as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1                                 Definitions.  In addition to the terms
defined elsewhere in this Agreement, for all purposes of this Agreement, the
following terms 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 the closing of the purchase and sale of the Securities 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 other class of securities into which such common stock may
hereafter have been reclassified or changed into.

 

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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
exercisable 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, and the
rules and regulations promulgated thereunder.

 

“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 $0.535, 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. 333-130409 covering the sale to the Purchasers of the
Shares, the Warrants and the Warrant 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, 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 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, the
Nasdaq National Market or the OTC Bulletin Board.

 

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

 

“Warrants” means collectively the Common Stock purchase warrants, in the form of
Exhibit B delivered to the Purchasers at the Closing in accordance with
Section 2.2(a)

 

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hereof, which Warrants shall be exercisable immediately and have a term of
exercise equal to 6 months.

 

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

 

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
and Warrants.  The aggregate Subscription Amounts for Shares sold hereunder
shall be up to $4,466,500.  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.

Deliveries.

 

On or prior to 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)  A WARRANT REGISTERED IN THE NAME OF SUCH PURCHASER TO PURCHASE UP TO A
NUMBER OF SHARES OF COMMON STOCK EQUAL TO 347,222 FOR EACH $1,000,000 OF
SUBSCRIPTION AMOUNT OF SUCH PURCHASER’S (PRO-RATA FOR LESSER AMOUNTS) WITH AN
EXERCISE PRICE EQUAL TO $0.72, SUBJECT TO ADJUSTMENT THEREIN;

 

(V)  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

 

(VI)  A LEGAL OPINION OF COMPANY COUNSEL, IN THE FORM OF EXHIBIT A ATTACHED
HERETO.

 

(b)  On or prior to 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

 

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(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; AND

 

(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 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 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.

 

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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:

 

(a)  Organization and Qualification.  Each of the Company and the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any of the Transaction documents, (ii) a material adverse effect on the results
of operations, assets, business, prospects or financial condition of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its
obligations under any of the Transaction Documents (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.

 

(b)  Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
any of the Transaction Documents and otherwise to carry out its obligations
thereunder.  The execution and delivery of any of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company in connection therewith other than
in connection with the Required Approvals.  Each Transaction Documents has been
duly executed by the Company and, when delivered in accordance with the terms
hereof and thereof, 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.

 

(c) No Conflicts.  The execution, delivery and performance of each of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the

 

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consummation by the Company of the other transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected, or (iv) conflict with or violate the terms of any
agreement by which the Company or any Subsidiary is bound or to which any
property or asset of the Company or any Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.

 

(d) 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 each of the Transaction Documents,
other than (i) the Notification Form: Listing of Additional Shares required by
the NASDAQ Stock Market, (ii) filings required pursuant to Section 4.3 of this
Agreement, and (iii) such filings as are required to be made under applicable
state securities laws (collectively, the “Required Approvals”).

 

(e) Issuance of the Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with each of the Transaction Documents, 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 Securities issuable pursuant to
each of the Transaction Documents.

 

(f) Capitalization.  The Company has issued and outstanding shares of 93,341,754
Common Stock. The capitalization of the Company is as described in the Company’s
most recent periodic report filed with the Commission and the Company has not
issued any capital stock since such filing other than (i) as reported on
Form 8-K filings made with the Commission and (ii) 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

 

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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.

 

(g) 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.

 

(h) Disclosure.  The Company confirms that, neither the Company nor any officer,
director or employee of the Company acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material, non-public information.   The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.  All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby furnished by or on behalf of the Company,
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.

 

(i) 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.

 

(j)  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

 

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independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

 

(k)  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.

 

(l)  Acknowledgement Regarding Purchasers’ Trading Activity.  Anything in each
of the Transaction Documents or elsewhere herein to the contrary
notwithstanding, it is understood and agreed by the Company (i) that none of the
Purchasers have been asked to agree, nor has any Purchaser agreed, to desist
from purchasing or selling, long and/or short, securities of the Company, or
“derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that past or future open market or other
transactions by any Purchaser, including Short Sales, and specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
(iii) that any Purchaser, and counter parties in “derivative” transactions to
which any such Purchaser is a party, directly or indirectly, presently may have
a “short” position in the Common Stock, and (iv) that each Purchaser shall not
be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. The Company further understands
and acknowledges that (a) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the
hedging activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

(m)  Manipulation of Price.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities (other than for the placement
agent’s placement of the Securities), or (iii) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.

