EXHIBIT 10.1


 


SECURITIES PURCHASE AGREEMENT


 


This Securities
Purchase Agreement (this “Agreement”) is dated as of December 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
$3,500,000 of shares of Common Stock and Warrants 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 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.


 


“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


 


1





















 


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.


 


“FW”
means Feldman Weinstein, LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, new York 10170-0002.


 


“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 $0.585, 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.


 


“Pre-Notice” shall have the meaning ascribed to such term in
Section 4.11.


 


“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, 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.


 


“Subsequent Financing” shall have the meaning ascribed to such
term in Section 4.11.


 


“Subsequent Financing Notice” shall have the meaning ascribed to
such term in Section 4.11.


 


“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


 


3





















 


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) 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 $3,500,000.  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.  


 


(a)   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 312,500 for each $1,000,000 of Subscription
Amount of such Purchaser’s (pro-rata for lesser amounts) with an exercise price
equal to $0.80, 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


 


4





















 


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


 


(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 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


 


5





















 


(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.


 


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.


 


6





















 


(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 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”).


 


7





















 


(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
87,358,848 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.


 


(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.


 


8





















 


(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 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


 


9





















 


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 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.


 


10





















 


ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES


 


4.1           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.(a)


 


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 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


 


11





















 


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 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 4.9, 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


 


12





















 


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.


 


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         Participation
in Future Financing.  


 


(a)           From the
date hereof until the date that is the earlier of (i) the 120th day
following the Closing Date and (ii) the date that the Warrants are no longer
outstanding, upon any proposed financing by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents to be issued pursuant
to the Registration Statement or, if permitted by the securities laws, any
other effective shelf registration statement of the Company for the issuance or
sale of securities by the Company (a “Subsequent


 


13





















 


Financing”), each Purchaser shall
have the right to participate (A) in not less than an amount equal to the
lesser of (y) $3,500,000 less any amounts subscribed to in the Subsequent
Financing by the other Purchasers and (z) the Subsequent Financing less any
amounts subscribed to in the Subsequent Financing by the other Purchasers and
(B) up to an amount equal to 100% of the Subsequent Financing; provided,
however, the 120 day period set forth in this Section 4.11(a)(i) 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.


 


(b)           At least 2
full Trading Days prior to the closing of the Subsequent Financing with any
third party, the Company shall deliver to each Purchaser a written notice of
its intention to effect such Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing Notice”). 
Upon the request of a Purchaser, and only upon a request by such Purchaser, for
a Subsequent Financing Notice, the Company shall promptly, but no later than 1
Trading Day after such request, deliver a Subsequent Financing Notice to such
Purchaser.  The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder and attached to which shall be a term sheet or
similar document relating thereto.


 


(c)           Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the 2nd full Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser’s participation, and that the
Purchaser has such funds ready, willing, and available for investment on the
terms set forth in the Subsequent Financing Notice.  If the aggregate subscriptions of all the
Purchasers in the new Subsequent Financing are less than $3,500,000, the
Company shall notify the participating Purchasers of the shortfall and provide
such Purchasers 1 full Trading Day to revise their participation amounts to
meet the minimum requirement.  If the
Company receives no notice from a Purchaser at or before 5:30 p.m. (New York
City time) on such 2nd full Trading Day after all the Purchasers
have received the Pre-Notice such Purchaser shall be deemed to have notified
the Company that it does not elect to participate.  If by 5:30 p.m. (New York City time) on the 1st
Trading Day after the Company provides the participating Purchasers an
opportunity to increase their respective subscriptions the Purchasers have not
notified the company of elections to purchase additional amounts such that the
aggregate subscription of all participating Purchasers in the Subsequent Financing
is at least $3,500,000, all Purchasers shall be deemed to have notified the
Company that they do not elect to participate.


