Document:

Exhibit 4.2

 

COMMON STOCK PURCHASE WARRANT

 

To Purchase 190,410 Shares
of Class A Common Stock of

March 5, 2008

 

WAVE SYSTEMS CORP.

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received, Security Research Associates, Inc. (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
180th day following the date hereof (the “Initial Exercise Date”) and on
or prior to the close of business on September 4, 2009 (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Wave Systems
Corp., a Delaware corporation (the “Company”), up to 190,410  shares (the “Warrant Shares”) of Class A
Common Stock, par value $0.01 per share, of the Company (the “Common Stock”).  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.  As used herein, the following terms shall
have the following meanings:

 

“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 Global Market, the American Stock Exchange, the New
York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

 

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 2 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 have the effect of lowering
the outstanding number of Warrant Shares purchasable

 

1

 

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 honor any valid Notice of Exercise Form pursuant
to the terms hereof.  The Company shall
deliver an objection to any invalid Notice of Exercise Form within 3
Trading Days of its receipt thereof.  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 $1.33 subject
to adjustment hereunder (the “Exercise Price”).

 

c)                                      Cashless Exercise.  This Warrant may also be exercised 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.

 

For purposes hereof “VWAP” means, for any
date, the price determined by the first of the following clauses that applies: (a) if
the Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the OTC Bulletin Board is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock
is not then quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink Sheets,
LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined in a reasonable manner and in good faith by the
Company.

 

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d)                                     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 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, 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(c) by
the Warrant Share Delivery Date, then the Holder will have the right to rescind
such exercise.

 

v.             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.

 

vi.            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

 

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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.

 

vii.                                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.

 

e)             Exercise
Without Registration Statement.  If,
at the time of any exercise of this Warrant, the Warrant Shares shall not be
registered under the Securities Act of 1933, as amended (the “Securities Act”),
the Company may require, as a condition of such exercise, that the Holder
furnish to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that such exercise may be made without registration under
the Securities Act or registration or qualification under any state or other
applicable securities laws.

 

Section 3.                                            Certain Adjustments.

 

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

 

b)                                     Fundamental
Transactions.  If, at any time after
the Initial Exercise Date, there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in Section 3(a) above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, or the

 

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payment of a liquidating distribution, then, as part
of any such reorganization, reclassification, consolidation, merger, sale, or
liquidating distribution, lawful provision shall be made so that Holder shall
have the right thereafter to receive upon the exercise hereof (to the extent
still exercisable) the kind and amount of shares of stock or other securities
or property to which Holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger,
sale, or liquidating distribution, as the case may be, Holder had held the
number of shares of Common Stock which were then purchasable upon the exercise
of this Warrant.  In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of Holder such that
the provisions set forth in this paragraph (b) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares
of stock or other securities or property thereafter deliverable upon the
exercise of this Warrant.

 

c)                                      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.

 

d)                                     Notice
to Holders.  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.

 

Section 4.                                            Transfer of Warrant.

 

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

 

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

 

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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.

 

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 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.

 

f)                                        Governing
Law; Jurisdiction. This Warrant will be governed by, and construed in
accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law that would require the application
of the laws of any other jurisdiction. 
Any legal action, suit or proceeding arising out of or relating to this
Warrant or the transactions contemplated hereby shall only be instituted, heard
and

 

6

 

adjudicated (excluding appeals) only in a state or
federal court located in New York, and each party hereto knowingly, voluntarily
and intentionally waives any objection which such party may now or hereafter
have to the laying of the venue of any such action, suit or proceeding, and
irrevocably submits to the exclusive personal jurisdiction of any such court in
any such action, suit or proceeding. 
Service of process in connection with any such action, suit or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Warrant.

 

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)                                     Notices.  All notices, requests, consents and other communications
hereunder will be in writing, will be mailed (a) if within the domestic
United States by first-class registered or certified airmail, or nationally
recognized overnight express courier, postage prepaid, or by facsimile or (b) if
delivered from outside the United States, by International Federal Express or
facsimile, and will be deemed given (i) if delivered by first-class
registered or certified mail domestic, three business days after so mailed, (ii) if
delivered by nationally recognized overnight carrier, one business day after so
mailed, (iii) if delivered by International Federal Express, two business
days after so mailed, and (iv) if delivered by facsimile, upon electronic
confirmation of receipt and will be delivered and addressed as follows:

 

1.               if to the Company, to:

 

Wave
Systems Corp.