 

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

 

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obligations hereunder and 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.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1
1.3

 

No Legends. If the Shares or Warrant Shares are issued in certificated form,
such certificates 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 Shares or Warrant Shares. The Company shall not
give any instructions to its transfer agent which would impair the free
transferability of the Shares or Warrant 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

 

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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 immediately following the date hereof issue a
press release disclosing the material terms of each of the Transaction Documents
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 any of the Transaction Documents. 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 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 the Transaction Documents, 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

 

11

--------------------------------------------------------------------------------

 

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 the
Transaction Documents.

 

4.7  Indemnification of Purchasers.  Subject to the provisions of this
Section 4.7, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, partners or employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims
(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 the
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action
shall be brought against any Purchaser Party in respect of which indemnity may
be sought pursuant to the Transaction Documents, 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 the
Transaction Documents (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.

 

12

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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 Securities pursuant to the
Transaction Documents including the Warrant Shares pursuant to any exercise of
the Warrants.

 

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
Warrant Shares and will take such other action as is necessary to cause all of
the Shares and the 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.

 

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 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.

 

4.11  Subsequent Equity Sales.   From the date hereof until the earlier of
(a) 60 days after the Closing Date and the date that the Warrants are no longer
outstanding, neither the Company nor any Subsidiary shall issue shares of Common
Stock or Common Stock Equivalents..  Notwithstanding the foregoing, this
Section 4.11 shall not apply in respect of an Exempt Issuance.

 

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

 

ARTICLE V.
MISCELLANEOUS

 

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 February 17, 2006 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 legal, due diligence and other
fees and expenses of Alpha Capital AG in the amount of $35,000 out of the
proceeds of the

 

13

--------------------------------------------------------------------------------

 

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.

 

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,

 

14

--------------------------------------------------------------------------------

 

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
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) the Transaction
Documents,

 

15

--------------------------------------------------------------------------------

 

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 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.

 

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

 

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)

 

16

--------------------------------------------------------------------------------

 

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:

 

 

 

 

/s/ Gerard T. Feeney

 

 

By:

Wave Systems Corp

Name: Gerard T. Feeney

480 Pleasant Street

Title: Chief Financial Officer

Lee, MA 01238

 

 

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

 

 

 

Neil W. Townsend

 

Bingham McCutchen LLP

 

399 Park Avenue

 

New York, NY 10022

 

Fax: (212) 752-5378

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

17

--------------------------------------------------------------------------------

 

[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:

Alpha Capital A.G.

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Kounod Ackerman

 

 

Name of Authorized Signatory:

Kounod Ackerman

 

 

Title of Authorized Signatory:

Director

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$1,500,000

 

 

Shares:

2,803,738

 

 

Warrant Shares:

520,833

 

 

18

--------------------------------------------------------------------------------

 

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:

Platinum Partners Long Term Growth II

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Mark Nordlicht

 

 

Name of Authorized Signatory:

Mark Nordlicht

 

 

Title of Authorized Signatory:

President

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$1,400,000

 

 

Shares:

2,616,822

 

 

Warrant Shares:

486,111

 

 

19

--------------------------------------------------------------------------------

 

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:

Ellis International

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Wilhelm Ungar

 

 

Name of Authorized Signatory:

Wilhelm Ungar

 

 

Title of Authorized Signatory:

Director

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$535,000

 

 

Shares:

1,000,000

 

 

Warrant Shares:

185,763

 

 

20

--------------------------------------------------------------------------------

 

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:

Whalehaven Capital Fund Limited

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Evan Schemenaur

 

 

Name of Authorized Signatory:

Evan Schemenaur

 

 

Title of Authorized Signatory:

C.O.O.

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$500,000

 

 

Shares:

934,579

 

 

Warrant Shares:

173,611

 

 

21

--------------------------------------------------------------------------------

 

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:

Momona Capital

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Arie Rabinowitz

 

 

Name of Authorized Signatory:

Arie Rabinowitz

 

 

Title of Authorized Signatory:

President

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$50,000

 

 

Shares:

93,458

 

 

Warrant Shares:

17,361

 

 

22

--------------------------------------------------------------------------------

 

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:

Mike and Lisa McCarthy

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Mike McCarthy

 

 

Name of Authorized Signatory:

Mike McCarthy

 

 

Title of Authorized Signatory:

 

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$267,500

 

 

Shares:

500,000

 

 

Warrant Shares:

92,881

 

 

23

--------------------------------------------------------------------------------

 

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:

Walton I Rutherfoord

 

 

Signature of Authorized Signatory of Investing Entity:

/s/Walton I Rutherfoord

 

 

Name of Authorized Signatory:

Walton I. Rutherfoord

 

 

Title of Authorized Signatory:

N/A

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$53,500

 

 

Shares:

100,000

 

 

Warrant Shares:

18,576

 

 

24

--------------------------------------------------------------------------------

 

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:

Isabel B. Rutherfoord

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ Isabel B. Rutherfoord

 

 