 


(d)           If by 5:30
p.m. (New York City time) on the 2nd full Trading Day after all of
the Purchasers have received the Pre-Notice (or, in the case of an
under-subscription, by 5:30 p.m. (New York City time) on the 1st
Trading Day after the Company provides the participating Purchasers notice of
an under-subscription), notifications by the Purchasers of their willingness to
participate for at least the minimum required pursuant to Section 4.11(a) in
the Subsequent Financing (or to cause their designees to participate)


 


14





















 


is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing with any third party on terms that are not
substantially more favorable to the investors than the terms set forth in the
Subsequent Financing Notice.


 


(e)           If by 5:30
p.m. (New York City time) on the 2nd full Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses to
a Subsequent Financing Notice from Purchasers seeking to purchase more than the
aggregate amount of the Subsequent Financing, each such Purchaser shall have
the right to purchase, the greater of (a) their Pro Rata Portion (as defined
below) of the Subsequent Financing and (b) the difference between the
Subsequent Financing and the aggregate amount of participation by all other
Purchasers. “Pro Rata Portion” is the ratio of (x) the Subscription
Amount of Securities purchased on the Closing Date by a Purchaser participating
under this Section 4.11 and (y) the sum of the aggregate Subscription Amounts
of Securities purchased on the Closing Date by all Purchasers participating
under this Section 4.11.


 


(f)            The
closing of any Subsequent Financing in which the Purchasers participate under
this Section 4.11 shall be held not later than the 5th full Trading
Day after the date of the Pre-Notice (subject to mutually satisfactory
documentation being completed in a reasonable period to time prior thereto)
provided that if a participating Purchaser fails to purchase its elected
portion of the Subsequent Financing at such closing and the other participants,
on reasonable notice from the Company, fail to agree to purchase the minimum
aggregate amount required by Section 4.11(a) at such closing, the participation
rights under this Section 4.11 shall terminate and the Company may thereafter
effect the entire Subsequent Financing with any third party on terms that are
not substantially more favorable to the investors than the terms set forth in
the Subsequent Financing Notice.


 


(g)           The
Company must provide the Purchasers with an additional Pre-Notice, and the
Purchasers will again have the right of participation set forth above in this
Section 4.11, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Pre-Notice.


 


(h)           Notwithstanding
the foregoing, this Section 4.11 shall not apply in respect of an Exempt
Issuance.


 


4.12         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.


 


4.13         Approval
of Subsequent Equity Sales.  The
Company shall not issue shares of Common Stock or Common Stock Equivalents if
such issuance would require shareholder


 


15





















 


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 December 9, 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 legal fees and expenses of FW, legal counsel to Corpfin, Inc., of $15,000
out of the proceeds of 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.


 


16





















 


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, 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


 


17





















 


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, 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


 


18





















 


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)


 


19





















 


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

  
				



 


 


[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK


SIGNATURE PAGES FOR
PURCHASERS FOLLOW]


 


20





















 


[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: Whalehaven Capital Fund Limited


	
  Signature of Authorized Signatory of Investing
  Entity: 

  	
  /s/ Evan Schemenauer

  	
   

  



Name of Authorized Signatory: Evan Schemenauer


Title of Authorized Signatory: Director


Email Address of Authorized Entity:


 


Address for Notice of Investing Entity:


 


 


DWAC Instructions for Common Stock:


 


 


Subscription Amount: $500,000.00


Shares: 854,701


Warrant Shares: 156,250


 


[SIGNATURE PAGES
CONTINUE]


 


21





















 


[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: Platinum Long Term Growth II LLC


	
  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:


 


 


DWAC Instructions for Common Stock:


 


 


Subscription Amount: $1,100,000


Shares: 1,880,342


Warrant Shares: 348,750


 


 


[SIGNATURE PAGES
CONTINUE]


 


22





















 


[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 AG


	
  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:


 


 


DWAC Instructions for Common Stock:


 


Subscription Amount: $1,500,000


Shares: 2,564,102


Warrant Shares: 468,750


 


 


