Document:

EXHIBIT 10.1

 

SECURITIES
PURCHASE AGREEMENT

 

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

 

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

 

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

 

ARTICLE I.

DEFINITIONS

 

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

 

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

 

“Closing” means
the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

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

 

“Commission” means
the Securities and Exchange Commission.

 

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

 

 

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

 

“Company Counsel” means
Bingham McCutchen LLP.

 

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

 

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

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

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

 

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

 

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

 

“Per Share Purchase Price”
equals $0.535, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

 

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

 

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

 

“Registration
Statement” means the registration statement of the Company, Commission File
No. 333-130409 covering the sale to the Purchasers of the Shares, the
Warrants and the Warrant Shares.

 

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

 

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

 

“Securities” means
the Shares, the Warrants and the Warrant Shares.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1                         Closing.  On the Closing Date, each Purchaser shall
purchase from the Company, severally and not jointly with the other Purchasers,
and the Company shall issue and sell to each Purchaser a number of Shares equal
to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price
and Warrants.  The aggregate Subscription
Amounts for Shares sold hereunder shall be up to $4,466,500.  Upon satisfaction of the conditions set forth
in Section 2.2, the Closing shall occur at the offices of Company Counsel
or such other location as the parties shall mutually agree.

Deliveries.

 

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

 

(i)   this Agreement duly executed by the Company;

 

(ii)   a prospectus supplement to the Registration
Statement;

 

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

 

(iv) 
a Warrant registered in the name of such Purchaser to purchase up to a number
of shares of Common Stock equal to 347,222 for each $1,000,000 of Subscription
Amount of such Purchaser’s (pro-rata for lesser amounts) with an exercise price
equal to $0.72, subject to adjustment therein;

 

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

 

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

 

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

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

 

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

 

2.3                                 Closing Conditions.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

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

 

(a)  Organization
and Qualification.  Each of the
Company and the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. 
Neither the Company nor any Subsidiary is in violation or default of any
of the provisions of its respective certificate or articles of incorporation, bylaws
or other organizational or charter documents. 
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any of the Transaction documents, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company and the Subsidiaries, taken as
a whole, or (iii) a material adverse effect on the Company’s ability to
perform in any material respect on a timely basis its obligations under any of
the Transaction Documents (any of (i), (ii) or (iii), a “Material
Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.

 

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

 

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

 

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

 

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

 

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

 

(f) Capitalization.  The Company has issued and outstanding shares
of 93,341,754 Common Stock. The capitalization of the Company is as described
in the Company’s most recent periodic report filed with the Commission and the
Company has not issued any capital stock since such filing other than (i) as
reported on Form 8-K filings made with the Commission and (ii) pursuant
to the exercise of employee stock options under the Company’s stock option
plans, the issuance of shares of Common Stock to employees pursuant to the
Company’s employee stock purchase plan and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by this Agreement.  The issue and sale of the Shares will not

 

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obligate the Company to issue shares of
Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under such securities. No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the Shares.

 

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

 

(h) Disclosure.  The Company confirms that, neither the
Company nor any officer, director or employee of the Company acting on its
behalf has provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, non-public
information.   The Company understands
and confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company.  All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby
furnished by or on behalf of the Company, including the prospectus supplement
delivered at the Closing, with respect to the representations and warranties
made herein are true and correct with respect to such representations and
warranties and do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)  Organization;
Authority.  Such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its

 

9

 

obligations hereunder and thereunder. The
execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser.  This Agreement has been duly executed by such
Purchaser, and when delivered by such Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

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

 

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

 

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

 

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

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

	
  4.1

  1.3

  	
   

  	
  No Legends. If the
  Shares or Warrant Shares are issued in certificated form, such certificates
  shall not contain any legend restricting their transferability by the
  Purchaser. The Company shall cause its counsel to issue a legal opinion to
  the Company’s transfer agent if required by the Company’s transfer agent to
  effect a transfer of any of the Shares or Warrant Shares. The Company shall
  not give any instructions to its transfer agent which would impair the free
  transferability of the Shares or Warrant Shares by any Purchaser.