Name of Authorized Signatory:

Isabel B. Rutherfoord

 

 

Title of Authorized Signatory:

N/A

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$53,500

 

 

Shares:

100,000

 

 

Warrant Shares:

18,576

 

 

25

--------------------------------------------------------------------------------

 

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:

Gennette R. Huber

 

 

Signature of Authorized Signatory of Investing Entity:

Gennette R. Huber

 

 

Name of Authorized Signatory:

Gennette R. Huber

 

 

Title of Authorized Signatory:

N/A

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$53,500

 

 

Shares:

100,000

 

 

Warrant Shares:

18,576

 

 

26

--------------------------------------------------------------------------------

 

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:

George Edward Kaskus

 

 

Signature of Authorized Signatory of Investing Entity:

/s/ George Edward Kaskus

 

 

Name of Authorized Signatory:

George Edward Kaskus

 

 

Title of Authorized Signatory:

 

 

 

Email Address of Authorized Entity:

 

 

 

 

Address for Notice of Investing Entity:

 

 

Fax No.:

 

 

 

 

DWAC Instructions for Common Stock:

 

 

 

 

Subscription Amount:

$53,500

 

 

Shares:

100,000

 

 

Warrant Shares:

18,576

 

 

27

--------------------------------------------------------------------------------

 

SCHEDULE 3.1(f) to the

 

SECURITIES PURCHASE AGREEMENT DATED FEBRUARY 15, 2006

 

FOR

 

WAVE SYSTEMS CORP.

 

OPTIONS AND WARRANTS OUTSTANDING:

 

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

 

14,131,485

 

 

 

 

 

Warrants Outstanding(1)

 

2,426,809

 

 

 

 

 

Total

 

16,558,294

 

 

--------------------------------------------------------------------------------

 

EXHIBIT A

February 16, 2006

 

To the Purchasers identified on Schedule 1.

 

Re:                               Securities Purchase Agreement.

 

Ladies and Gentlemen:

 

This opinion is furnished to you pursuant to the Securities Purchase Agreement
(the “Purchase Agreement”), by and between the purchasers signatory thereto (the
“Purchasers”) and Wave Systems Corp., a Delaware corporation (the “Company”),
dated as of February 15, 2006 (the “Purchase Agreement”), which provides for the
issuance and sale by the Company of 8,348,598 shares of Class A Common Stock
(the “Shares”) and the Warrants.  All terms used herein have the meanings
defined for them in the Purchase Agreement unless otherwise defined herein.

 

We have acted as counsel for the Company in connection with the Purchase
Agreement and the Warrants (collectively, the “Agreements”).

 

As to all matters of fact (including factual conclusions and characterizations
and descriptions of purpose, intention or other state of mind), we have relied
upon (a) the representations and warranties of the Company set forth in the
Agreements, (b) the representations and warranties of the Purchasers set forth
in the Purchase Agreement, and (c) certificates of the Secretary and the Chief
Financial Officer of the Company and have assumed, without independent inquiry,
the accuracy of those representations, warranties, and certificates.  For
purposes of our opinion rendered in paragraph 1 below, with respect to the
incorporation, organization, existence, or standing of the Company, our opinion
relies entirely upon and is limited by those certificates of public officials
attached hereto as Exhibit A.

 

In connection with this opinion, we have examined originals or copies of the
following documents:

 

(i)                                     the Purchase Agreement;

 

(ii)                                  the Warrants;

 

(iii)                               the Registration Statement on Form S-3, File
No. 333-130409 of the Company;

 

(iv)                              the Restated Certificate of Incorporation of
the Company (the “Charter”), certified by the Secretary of State of the State of
Delaware as of November 29, 2005, and certified by an officer of the Company as
of the date hereof as being true, complete and correct and in full force and
effect;

 

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(v)                                 the By-Laws of the Company (the “By-Laws”,
the Charter and the By-Laws are, collectively, the “Governing Documents”),
certified by an officer of the Company as of the date hereof as being true,
complete and correct and in full force and effect;

 

(vi)                              the certificate of an officer of the Company,
as of the date hereof, as to certain actions taken by the Board of Directors of
the Company by unanimous written consent dated February 10, 2006, and as to the
titles, incumbency, and specimen signatures of certain officers of the Company;

 

(vii)                           the certificate of the Chief Financial Officer,
as of the date hereof, certifying the continuing accuracy of the Company’s
representations and warranties made in the Purchase Agreement and the Company’s
performance of the covenants to be performed by it pursuant to the Purchase
Agreement at or prior to the Closing; and

 

(viii)                        those certificates of certain public officials
with respect to the Company attached hereto as Exhibit A. [Good Standing
Certificate]

 

We have examined the documents listed in the preceding paragraph and such other
corporate and public records and agreements, instruments, certificates and other
documents as we have deemed necessary or appropriate for the purposes of this
opinion.