480 Pleasant Street

Lee, MA 01238

Fax: (413) 243-0391

ATTN:  Gerard Feeney, CFO

 

with
copies to:

 

Bingham
McCutchen LLP

399 Park Avenue

New York, NY 10022

Fax: (212) 752-5378

ATTN:  Neil W. Townsend

 

2.               if to the Holder, at such address or
addresses of the Holder as have been furnished to the Company in writing.

 

i)                                         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.

 

7

 

j)                                         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.

 

k)                                      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.

 

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

 

m)                                   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.

 

n)                                     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.

 

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

 

8

 

 

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

 

	
  Dated:
  March 5, 2009

  
	
   

  
	
   

  	
  WAVE
  SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerard T.
  Feeney

  	 

	
   

  	
   

  	
  Name: Gerard T.
  Feeney

  
	
   

  	
   

  	
  Title: CFO

  

 

9

 

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:

 

 

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.Exhibit
10.1

 

SUBSCRIPTION
AGREEMENT

 

	
  February 29, 2008

  

 

Wave Systems Corp.

480 Pleasant Street

Lee, MA 01238

 

The undersigned (the “Investor”)
hereby confirms its agreement with you as follows:

 

1.                                      This Subscription Agreement (this “Agreement”)
is made as of the date set forth below between Wave Systems Corp., a Delaware
corporation (the “Company”), and the Investor.

 

2.                                      The Company has authorized the sale and
issuance to certain investors of (a) up to 3,173,500 shares of Class A
Common Stock (the “Total Shares”), par value $0.01 per share (the “Common
Stock”) for a purchase price of $1.10 per share (the “Purchase Price”)
and (b) warrants, in substantially form attached hereto as Annex II (the “Warrants”
and, collectively with the Total Shares, the “Securities”), to purchase
up to 1,142,460 shares of Common Stock at an exercise price of $1.15 per share
(the “Exercise Price”).

 

3.                                      The offering and sale of the Securities
(the “Offering”) are being made pursuant to the Company’s registration
statement including a base prospectus (the “U.S. Base Prospectus”) on Form S-3
(Registration No. 333-141429) filed with the United States Securities and
Exchange Commission (the “Commission”) (which, together with all
amendments or supplements thereto is referred to herein as the “Registration
Statement”) and a Prospectus Supplement containing certain supplemental
information regarding the Securities and terms of the Offering that will be
filed with the Commission (the “Prospectus Supplement”).

 

4.                                      The Company and the Investor agree that
the Investor will purchase from the Company and the Company will issue and sell
to the Investor, for the aggregate purchase price set forth below, (a) the
number of shares of Common Stock set forth below (the “Investor Shares”)
and (b) a Warrant to purchase the number of shares of Common Stock set
forth below (the “Investor Warrant” and, collectively with the Investor
Shares, the “Investor Securities”). 
The Investor Securities shall be purchased pursuant to the Terms and
Conditions for Purchase of Securities attached hereto as Annex A and
incorporated herein by this reference as if fully set forth herein.

 

5.                                      The transaction for the purchase of the
Investor Shares will to settle via DVP (as defined below) UNLESS you have a cash account with Security
Research Associates, Inc. (“SRA”) with sufficient cash to fund the
Purchase Price and you elect to settle through such account by initialing on
the following line:

 

             (Initial Here For  Settlement through account with SRA).

 

“DVP” means delivery versus payment  through DTC (i.e., the Company shall deliver
Investor Shares registered in the Investor’s name and address as set forth
below and released by American Stock Transfer Corporation, the Company’s
transfer agent (the “Transfer Agent”), to the Investor at the Closing
directly to the account(s) at Security 

 

 

Research Associates, Inc. through DTC and
simultaneously therewith payment shall be made from such account(s) by
Security Research Associates, Inc. to the Company).

