Document:

Exhibit 4.2

 

FORM OF

 

COMMON STOCK PURCHASE WARRANT

 

To Purchase
         Shares of Class A Common
Stock of

April     , 2009

 

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 date hereof (the “Initial Exercise Date”) and on or
prior to the close of business on April     , 2012
(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 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 Capital Market, 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 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 $0.55 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.

 

(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 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
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.

 

(i)            Subject
to Section 4(a)(ii) and 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.

 

(ii)           This
Warrant is deemed compensation by the Financial Industry Regulatory Authority (“FINRA”);
and, therefore, is subject to a lock-up restriction pursuant to Rule 2710(g)(1) of
the FINRA Conduct Rules. This Warrant and the Common Stock issued in connection
with any exercise thereof cannot be sold by the Holder during the offering, or
sold, transferred, assigned, pledged, or hypothecated, or be the subject of any
hedging, short sale, derivative, put, or call transaction that would result in
the effective economic disposition of the securities by any person for a period
of 180 days immediately following the date of effectiveness or commencement of
sales of the public offering of the Company’s stock, except as provided in Rule 2710(g)(2) of
the FINRA Conduct Rules.

 

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

 

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
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.

 

(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.

 

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

 

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

 

Dated: April     ,
2009.

 

	
   

  	
  WAVE SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BY:

  	
   

  
	
   

  	
   

  	
  Gerard
  T. Feeney

  
	
   

  	
   

  	
  CFO

  

 

 

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

 

April 8, 2009

 

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
1,881,136 shares of Class A Common Stock (the “Total Shares”), par
value $0.01 per share (the “Common Stock”) for a purchase price of $0.55
per share (the “Purchase Price”) and (b) warrants, in substantially
the form attached hereto as Annex II (the “Warrants” and, collectively
with the Total Shares, the “Securities”), to purchase up to 940,568
shares of Common Stock at an exercise price of $0.55 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. 333-150340)
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 I and incorporated herein by this reference as if fully set forth
herein.

 

5.             The transaction
for the purchase of the Investor Shares will settle via DVP (as defined below) UNLESS (a) you elect to receive
your Investor Shares using the Deposit Withdrawal Agent Commission (“DWAC”)
system of the Depository Trust Company or (b) 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).

  
	
   

  	
   

  	
  (Initial
  Here For Settlement through DWAC)

  

 

“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 FINRA 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 June 23, 2008, 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 Investor
Warrant:
              
(50% warrant Coverage)

 

Price Per Investor Share:  $0.55                                Investor
Warrant Exercise Price:  $0.55

 

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: April 8, 2009

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Phone #:

  	
   

  
	
   

  	
  Email:

  	
   

  

 

Agreed and Accepted

April 8, 2009:

 

WAVE SYSTEMS CORP.

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
  Gerard T.
  Feeney

  
	
  Title:

  	
  CFO

  
				

 

 

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:

  	
   

  

 

If you have elected to settle via DWAC,
please include the following additional information:

 

	
  1.

  	
  Name of DTC
  Participant (broker-dealer at which the account or accounts to be credited
  with the Shares are maintained)

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  DTC
  Participant Number

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Name of
  Account at DTC Participant being credited with the Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Account
  Number at DTC Participant being credited with the Shares

  	
   

  

 

 

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 #

  	
   

  	
  REP #

  	
   

  	
  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 Agent.

 

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 Investor 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 Agents”) 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 April 14, 2009 (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) an
Investor 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 (i) the receipt by
the Company of the aggregate purchase price for the Investor Securities being
purchased hereunder as set forth on the Signature Page, (ii) the accuracy
of the representations and warranties made by the Investor in this Agreement, (iii) the
fulfillment of those undertakings of the Investor to be fulfilled prior to the
Closing Date, (iv) the Registration Statement remaining in effect and no
stop order proceedings with respect thereto being pending or threatened, and (v) 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.

 

(a)           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 or DWAC
option set forth in Section 5 of the Subscription Agreement, no later than April 14, 2009, (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.

 

(b)           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 April 14,
2009, 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.

 

(c)           If the Investor elects to settle the
Investor Securities purchased by such Investor by means of the DWAC system of
the Depository Trust Company, no later
than April 14, 2009, the Investor shall (i) pay to the Company
by wire transfer of immediately available funds to the account set forth on
Annex III hereto the aggregate purchase price for the Shares being purchased by
the Investor hereunder and (ii) direct the broker-dealer at which the
account or accounts to be credited with the Shares being purchased by such
Investor are maintained, which broker/dealer shall be a DTC participant, to set
up a Deposit/Withdrawal at Custodian (“DWAC”) instructing American Stock
Transfer Corporation, the Company’s transfer agent, to credit such account or
accounts with the Shares by means of an electronic book-entry delivery.  Promptly following the delivery to the
Company of the purchase price for the Shares as

 

 

described herein, the
Company shall direct its transfer agent to credit the Investor’s account or
accounts with the Shares pursuant to the information contained in the DWAC.

 

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: (i) 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; (ii) 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 (iii) 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 has 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 acknowledges that the
shares of Common Stock acquired upon the exercise of the Investor Warrant, if
not registered, will have restrictions on resale imposed by state and federal
securities laws.

 

(f)            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 (x) engaged in any short selling, (y) established
or increased any “put equivalent position” as defined in Rule 16(a)-1(h) under
the Securities Exchange Act of 1934 or (z) 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, and (a) if within the domestic United States, will be delivered
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, will be delivered by International
Federal Express or facsimile.  Any such
communication will be deemed delivered (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 in each case shall be delivered and addressed as follows:

 

(a)           if to the Company, to:

 

WaveSystemsCorp.

480PleasantStreet

Lee,MA01238

Fax:(413)243-0391

ATTN:  Gerard T. Feeney, CFO

 

with copies to:

 

BinghamMcCutchenLLP

399ParkAvenue

NewYork,NY10022

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 III

 

Company
Wire Instructions for Settlement via DWAC

 

NOTE: 
THESE INSTRUCTIONS ARE ONLY FOR INVESTORS SEEKING TO SETTLE THE INVESTOR
SECURITIES PURCHASED BY MEANS OF THE DWAC SYSTEM OF THE DEPOSITORY TRUST
COMPANY.

 

In accordance with section 3.3(c) of the
terms and conditions attached hereto as Annex I, remit by wire transfer the
amount of funds equal to the aggregate purchase price for the shares being
purchased by the investor to the following account:

 

Wire info for:  Wave Systems Corp

 

480 Pleasant Street

 

Lee, MA 01238

 

Account:  Wave Systems Corp

 

HSBC Bank

 

452 Fifth Avenue

 

New York, NY 10018

 

Bank ABA/Routing #  021001088

 

US Govt MM Fund:  610185055

 

Contact:  Will Aquino  / 
Phone:  212-525-8859  / Fax: 212-525-8924

 

International Transactions:  Use
Swift #   MRMDUS33

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