 

We have assumed the genuineness of all signatures, the conformity to the
originals of all documents reviewed by us as copies, the authenticity and
completeness of all original documents reviewed by us in original or copy form
and the legal competence of each individual executing any document.  We have
also assumed that, upon any exercise of the Warrants, a sufficient number of
authorized but unissued shares will be available for purposes of the issuance of
the Warrant Stock.

 

For purposes of this opinion, we have made such examination of law as we have
deemed necessary.  This opinion is limited solely to the internal substantive
laws of the State of New York as applied by courts located in New York without
regard to choice of law, the Federal laws of the United States of America and
the Delaware General Corporation Law (the “DGCL”) (except for federal and state
tax, antitrust, foreign trade, insurance, securities, or blue sky laws, as to
which we express no opinion in this letter), and we express no opinion as to the
laws of any other jurisdiction.

 

Our opinion is further subject to the following exceptions, qualifications and
assumptions, all of which we understand to be acceptable to you:

 

(a)                                  When any opinion set forth below is given
to our knowledge, or to the best of our knowledge, or with reference to matters
of which we are aware or which are known to us, or with a similar qualification,
that knowledge is limited to the actual knowledge of the individual lawyers in
this firm who have participated directly and substantively in the specific
transactions

 

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to which this opinion relates and without any special or additional
investigation undertaken for the purposes of this opinion.

 

(b)                                 We express no opinion as to the effect of
events occurring, circumstances arising, conduct, acts or omissions occurring,
or changes of law becoming effective or occurring, after the date hereof on the
matters addressed in this opinion letter, and we assume no responsibility to
inform you of additional or changed facts, or changes in law, of which we may
become aware.

 

(c)                                  We express no opinion as to compliance with
the listing requirements of The Nasdaq National Market or any other securities
exchange.

 

Based upon and subject to the foregoing, we are of the opinion that:

 

1.                                       The Company is a corporation validly
existing and in corporate good standing under the laws of the State of Delaware.

 

2.                                       The execution and delivery by the
Company of the Agreements, and the performance by the Company of its obligations
under each of the Agreements, are within the Company’s corporate powers and have
been duly authorized by all requisite corporate action on the part of the
Company.  The Company has duly executed and delivered each of the Agreements.

 

3.                                       The execution and delivery by the
Company of the Agreements and performance by the Company of its obligations
thereunder will not violate (a) any of the provisions of the Governing Documents
or any provision of law, statute, rule or regulation of the State of New York or
the United States of America or any provision of the DGCL applicable to the
Company, except for such violations as would, not, individually or in the
aggregate, have a Material Adverse Effect or (b) any judgment, order, writ,
injunction or decree of any court or other tribunal of which we are aware,
naming the Company.  The Shares issued on the Closing Date (the “Closing Date
Stock”) and the shares issuable upon exercise of the Warrants (the “Warrant
Stock”) are not subject to any preemptive rights under the Governing Documents.

 

4.                                       No action of, or filing with, any
federal, New York State or Delaware State governmental or public body or
authority is required to be effected by the Company under any federal or New
York State law, statute, rule or regulation or the DGCL to authorize the
execution, delivery and performance by the Company of the Agreements, other than
the filing of a prospectus supplement pursuant to Rule 424(b) of the Securities
Act of 1933, as amended.

 

5.                                       The issuance and delivery of the shares
of Closing Date Stock has been duly authorized by all requisite corporate action
on the part of the Company.  All of the shares of Closing Date Stock, when
issued and paid for in accordance with the Purchase Agreement, will be duly and
validly issued, fully paid and nonassessable.

 

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6.                                       The issuance, sale and delivery of the
Warrants in accordance with the terms of the Purchase Agreement, and the
issuance and delivery of the shares of Warrant Stock upon exercise of the
Warrants in accordance the terms thereof, have been duly authorized by all
requisite corporate action on the part of the Company, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.  All such shares of Warrant Stock, when issued and paid for in
accordance with the Warrants, will be duly and validly issued, fully paid and
nonassessable.

 

This opinion is delivered solely to you and for your benefit in connection with
the Purchase Agreement and the Warrants and may not be relied upon by you for
any other purpose or furnished or referred to, or relied upon, by any other
person or entity for any reason without our prior written consent.

 

 

Very truly yours,

 

 

 

 

 

BINGHAM McCUTCHEN LLP

 

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Schedule 1

 

Purchasers

 

Alpha Capital AG

Whalehaven Capital Fund Limited

Ellis International

Platinum Long Term Growth II, LLC

Momona Capital

Walton I. Rutherfoord

Michael & Lisa Mcarthy

Isabel B. Rutherford

Gennette R. Huber

George E. Kaskus

 

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EXHIBIT B

 

COMMON STOCK PURCHASE WARRANT

 

To Purchase              Shares of Common Stock of

 

WAVE SYSTEMS CORP.