 

If you do not have an
existing account at Security Research Associates for settlement by DVP, we will
need the following information to be faxed to us along with your signature page to
this agreement.  Please fax your clearing information to Security Research
Associates at (866) 592-8132 (or as a back up 415-925-0264) to establish an
account with our clearing broker Wedbush Morgan Securities. Below is what we
will need to open your account.  A “New Account form” is attached in Exhibit B
for your convenience:

 

·                                          The exact registration name of the
account

 

·                                          Tax ID or Social Security number of
registered holder

 

·                                          Investor’s Clearing firm Prime Broker and
contact information (contact name, phone number, email address)

 

·                                          Internal Account number at Prime Broker

 

·                                          Institutional and Agent ID

 

6.                                      The Investor represents that, except as
set forth below, (a) it has had no position, office or other material
relationship within the past three years with the Company or any of its
affiliates and (b) it has no direct or indirect affiliation or association
with any NASD member.  Exceptions:

 

                                                                                                                                                            

(If no exceptions, write “none.” If left blank, response will be deemed
to be “none.”)

 

7.                                      The Investor acknowledges that, prior to
or in connection with the execution and delivery of this Agreement, it has
reviewed the final U.S. Base Prospectus, dated April 27, 2007, which is a
part of the Company’s Registration Statement, and the Prospectus
Supplement.  THIS AGREEMENT SHALL NOT CONSTITUTE A BINDING COMMITMENT ON THE PART OF
THE COMPANY UNTIL (A) THE COMPANY HAS TIMELY RECEIVED AN EXECUTED COPY OF
THE COMPLETED SUBSCRIPTION AGREEMENT FROM THE INVESTOR AND (B) THE COMPANY
HAS DELIVERED TO THE INVESTOR AN EXECUTED COUNTERPART SIGNATURE PAGE
HERETO.  THE INVESTOR ACKNOWLEDGES THAT,
AT ANY TIME PRIOR TO THE DELIVERY OF ITS EXECUTED COUNTERPART SIGNATURE PAGE,
THE COMPANY MAY ELECT TO NOT ENTER INTO THIS SUBSCRIPTION AGREEMENT FOR
ANY REASON.

 

 

SIGNATURE PAGE

 

	
  Number of Investor Shares:

  	
  Shares issuable upon exercise of Warrant

  

 

Price Per Investor
Share:    $1.10

 

Aggregate Purchase
Price:  $

 

Please confirm that the
foregoing correctly sets forth the agreement between us by signing in the space
provided below for that purpose.

 

	
   

  	
  Dated as
  of: February 29, 2008

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Print
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Phone
  #:

  	
   

  
	
   

  	
  Email:

  	
   

  
	
   

  	
   

  	
   

  
							

Agreed and Accepted

February 29, 2008:

 

WAVE SYSTEMS CORP.

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

 

EXHIBIT
A

 

WAVE SYSTEMS CORP.

 

INVESTOR QUESTIONNAIRE

 

Pursuant to Section 3
of Annex I to this Agreement, please provide us with the following
information:

 

	
  1.

  	
  The exact name that your Investor Shares and
  Warrant are to be registered in. You may use a nominee name if appropriate:

  	
   

  
	
  2.

  	
  The relationship between the Investor and the
  registered holder listed in response to item 1 above:

  	
   

  
	
  3.

  	
  The mailing address of the registered holder
  listed in response to item 1 above:

  	
   

  
	
  4.

  	
  The Social Security Number or Tax Identification
  Number of the registered holder listed in response to item 1 above:

  	
   

  

 

 

EXHIBIT
B

 

Institutional DVP/RVP New Account Form.

 

If settling via DVP, and the Investor does
not have an existing account with Security Research Associates, Inc.,
please fill out the below New Account Form and fax back to
SRA with your signature page to the Subscription Agreement.

 

Please Fax to SRA at:  (866) 592-8132 (or as a back up 415-925-0264)

Send “Attention Devon Wygaerts”

Devon can be reached at 415-925-0346.