[SIGNATURE PAGES
CONTINUE]


 


23





















 


[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: Ellis International


	
  Signature of Authorized Signatory of Investing
  Entity:

  	
  /s/ Wilhelm Ungar

  	
   

  



Name of Authorized Signatory: Wilhelm Ungar


Title of Authorized Signatory: Officer


Email Address of Authorized Entity:


 


Address for Notice of Investing Entity:


 


 


DWAC Instructions for Common Stock:


 


Subscription Amount: $400,000


Shares: 683,761


Warrant Shares: 125,000


 


24





















 


SCHEDULE 3.1(f) to the

SECURITIES PURCHASE AGREEMENT DATED DECEMBER 5, 2005


 


FOR

WAVE SYSTEMS CORP.


 


OPTIONS AND WARRANTS
OUTSTANDING:


 


	
  Options granted
  pursuant to Employee and Non-employee

  	
   

  	
   

  	
   

  
	
  Director Stock Option plans

  	
   

  	
  12,237,185

  	
   

  
	
  Warrants Outstanding(1)

  	
   

  	
  2,215,412

  	
   

  
	
  Total

  	
   

  	
  14,452,597

  	
   

  



 










(1) Includes a Series B Common Stock Purchase Warrant, granted in
connection with the August 2, 2004 offering, to purchase 882,353 Class A Common
Shares, initially granted with an exercise price of $1.30 adjusted to an
exercise price of $1.20. The Series B Stock Purchase Warrant contains a
provision whereby the exercise price of the Series B Stock Purchase Warrant is
adjusted in the event that Wave sells or offers additional shares at prices
below the exercise prices contained therein.


 





















 


EXHIBIT A


 


December
5, 2005


 


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 December 5, 2005 (the “Purchase  Agreement”), which provides
for the issuance and sale by the Company of 5,892,905 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. 333-114476 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;


 


(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 November 29, 2005, 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.


 


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


 


2





















 


(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.


 


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


 


3





















 


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

  



 


4





















 


Schedule  1


 


Purchasers


 


Alpha Capital AG

Whalehaven Capital Fund Limited

Ellis International

Platinum Long Term Growth II, LLC


 





















 


Exhibit  A


 


	
   

  	
  

  	
   

  
	
   

  	
  The First State

  	
   

  



 


I,
HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT “WAVE SYSTEMS CORP.” IS DULY INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE
NOT HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS OFFICE
SHOW AND IS DULY AUTHORIZED TO TRANSACT BUSINESS.


 


THE
FOLLOWING DOCUMENTS HAVE BEEN FILED:


 


CERTIFICATE
OF INCORPORATION, FILED THE TWELFTH DAY OF AUGUST, A.D. 1988, AT 9:10 O’CLOCK A.M.


 


CERTIFICATE
OF AMENDMENT, CHANGING ITS NAME FROM “INDATA CORPORATION” TO “CRYPTOLOGICS
INTERNATIONAL INC.”, FILED THE FOURTH DAY OF DECEMBER, A.D. 1989, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE EIGHTH DAY OF MAY, A.D. 1990, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF RENEWAL, FILED THE TWENTY-NINTH DAY OF APRIL, A.D. 1992, AT 4:15 O’CLOCK P.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE NINETEENTH DAY OF OCTOBER, A.D. 1992, AT 1 O’CLOCK P.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE TENTH DAY OF NOVEMBER, A.D. 1992, AT 9 O’CLOCK A.M.


 


 


	
   

  	
   

  	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Harriet Smith Windsor

  
	
   

  	
   

  	
   

  	
  Harriet Smith Windsor, Secretary of State

  
	
   

  	
   

  	
   

  	
   

  
	
  2169395      8310

  	
   

  	
   

  	
  AUTHENTICATION: 4323091

  
	
   

  	
   

  	
   

  	
   

  
	
  050961954

  	
   

  	
   

  	
   

  	
  DATE:
  11-28-05

  



 


1





















 


CERTIFICATE
OF AMENDMENT, CHANGING ITS NAME FROM “CRYPTOLOGICS INTERNATIONAL INC.” TO “WAVE
SYSTEMS CORP.”, FILED THE TWENTY-SECOND DAY OF JANUARY, A.D. 1993, AT 9 O’CLOCK A.M.