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received,       (the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time on
or after the date hereof (the “Initial Exercise Date”) and on or prior to the
close of business on the 180th day following the Initial Exercise Date (the
“Termination Date”) but not thereafter, to subscribe for and purchase from Wave
Systems Corp., a Delaware corporation (the “Company”), up to           shares
(the “Warrant Shares”) of Common Stock, par value $0.01 per share, of the
Company (the “Common Stock”); provided, however, the 180 day period set forth
above as the Termination Date shall be extended for the number of Trading Days
during such period in which (i) trading in the Common Stock is suspended by any
Trading Market, or (ii) the Registration Statement is not effective but in no
event later than March      , 2007.  The purchase price of one share of Common
Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).

 

Section 1.                                            Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”), dated
February        , 2006, among the Company and the purchasers signatory thereto.

 

Section 2.                                            Exercise.

 

a)                                      Exercise of Warrant.  Exercise of the
purchase rights represented by this Warrant may be made, in whole or in part, at
any time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy of
the Notice of Exercise Form annexed hereto (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at
the address of such Holder appearing on the books of the Company); provided,
however, within 5 Trading Days of the date said Notice of Exercise is delivered
to the Company, if this Warrant is exercised in full, the Holder shall have
surrendered this Warrant to the Company and the Company shall have received
payment of the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier’s check drawn on a United States bank.  Notwithstanding
anything herein to the contrary, the Holder shall not be required to physically
surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full. 
Partial exercises of this Warrant resulting in purchases of a portion of the
total number of Warrant Shares available hereunder shall

 

6

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have the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing the number
of Warrant Shares purchased and the date of such purchases.  The Company shall
deliver any objection to any Notice of Exercise Form within 1 Business Day of
receipt of such notice.  In the event of any dispute or discrepancy, the records
of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Warrant, acknowledge
and agree that, by reason of the provisions of this paragraph, following the
purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.

 

b)                                     Exercise Price.  The exercise price of
the Common Stock under this Warrant shall be $0.72, subject to adjustment
hereunder (the “Exercise Price”).

 

c)                                      Cashless Exercise.  If at any time
during the term of this Warrant either (i) there is no effective Registration
Statement registering, or no current prospectus available for, the resale of the
Warrant Shares by the Holder for continuous period of at least 3 months, or
(ii) after one year there is no effective Registration Statement registering, or
no current prospectus available for, the resale of the Warrant Shares by the
Holder, then this Warrant may also be exercised at such time by means of a
“cashless exercise” in which the Holder shall be entitled to receive a
certificate for the number of Warrant Shares equal to the quotient obtained by
dividing [(A-B) (X)] by (A), where:

 

(A) = the VWAP on the Trading Day immediately preceding the date of such
election;

 

(B) =  the Exercise Price of this Warrant, as adjusted; and

 

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise rather
than a cashless exercise.

 

d)                                     Exercise Limitations.

 

i.                                          Holder’s Restrictions.  The Company
shall not effect any exercise of this Warrant, and a Holder shall not have the
right to exercise any portion of this Warrant, pursuant to Section 2(c) or
otherwise, to the extent that after giving effect to such issuance after
exercise, such Holder (together with such Holder’s affiliates, and any other
person or entity acting as a group together with such Holder or any of such
Holder’s affiliates), as set forth on the applicable Notice of

 

7

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Exercise, would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below).  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by such Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (A) exercise of the remaining, nonexercised portion
of this Warrant beneficially owned by such Holder or any of its affiliates and
(B) exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 2(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by a Holder that the Company is not
representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith.   To the extent that the
limitation contained in this Section 2(d) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder) and of which a portion of this Warrant is exercisable shall be in the
sole discretion of a Holder, and the submission of a Notice of Exercise shall be
deemed to be each Holder’s determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder) and of which portion of
this Warrant is exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination.   In addition, a determination as to any group
status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 2(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder, the Company shall
within two Trading Days confirm orally and in writing to such Holder the number
of shares of Common Stock then outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by such Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  The Beneficial Ownership
Limitation

 

8

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provisions of this Section 2(d) may be waived by such Holder, at the election of
such Holder, upon not less than 61 days’ prior notice to the Company to change
the Beneficial Ownership Limitation to 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant, and the provisions of this
Section 2(d) shall continue to apply.  Upon such a change by a Holder of the
Beneficial Ownership Limitation from such 4.99% limitation to such 9.99%
limitation, the Beneficial Ownership Limitation may not be waived by such
Holder.  The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this Section 2(d) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