  

 

4.2                                 Furnishing
of Information.  As long as any
Purchaser owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.  As long as any
Purchaser owns Securities, if the

 

10

 

Company is not required to file reports pursuant to the Exchange Act,
it will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the
Purchasers to sell the Securities under Rule 144. The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144.

 

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

 

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

 

4.5  Non-Public
Information.  The Company covenants
and agrees that neither it nor any other Person acting on its behalf will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information. 
The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in
securities of the Company.

 

4.6 Reimbursement.  If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser’s acquisition of the Shares under the Transaction
Documents, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred.  The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any Affiliates of the Purchasers who are actually named
in such action, proceeding or investigation, and

 

11

 

partners, directors, agents, employees and controlling persons (if
any), as the case may be, of the Purchasers and any such Affiliate, and shall
be binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Company, the Purchasers and any such Affiliate
and any such Person.  The Company also
agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under the Transaction
Documents.

 

4.7  Indemnification
of Purchasers.  Subject to the
provisions of this Section 4.7, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents, members, partners or employees (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims (each, a “Purchaser Party”) harmless from any
and all losses, liabilities, obligations, claims, contingencies, damages, costs
and expenses, including all judgments, amounts paid in settlements, court costs
and reasonable attorneys’ fees and costs of investigation that any such
Purchaser Party may suffer or incur as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made
by the Company in the Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).  If any action shall be
brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to the Transaction Documents, such Purchaser Party shall promptly
notify the Company in writing, and the Company shall have the right to assume
the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof
has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable
opinion of such separate counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser
Party.  The Company will not be liable to
any Purchaser Party under the Transaction Documents (i) for any settlement
by a Purchaser Party effected without the Company’s prior written consent,
which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement.

 

12

 

4.8  Reservation
of Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Securities pursuant to the Transaction
Documents including the Warrant Shares pursuant to any exercise of the
Warrants.

 

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

 

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

 

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

 

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

 

ARTICLE V.

MISCELLANEOUS

 

5.1  Termination.  This Agreement may be terminated by any
Purchaser, as applied to such Purchaser, by written notice to the other
parties, if the Closing has not been consummated on or before February 17,
2006 provided however that no such termination will affect the right of any
party to sue for any breach by the other party (or parties).

 

5.2  Fees
and Expenses.   The Company shall pay
legal, due diligence and other fees and expenses of Alpha Capital AG in the
amount of $35,000 out of the proceeds of the

 

13

 

Closing.  Except as otherwise set
forth in this Agreement, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.  The Company shall pay all stamp and other
taxes and duties levied in connection with the sale of the Securities.

 

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

 

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

 

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

 

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

 

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

 

5.8  No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of,

 

14

 

nor may any provision hereof be enforced by, any other Person, except
as otherwise set forth in Section 4.7.

 

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

 

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

 

5.11  Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.

 

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

 

5.13  Rescission
and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents,

 

15

 

whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

 

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

 

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

 

5.16  Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under this
Agreement are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the performance
of the obligations of any other Purchaser under this Agreement.  Nothing contained herein, and no action taken
by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Purchasers are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
this Agreement.  Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.  Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. 
For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW.  FW does not represent all of the Purchasers
but only Corpfin, Inc. who has acted as placement agent to the
transaction.  The Company has elected to
provide all Purchasers with the same Agreement for the convenience of the
Company and not because it was required or requested to do so by the
Purchasers.

 

5.17  Construction.
The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise this Agreement and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments hereto.

 

(Signature Page Follows)

 

16

 

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

 

 

	
  Wave Systems Corp.

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Gerard T. Feeney

  	
   

  	
   

  
	
  By:

  	
  Wave Systems Corp 

  
	
  Name: Gerard T. Feeney

  	
  480 Pleasant Street

  
	
  Title: Chief Financial Officer

  	
  Lee, MA 01238

  
	
   

  	
   

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

  	
   

  
	
   

  	
   

  
	
  Neil W. Townsend

  	
   

  
	
  Bingham McCutchen LLP

  	
   

  
	
  399 Park Avenue

  	
   

  
	
  New York, NY 10022

  	
   

  
	
  Fax: (212) 752-5378

  	
   

  
			

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

 

SIGNATURE PAGES FOR PURCHASERS
FOLLOW]

 

17

 

[PURCHASER SIGNATURE PAGES TO
WAVX SECURITIES PURCHASE AGREEMENT]

 

 

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

 

 

	
  Name of Investing Entity:

  	
  Alpha Capital A.G.