 

	
  ACCOUNT #

  	
   

  	
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  TAX ID#

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

DVP INSTRUCTIONS:

 

	
  DTC #

  	
   

  	
  INSTITUTION #

  	
   

  	
  AGENT BANK #

  	
   

  	
  INTERNAL A/C #

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  SHORT NAME:

  	
   

  
	
   

  
	
  ORIGINAL
  CONFIRMATION:

  	
   

  
	
   

  	
   

  
	
   

  
			

 

DUPLICATE INSTRUCTIONS:

 

	
  INSTITUTION
  OR I/P #

  	
   

  
	
   

  
	
   

  

 

	
  TRIPLICATE
  INSTRUCTIONS:

  	
   

  
	
   

  
	
  SENT BY: 

  	
                                                                  

  	
   DATE:

  	
   

  
					

 

CONTACT INFORMATION:

 

	
  Name (Printed):

  	
   

  	
   

  
	
   

  	
   

  
	
  Telephone #:

  	
   

  	
  Email Address:

  
					

 

 

ANNEX
I

 

TERMS AND CONDITIONS FOR PURCHASE OF SECURITIES

 

All capitalized terms not
otherwise defined in this Annex I shall have the meanings ascribed thereto in
the Subscription Agreement to which this Annex I is attached.

 

1.                                      Authorization and Sale
of the Investor Securities.  Subject to the terms and conditions of
this Agreement, the Company has authorized the sale of the Investor Securities.

 

2.                                      Agreement to Sell and Purchase
the Investor Securities; Placement Agents.

 

2.1.                            At the Closing (as defined in Section 3.1),
the Company will sell to the Investor, and the Investor will purchase from the
Company, upon the terms and conditions set forth herein, the number of Investor
Shares and corresponding Warrant set forth on the last page of the
Subscription Agreement to which these Terms and Conditions for Purchase of
Investor Securities are attached as Annex I (the “Signature Page”) for
the aggregate purchase price therefor set forth on the Signature Page.

 

2.2.                            The Company proposes to enter into
substantially this same form of Subscription Agreement with certain other
investors (the “Other Investors”) and expects to complete sales of some or all
of the remaining Securities to them as part of the Offering (subject to Section 3.2(b) below).  The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors”.  The Company may complete sales of the
remaining Securities in this Offering to certain of the Other Investors without
requiring such Other Investors to enter into a Subscription Agreement; such
sales shall nevertheless be on the same price terms as the price terms for all
of the other sales in the Offering.

 

2.3.                            The Investor acknowledges that the
Company intends to pay Security Research Associates, Inc. (the “Placement
Agent”) a fee (the “Placement Fee”) in respect of the sale of the Securities to
the Investor pursuant to a Placement Agency Agreement (the “Placement Agreement”)
with the Placement Agent.  A copy of the
Placement Agreement is available to the Investor upon request.

 

3.                                      Closings and Delivery of the
Securities and Funds.

 

3.1.                            Closing. 
The completion of the purchase and sale of the Securities (the “Closing”)
will occur on or before March 5, 2008 (the “Closing Date”).  At the Closing and in accordance with
paragraph 5 of the Subscription Agreement: (a) the Company will cause the
Transfer Agent to deliver to the Investor the number of Investor Shares set
forth on the Signature Page registered in the name of the Investor or, if
so indicated on the Investor Questionnaire attached to the Subscription
Agreement as Exhibit A, in the name of a nominee designated by the
Investor; (b) the Company will deliver (by overnight courier) a Warrant to
purchase the number of shares of Common Stock set forth on the Signature Page registered
in the name of the Investor or, if so indicated on the Investor Questionnaire
attached to the Subscription Agreement as Exhibit A, in the name of a
nominee designated by the Investor and (c) the aggregate purchase 

 

 

price for the Investor
Securities being purchased by the Investor will be paid by or on behalf of the
Investor to the Company in the manner set forth in Section 3.3 below.