 

ii.                                       Trading Market Restrictions.  If the
Company has not obtained Shareholder Approval (as defined below), then the
Company may not issue upon exercise of this Warrant a number of shares of Common
Stock, which, when aggregated with any shares of Common Stock issued pursuant to
the Purchase Agreement and upon prior exercise of this or any other Warrant
issued pursuant to the Purchase Agreement, would exceed 19.999% of the number of
shares of Common Stock outstanding on the Trading Day immediately preceding the
Closing Date (such number of shares, the “Issuable Maximum”).  If on any
attempted exercise of this Warrant, the issuance of Warrant Shares would exceed
the Issuable Maximum and the Company shall not have previously obtained the vote
of shareholders to approve the issuance of shares of Common Stock in excess of
the Issuable Maximum pursuant to the terms hereof (the “Shareholder Approval”),
then the Company shall issue to the Holder requesting a Warrant exercise such
number of Warrant Shares as may be issued below the Issuable Maximum and, with
respect to the remainder of the aggregate number of Warrant Shares, this Warrant
shall not be exercisable until and unless Shareholder Approval has been
obtained.

 

e)                                      Mechanics of Exercise.

 

i.                                          Authorization of Warrant Shares. 
The Company covenants that all Warrant Shares which may be issued upon the
exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
in respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue).

 

ii.                                       Delivery of Certificates Upon
Exercise.  Certificates for shares purchased hereunder shall be transmitted by
the transfer agent of the Company to

 

9

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the Holder by crediting the account of the Holder’s prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent Commission
(“DWAC”) system if the Company is a participant in such system, and otherwise by
physical delivery to the address specified by the Holder in the Notice of
Exercise within 3 Trading Days from the delivery to the Company of the Notice of
Exercise Form, surrender of this Warrant (if required) and payment of the
aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date the Exercise
Price is received by the Company.  The Warrant Shares shall be deemed to have
been issued, and Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have
been paid.

 

iii.                                    Delivery of New Warrants Upon Exercise. 
If this Warrant shall have been exercised in part, the Company shall, at the
request of a Holder and upon surrender of this Warrant certificate, at the time
of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

 

iv.                                   Rescission Rights.  If the Company fails
to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have
the right to rescind such exercise.

 

v.                                      Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise.  In addition to any other rights
available to the Holder, if the Company fails to cause its transfer agent to
transmit to the Holder a certificate or certificates representing the Warrant
Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and
if after such date the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Company shall
(1) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder
in connection with the exercise at issue times (B) the price at which the sell
order giving rise to such purchase obligation was executed, and (2) at the
option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have

 

10

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been issued had the Company timely complied with its exercise and delivery
obligations hereunder.  For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (1) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Company.  Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise of
the Warrant as required pursuant to the terms hereof.

 

vi.                                   No Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.

 

vii.                                Charges, Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder or in
such name or names as may be directed by the Holder; provided, however, that in
the event certificates for Warrant Shares are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder;
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

 

viii.                             Closing of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

 

f)                                        Call Provision.  Subject to the
provisions of Section 2(d) and this Section 2(f), if the Closing Price for each
of any 10 out of 20 consecutive Trading Days (the “Measurement Period”) exceeds
$0.86 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like after the Initial Exercise Date)
(the “Threshold Price”) then the Company may, within three Trading Days of the
end of such period, call for cancellation of all or any portion of this Warrant
for which a Notice of Exercise has not yet been delivered (such right, a
“Call”).  To exercise this right, the

 