 


RESTATED
CERTIFICATE, FILED THE FIRST DAY OF JULY, A.D. 1994, AT 1:15 O’CLOCK P.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE TWENTY-FOURTH DAY OF MAY, A.D. 1996, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE TWENTY-SEVENTH DAY OF DECEMBER, A.D. 1996, AT 3 O’CLOCK P.M.


 


CERTIFICATE
OF MERGER, FILED THE THIRTIETH DAY OF DECEMBER, A.D. 1996, AT 4:30 O’CLOCK P.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE THIRTIETH DAY OF MAY, A.D. 1997, AT 1 O’CLOCK P.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE SEVENTEENTH DAY OF JULY, A.D. 1997, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE ELEVENTH DAY OF SEPTEMBER, A.D. 1997, AT 1 O’CLOCK P.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE NINTH DAY OF OCTOBER, A.D. 1997, AT 1 O’CLOCK P.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE FIFTH DAY OF MARCH,


 


	
   

  	
   

  	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Harriet Smith Windsor

  
	
   

  	
   

  	
   

  	
  Harriet Smith Windsor, Secretary of State

  
	
   

  	
   

  	
   

  	
   

  
	
  2169395      8310

  	
   

  	
   

  	
  AUTHENTICATION: 4323091

  
	
   

  	
   

  	
   

  	
   

  
	
  050961954

  	
   

  	
   

  	
   

  	
  DATE:
  11-28-05

  



 


2





















 


A.D.
1998, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE TENTH DAY OF NOVEMBER, A.D. 1998, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF RENEWAL, FILED THE TWELFTH DAY OF MARCH, A.D. 1999, AT 9 O’CLOCK A.M.


 


CERTIFICATE
OF DESIGNATION, FILED THE THIRTIETH DAY OF APRIL, A.D. 2003, AT 2:41 O’CLOCK P.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE TWENTY-EIGHTH DAY OF AUGUST, A.D. 2003, AT 12:15 O’CLOCK P.M.


 


CERTIFICATE
OF AMENDMENT, FILED THE TWENTY-FOURTH DAY OF MAY, A.D. 2005, AT 10:02 O’CLOCK A.M.


 


AND
I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY
CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.


 


AND
I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO DATE.


 


AND
I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE.


 


 


	
   

  	
   

  	
  

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/
  Harriet Smith Windsor

  
	
   

  	
   

  	
   

  	
  Harriet Smith Windsor, Secretary of State

  
	
   

  	
   

  	
   

  	
   

  
	
  2169395      8310

  	
   

  	
   

  	
  AUTHENTICATION: 4323091

  
	
   

  	
   

  	
   

  	
   

  
	
  050961954

  	
   

  	
   

  	
   

  	
  DATE:
  11-28-05

  



 


3





















 


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 January 2, 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 December 5, 2005, 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


 


1





















 


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 $0.80, 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 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


 


2





















 


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 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%


 


3





















 


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 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


 


4





















 


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 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


 


5





















 


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
$0.96 (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 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


 


6





















 


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 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


 


7





















 


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 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


 


8





















 


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 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


 


9





















 


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 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),


 


10





















 


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 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


 


11





















 


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 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


 


12





















 


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.


 


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.


 


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


 


13





















 


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


 


 


Dated:  December 5, 2005


 


 


	
   

  	
  WAVE
  SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Gerard T.
  Feeney 

  
	
   

  	
   

  	
  Title:Chief
  Financial Officer

  



 


14





















 


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:


 


 


15





















 


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:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  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.


 


16