 

3.2.                            (a)                                  Conditions to the Company’s Obligations.  The Company’s
obligation to issue the Investor Securities to the Investor will be subject to
the receipt by the Company of the aggregate purchase price for the Investor
Securities being purchased hereunder as set forth on the Signature Page, (b) the
accuracy of the representations and warranties made by the Investor in this
Agreement, (c) the fulfillment of those undertakings of the Investor to be
fulfilled prior to the Closing Date, (d) the Registration Statement
remaining in effect and no stop order proceedings with respect thereto being
pending or threatened, and (e) there being no objections raised by the
staff of the NASDAQ Stock Market to the consummation of the sale without the
approval of the Company’s stockholders.

 

(b)                                 Conditions to the Investor’s
Obligations.  The
Investor’s obligation to purchase the Investor Securities will be subject to
the fulfillment of those undertakings of the Company with respect to the
Investor Securities and/or the Investor to be fulfilled prior to the Closing
Date.  The Investor’s obligations are
expressly not conditioned on the purchase by any or all of the Other Investors
of the remaining Securities that they have agreed to purchase from the Company.

 

3.3.                            Delivery of Funds;
Delivery of Investor Shares.

 

Subject to all of the
provisions set forth in Section 5 of the Subscription Agreement:  Unless the Investor elects to settle the
Investor Shares purchased by such Investor by means of the cash account option
set forth in Section 5 of the Subscription Agreement, no later than three (3) business days
after the execution of this Agreement by the Investor and the Company, (i) the
Investor shall confirm that the account or accounts at SRA to be credited with
the Investor Shares being purchased by the Investor have a minimum balance
equal to the aggregate purchase price for the Investor Securities being
purchased by the Investor, (ii) authorize and instruct SRA to execute a
trade for the Investor Shares, (an electronic confirmation will be generated to
the clearing firm which will then affirm the trade) and  (iii) the Company shall deliver the
Investor Shares to the Investor directly to the account(s) at SRA
identified by Investor and 
simultaneously therewith payment shall be made from such account(s) by
SRA to the Company.

 

If the Investor elects to
settle the Investor Securities purchased by such Investor by means of the cash
account option set forth in Section 5 of the Subscription Agreement, no later than three (3) business
days after the execution of this Agreement by the Investor and the Company,
the Company shall deliver the Investor Securities to the Investor directly to
the account(s) at SRA identified by Investor and simultaneously therewith payment shall be made from such account(s) by
SRA to the Company.

 

4.                                      Representations,
Warranties and Covenants.

 

4.1.                            Representations,
Warranties and Covenants of the Investor.

 

(a)                                  The Investor represents and warrants to,
and covenants with, the Company that: (a) the Investor is knowledgeable,
sophisticated and experienced in making, and is qualified to make decisions
with respect to, investments in shares presenting an investment decision like 

 

 

that involved in the
purchase of the Investor Securities, including investments in securities issued
by the Company and investments in comparable companies, and has requested,
received, reviewed and considered all information it deemed relevant in making
an informed decision to purchase the Investor Securities; (b) the Investor
has answered all questions on the Signature Page for use in the Prospectus
Supplement and the answers thereto are true and correct as of the date hereof
and will be true and correct as of the Closing Date; and (c) the Investor,
in connection with its decision to purchase the number of Investor Securities
set forth on the Signature Page, is relying only upon the U.S. Base Prospectus,
the Prospectus Supplement and the documents incorporated by reference therein.

 

(b)                                 The Investor acknowledges, represents and
agrees that no action has been or will be taken in any jurisdiction outside the
United States by the Company or the Placement Agent that would permit an
offering of the Investor Securities, or possession or distribution of offering
materials in connection with the issue of the Investor Securities, in any
jurisdiction outside the United States where action for that purpose is
required.  The Investor, if outside the
United States, will comply with all applicable laws and regulations in each
foreign jurisdiction in which it purchases, offers, sells or delivers Investor
Securities or has in its possession or distributes any offering material, in
all cases at its own expense.  The
Placement Agent is not authorized to make and have not made any representation
or use of any information in connection with the issue, placement, purchase and
sale of the Investor Securities, except as set forth or incorporated by
reference in the U.S. Base Prospectus or the Prospectus Supplement.