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Company must deliver to the Holder an irrevocable written notice (a “Call
Notice”), indicating therein the portion of unexercised portion of this Warrant
to which such notice applies.  If the conditions set forth below for such Call
are satisfied from the period from the date of the Call Notice through and
including the Call Date (as defined below), then any portion of this Warrant
subject to such Call Notice for which a Notice of Exercise shall not have been
received by the Call Date will be cancelled at 6:30 p.m. (New York City time) on
the seventh Trading Day after the date the Call Notice is received by the Holder
(such date, the “Call Date”).  Any unexercised portion of this Warrant to which
the Call Notice does not pertain will be unaffected by such Call Notice.  In
furtherance thereof, the Company covenants and agrees that it will honor all
Notices of Exercise with respect to Warrant Shares subject to a Call Notice that
are tendered through 6:30 p.m. (New York City time) on the Call Date.  The
parties agree that any Notice of Exercise delivered following a Call Notice
shall first reduce to zero the number of Warrant Shares subject to such Call
Notice prior to reducing the remaining Warrant Shares available for purchase
under this Warrant.  For example, if (x) this Warrant then permits the Holder to
acquire 100 Warrant Shares, (y) a Call Notice pertains to 75 Warrant Shares, and
(z) prior to 6:30 p.m. (New York City time) on the Call Date the Holder tenders
a Notice of Exercise in respect of 50 Warrant Shares, then (1) on the Call Date
the right under this Warrant to acquire 25 Warrant Shares will be automatically
cancelled, (2) the Company, in the time and manner required under this Warrant,
will have issued and delivered to the Holder 50 Warrant Shares in respect of the
exercises following receipt of the Call Notice, and (3) the Holder may, until
the Termination Date, exercise this Warrant for 25 Warrant Shares (subject to
adjustment as herein provided and subject to subsequent Call Notices).  Subject
again to the provisions of this Section 2(f), the Company may deliver subsequent
Call Notices for any portion of this Warrant for which the Holder shall not have
delivered a Notice of Exercise.  Notwithstanding anything to the contrary set
forth in this Warrant, the Company may not deliver a Call Notice or require the
cancellation of this Warrant (and any Call Notice will be void), unless, from
the beginning of the 20 consecutive Trading Days used to determine whether the
Common Stock has achieved the Threshold Price through the Call Date, (i) the
Company shall have honored in accordance with the terms of this Warrant all
Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, (ii) the Registration Statement shall be effective as to all Warrant
Shares and (iii) the Common Stock shall be listed or quoted for trading on the
Trading Market, and (iv) there is a sufficient number of authorized shares of
Common Stock for issuance of all Securities under the Transaction Documents, and
(v) the issuance of the shares shall be in accordance with Section 2(d) herein. 
The Company’s right to Call the Warrant shall be exercised ratably among the
Holders based on each Holder’s initial purchase of Common Stock.

 

“Closing Price” means on any particular Trading Day (a) the last reported
closing price per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:00 PM (New York time) or at such other time as
regular trading hours end), or (b)  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 National Quotation Bureau
Incorporated (or a similar organization or

 

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agency succeeding to its functions of reporting prices), the last closing price
per share of the Common Stock so reported as of the close of regular trading
hours on such day, or (c) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by an
appraiser selected in good faith by the Purchasers of a majority in interest of
the Shares then outstanding.

 

Section 3.                                            Certain Adjustments.

 

a)                                      Stock Dividends and Splits. If the
Company, at any time while this Warrant is outstanding: (A) pays a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Warrant),
(B) subdivides outstanding shares of Common Stock into a larger number of
shares, (C) combines (including by way of reverse stock split) outstanding
shares of Common Stock into a smaller number of shares, or (D) issues by
reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted.  Any adjustment made
pursuant to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

 

b)                                     [INTENTIONALLY DELETED]

 

c)                                      Pro Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets (including cash and cash dividends) or rights or warrants to subscribe
for or purchase any security other than the Common Stock (which shall be subject
to Section 3(b)), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then per share fair market value at such record date
of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors in good faith.  In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock.  Such adjustment shall be made whenever any such

 

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distribution is made and shall become effective immediately after the record
date mentioned above.

 

d)                                     Fundamental Transaction. If, at any time
while this Warrant is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series of
related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (D) the Company effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each
Warrant Share that would have been issuable upon such exercise immediately prior
to the occurrence of such Fundamental Transaction, at the option of the Holder,
(a) upon exercise of this Warrant, the number of shares of Common Stock of the
successor or acquiring corporation or of the Company, if it is the surviving
corporation, and any additional consideration (the “Alternate Consideration”)
receivable upon or as a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by a Holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event or (b) if the Company is acquired in an all cash transaction, cash equal
to the value of this Warrant as determined in accordance with the Black-Scholes
option pricing formula.  For purposes of any such exercise, the determination of
the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company
shall apportion the Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration.  If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder’s right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 3(d) and insuring
that this Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

 

e)                                      Calculations. All calculations under
this Section 3 shall be made to the nearest cent or the nearest 1/100th of a
share, as the case may be. For purposes of this Section 3, the number of shares
of Common Stock deemed to be issued and outstanding

 

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as of a given date shall be the sum of the number of shares of Common Stock
(excluding treasury shares, if any) issued and outstanding.

 

f)                                        Voluntary Adjustment By Company. The
Company may at any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.

 

g)                                     Notice to Holders.

 

i.                                          Adjustment to Exercise Price.
Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company
shall promptly mail to each Holder a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

 

ii.                                       Notice to Allow Exercise by Holder. If
(A) the Company shall declare a dividend (or any other distribution) on the
Common Stock; (B) the Company shall declare a special nonrecurring cash dividend
on or a redemption of the Common Stock; (C) the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such notice
or any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.  The Holder is
entitled to exercise this Warrant during the 20-day period commencing on

 

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the date of such notice to the effective date of the event triggering such
notice.

