EXHIBIT 10.1


 


SECURITIES
PURCHASE AGREEMENT


 


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


 


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


 


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


 


ARTICLE I.

DEFINITIONS


 


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


 


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


 


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


 


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


 


“Commission” means the Securities and
Exchange Commission.


 


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


 


1





















 


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


 


“Company Counsel”
means Bingham McCutchen LLP.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Per Share Purchase Price”
equals $.90, subject to adjustment
for reverse and forward stock splits, stock dividends, stock combinations and
other similar transactions of the Common Stock that occur after the date of
this Agreement.


 


2





















 


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


 


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


 


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


 


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


 


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


 


“Securities” means
the Shares.


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE II.

PURCHASE AND SALE


 


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


 


3





















 


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


 


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


 


(i)            this
Agreement duly executed by the Company;


 


(ii)           a
prospectus supplement to the Registration Statement;


 


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


 


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


 


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


 


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


 


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


 


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


 


2.3           Closing
Conditions. 


 


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


 


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


 


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


 


4





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE III.

REPRESENTATIONS AND WARRANTIES


 


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


 


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


 


5





















 


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


 


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


 


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


 


6





















 


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


 


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


 


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


 


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


 


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


 


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


 


7





















 


constitute material, non-public
information.  The Company understands and
confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.  All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby
furnished by or on behalf of the Company, including the prospectus supplement
delivered at the Closing, with respect to the representations and warranties
made herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.


 


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


 


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


 


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


 


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


 


8





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


9





















 


ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES


 


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


 


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


 


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


 


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


 


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


 


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


 


10





















 


information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information.  The Company understands and confirms that
each Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.


 


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


 


4.7           Indemnification
of Purchasers.  Subject to the
provisions of this Section 4.7, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of
any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by this Agreement (unless such action is based
upon a breach of such Purchaser’s representations, warranties or covenants under
this Agreement or any agreements or understandings such Purchaser may have with
any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). 
If any action shall be brought against any Purchaser Party in respect of
which indemnity may be sought pursuant to this Agreement, such Purchaser Party
shall promptly notify the Company in writing, and the Company shall have the
right to assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof
has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser
Party.  The Company


 


11





















 


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


 


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


 


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


 


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


 


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


 


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


 


12





















 


ARTICLE V.

MISCELLANEOUS


 


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


 


5.2           Fees
and Expenses.  The Company shall pay
the Purchasers’ legal fees of $15,000, which the Purchasers’ may withhold, pro
rata, from the Purchase Price at the Initial Closing. Except as otherwise set
forth in this Agreement, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.  The Company shall pay all stamp and other
taxes and duties levied in connection with the sale of the Securities.


 


5.3           Entire
Agreement.  This Agreement contains
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.


 


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


 


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


 


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


 


13





















 


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


 


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


 


5.9           Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all
legal proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. 
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of this Agreement), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper or inconvenient venue
for such proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  The
parties hereby waive all rights to a trial by jury.  If either party shall commence an action or
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.


 


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


 


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


 


14





















 


obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page were
an original thereof.


 


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


 


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


 


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


 


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


 


5.16         Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under this
Agreement are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the performance
of the obligations of any other Purchaser under this Agreement.  Nothing contained herein, and no action taken
by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Purchasers are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
this Agreement.  Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.  The Company
has elected to provide all Purchasers with the same Agreement for the
convenience of the Company and not because it was required or requested to do
so by the Purchasers.


 


15





















 


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:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Gerard T. Feeney

  	
   

  	
  Wave Systems Corp

  
	
       Name:
  Gerard T. Feeney

  	
  480 Pleasant Street

  
	
       Title:
  Chief Financial Officer

  	
  Lee, MA 01238

  
				



 


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


 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGES FOR PURCHASERS FOLLOW]


 


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: JMG Capital Partners, L.P.

  
	
   

  
	
  /s/ Jonathan Glaser

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  
	
   

  
	
  Name of Authorized Signatory: Jonathan Glaser

  
	
  Title of Authorized Signatory: Managing Member of the Advisor

  
	
  Email Address of Authorized Entity: jon@jmgcapital.com

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
  11601 Wilshire Boulevard, Ste 2180

  
	
  Los Angeles, CA 90025

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock: [Attached]

  
	
   

  
	
   

  
	
  Subscription Amount: $1,800,000

  
	
   

  
	
  EIN Number: [Attached]

  



 


[SIGNATURE PAGES CONTINUE]


 


18





















 


[PURCHASER SIGNATURE PAGES TO WAVX SECURITIES
PURCHASE AGREEMENT]


 


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


 


 


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

  
	
   

  
	
   

  
	
  /s/ Jonathan Glaser

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  
	
   

  
	
  Name of Authorized Signatory: Jonathan Glaser

  
	
  Title of Authorized Signatory: Managing Member of the Advisor

  
	
  Email Address of Authorized Entity: jon@jmgcapital.com

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
  11601 Wilshire Boulevard, Ste 2180

  
	
  Los Angeles, CA 90025

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock: [Attached]

  
	
   

  
	
   

  
	
  Subscription Amount: $1,800,000

  
	
   

  
	
  EIN Number: [Attached]

  



 


19





















 


SCHEDULE 3.1(f) to
the


SECURITIES
PURCHASE AGREEMENT DATED AUGUST 5, 2005


 


FOR


WAVE
SYSTEMS CORP.


 


OPTIONS
AND WARRANTS OUTSTANDING:


 


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

  	
   

  	
  12,275,680

  	
   

  
	
  Options
  granted pursuant to Employee Stock Purchase Plan

  	
   

  	
  258,794

  	
   

  
	
  Warrants
  Outstanding(1)

  	
   

  	
  2,215,412

  	
   

  
	
  Total

  	
   

  	
  14,749,886

  	
   

  



 










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


 


20