 

(c)                                  The Investor further represents and
warrants to, and covenants with, the Company that: (a) the Investor has
full right, power, authority and capacity to enter into this Agreement and to
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement;
and (b) this Agreement constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

 

(d)                                 The Investor understands that nothing in
this Agreement or any other materials presented to the Investor in connection
with the purchase and sale of the Investor Securities constitutes legal, tax or
investment advice.  The Investor has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of Investor
Securities.

 

(e)                                  The Investor represents, warrants and
agrees that, since the earlier to occur of (i) the date on which the
Placement Agent first contacted the Investor about the Offering and (ii) the
date that is the tenth (10th) trading day prior to the date of this
Agreement, it has not directly or indirectly (a) engaged in any
short selling, (b) established or increased any “put equivalent
position” as defined in Rule 16(a)-1(h) under the Securities
Exchange Act of 1934 or (c) granted any option for the purchase of or
entered into any hedging or similar transaction with the same economic effect
as a short sale, in each case with respect to the Company’s securities.

 

 

5.                                      Survival of
Representations, Warranties and Agreements. 
Notwithstanding any investigation made by any party to this Agreement,
all covenants, agreements, representations and warranties made by the Company
and the Investor herein will survive the execution of this Agreement, the
delivery to the Investor of the Investor Securities being purchased and the
payment therefor.

 

6.                                      Notices. 
All
notices, requests, consents and other communications hereunder will be in
writing, will be mailed (a) if within the domestic United States by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, or by facsimile or (b) if delivered from
outside the United States, by International Federal Express or facsimile, and
will be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if
delivered by nationally recognized overnight carrier, one business day after so
mailed, (iii) if delivered by International Federal Express, two business
days after so mailed, and (iv) if delivered by facsimile, upon electronic
confirmation of receipt and will be delivered and addressed as follows:

 

(a)                                  if to the Company, to:

 

Wave Systems Corp.

480 Pleasant Street

Lee, MA 01238

Fax: (413) 243-0391

ATTN:  Gerard Feeney, CFO

 

with copies to:

 

Bingham McCutchen LLP

399 Park Avenue

New York, NY 10022

Fax: (212) 752-5378

ATTN:  Neil W. Townsend

 

(b)                                 if to the Investor, at its address on the
Signature Page hereto, or at such other address or addresses as may have been
furnished to the Company in writing.

 

7.                                      Changes. 
This Agreement shall not be modified or amended except pursuant to an
instrument in writing signed by the Company and the Investor.

 

8.                                      Headings. 
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and will not be deemed to be part of
this Agreement.

 

9.                                      Severability. 
In case any provision contained in this Agreement should be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein will not in any way
be affected or impaired thereby.

 

10.                               Governing Law;
Jurisdiction.  This Agreement will be governed by, and
construed in accordance with, the internal laws of the State of New York,
without giving effect to the principles of conflicts of law that would require
the application of the laws of any other 

 

 

jurisdiction.  Any legal action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby
shall only be instituted, heard and adjudicated (excluding appeals) only in a
state or federal court located in New York, and each party hereto knowingly,
voluntarily and intentionally waives any objection which such party may now or hereafter
have to the laying of the venue of any such action, suit or proceeding, and
irrevocably submits to the exclusive personal jurisdiction of any such court in
any such action, suit or proceeding. 
Service of process in connection with any such action, suit or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement.

 

11.                               Counterparts. 
This Agreement may be executed in two or more counterparts, each of
which will constitute an original, but all of which, when taken together, will
constitute but one instrument, and will become effective when one or more
counterparts have been signed by each party hereto and delivered to the other
parties.

 

12.                               Confirmation of Sale. 
The Investor acknowledges and agrees that such Investor’s receipt of the
Company’s counterpart to this Agreement shall constitute written confirmation
of the Company’s sale of Investor Securities to such Investor.

 

13.                               Entire Agreement. 
This
Agreement and the Warrant constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings between such parties with respect to such subject
matter.

 

14.                               No Assignment. 
This
Agreement shall not be assigned by any party hereto, without the express prior
written consent of the Company or the Investor.

 

 

ANNEX II

 

Form of Warrant

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