 

Section 4.                                            Transfer of Warrant.

 

a)                                      Transferability.  Subject to
Section 5(a) below, this Warrant and all rights hereunder are transferable, in
whole or in part, upon surrender of this Warrant at the principal office of the
Company, together with a written assignment of this Warrant substantially in the
form attached hereto duly executed by the Holder or its agent or attorney and
funds sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in such instrument
of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled.  A Warrant, if properly assigned, may be exercised by a new holder
for the purchase of Warrant Shares without having a new Warrant issued.

 

b)                                     New Warrants. This Warrant may be divided
or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
its agent or attorney.  Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.

 

c)                                      Warrant Register. The Company shall
register this Warrant, upon records to be maintained by the Company for that
purpose (the “Warrant Register”), in the name of the record Holder hereof from
time to time.  The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or
any distribution to the Holder, and for all other purposes, absent actual notice
to the contrary.

 

Section 5.                                            Miscellaneous.

 

a)                                      Title to Warrant.  Prior to the
Termination Date and subject to compliance with applicable laws and Section 4 of
this Warrant, this Warrant and all rights hereunder are transferable, in whole
or in part, at the office or agency of the Company by the Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.

 

b)                                     No Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other rights as
a shareholder of the Company prior to the exercise hereof.  Upon the surrender
of this Warrant and the payment of the aggregate Exercise Price (or by means of
a cashless exercise), the Warrant Shares so purchased

 

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shall be and be deemed to be issued to such Holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.

 

c)                                      Loss, Theft, Destruction or Mutilation
of Warrant. The Company covenants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate relating to the Warrant Shares, and in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or
stock certificate, if mutilated, the Company will make and deliver a new Warrant
or stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.

 

d)                                     Saturdays, Sundays, Holidays, etc.  If
the last or appointed day for the taking of any action or the expiration of any
right required or granted herein shall be a Saturday, Sunday or a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.

 

e)                                      Authorized Shares.

 

The Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant.  The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.

 

Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment.  Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon

 

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the exercise of this Warrant, and (c) use commercially reasonable efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.

 

Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price,
the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies
having jurisdiction thereof.

 

f)                                        Jurisdiction. All questions concerning
the construction, validity, enforcement and interpretation of this Warrant shall
be determined in accordance with the provisions of the Purchase Agreement.

 

g)                                     Restrictions.  The Holder acknowledges
that the Warrant Shares acquired upon the exercise of this Warrant, if not
registered, will have restrictions upon resale imposed by state and federal
securities laws.

 

h)                                     Nonwaiver and Expenses.  No course of
dealing or any delay or failure to exercise any right hereunder on the part of
Holder shall operate as a waiver of such right or otherwise prejudice Holder’s
rights, powers or remedies, notwithstanding the fact that all rights hereunder
terminate on the Termination Date.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

i)                                         Notices.  Any notice, request or
other document required or permitted to be given or delivered to the Holder by
the Company shall be delivered in accordance with the notice provisions of the
Purchase Agreement.

 

j)                                         Limitation of Liability.  No
provision hereof, in the absence of any affirmative action by Holder to exercise
this Warrant or purchase Warrant Shares, and no enumeration herein of the rights
or privileges of Holder, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

 

k)                                      Remedies.  Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Warrant.  The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.

 

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l)                                         Successors and Assigns.  Subject to
applicable securities laws, this Warrant and the rights and obligations
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder. 
The provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and shall be enforceable by any such Holder or
holder of Warrant Shares.

 

m)                                   Amendment.  This Warrant may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Holder.

 

n)                                     Severability.  Wherever possible, each
provision of this Warrant shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

 

o)                                     Headings.  The headings used in this
Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Warrant.

 

********************

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

 

 

Dated:  February        , 2006

 

 

 

 

 

 

WAVE SYSTEMS CORP.

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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NOTICE OF EXERCISE

 

TO:                            WAVE SYSTEMS CORP.

 

(1)                                  The undersigned hereby elects to purchase
                   Warrant Shares of the Company pursuant to the terms of the
attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

 

(2)                                  Payment shall take the form of (check
applicable box):

 

o in lawful money of the United States; or

 

o the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)                                  Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such other
name as is specified below:

 

 

 

 

 

The Warrant Shares shall be delivered to the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

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ASSIGNMENT FORM

 

 

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to

 

 

 

whose address is

 

 

 

__________________________________________________________________________________________________.

 

 

__________________________________________________________________________________________________

 

 

 

 

Dated:                    ,     

 

 

 

 

 

Holder’s Signature:

 

 

 

 

 

 

 

Holder’s Address:

 

 

 

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Signature Guaranteed:

 

 

 

 

NOTE:  The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company.  Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

 

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