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Kounod Ackerman

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Kounod Ackerman

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  Director

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $1,500,000

  	
   

  
	
   

  
	
  Shares:

  	
  2,803,738

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  520,833

  	
   

  
																				

 

18

 

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

 

 

	
  Name of Investing Entity:

  	
  Platinum Partners Long Term Growth II

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Mark Nordlicht

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Mark Nordlicht

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  President

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $1,400,000

  	
   

  
	
   

  
	
  Shares:

  	
  2,616,822

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  486,111

  	
   

  
																				

 

19

 

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

 

 

	
  Name of Investing Entity:

  	
  Ellis International

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Wilhelm Ungar

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Wilhelm Ungar

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  Director

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $535,000

  	
   

  
	
   

  
	
  Shares:

  	
  1,000,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  185,763

  	
   

  
																				

 

20

 

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

 

 

	
  Name of Investing Entity:

  	
  Whalehaven Capital Fund Limited

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Evan Schemenaur

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Evan Schemenaur

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  C.O.O.

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $500,000

  	
   

  
	
   

  
	
  Shares:

  	
  934,579

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  173,611

  	
   

  
																					

 

21

 

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

 

 

	
  Name of Investing Entity:

  	
  Momona Capital

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Arie Rabinowitz

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Arie Rabinowitz

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  President

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $50,000

  	
   

  
	
   

  
	
  Shares:

  	
  93,458

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  17,361

  	
   

  
																					

 

22

 

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

 

 

	
  Name of Investing Entity:

  	
  Mike and Lisa McCarthy

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Mike McCarthy

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Mike McCarthy

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $267,500

  	
   

  
	
   

  
	
  Shares:

  	
  500,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  92,881

  	
   

  
																					

 

23

 

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

 

 

	
  Name of Investing Entity:

  	
  Walton I Rutherfoord

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/Walton I Rutherfoord

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Walton I. Rutherfoord

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  N/A

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $53,500

  	
   

  
	
   

  
	
  Shares:

  	
  100,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  18,576

  	
   

  
																				

 

24

 

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

 

 

	
  Name of Investing Entity:

  	
  Isabel B. Rutherfoord

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ Isabel B. Rutherfoord

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Isabel B. Rutherfoord

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  N/A

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $53,500

  	
   

  
	
   

  
	
  Shares:

  	
  100,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  18,576

  	
   

  
																				

 

25

 

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

 

 

	
  Name of Investing Entity:

  	
  Gennette R. Huber

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  Gennette R. Huber

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  Gennette R. Huber

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  N/A

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $53,500

  	
   

  
	
   

  
	
  Shares:

  	
  100,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  18,576

  	
   

  
																				

 

26

 

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

 

 

	
  Name of Investing Entity:

  	
  George Edward Kaskus

  	
   

  
	
   

  
	
  Signature of Authorized Signatory of
  Investing Entity:

  	
  /s/ George Edward Kaskus

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
  George Edward Kaskus

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
   

  	
   

  
	
   

  
	
  Email Address of Authorized Entity:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Address for Notice of Investing Entity:

  
	
   

  
	
   

  
	
  Fax No.:

  	
   

  	
   

  
	
   

  
	
   

  
	
  DWAC Instructions for Common Stock:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Subscription Amount:

  	
  $53,500

  	
   

  
	
   

  
	
  Shares:

  	
  100,000

  	
   

  
	
   

  
	
  Warrant Shares:

  	
  18,576

  	
   

  
																			

 

27

 

SCHEDULE 3.1(f) to
the

 

SECURITIES
PURCHASE AGREEMENT DATED FEBRUARY 15, 2006

 

FOR

 

WAVE
SYSTEMS CORP.

 

OPTIONS AND WARRANTS OUTSTANDING:

 

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

  	
   

  	
  14,131,485

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Warrants
  Outstanding(1)

  	
   

  	
  2,426,809

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  16,558,294

  	
   

  

 

 

EXHIBIT A

February 16,
2006

 

To the Purchasers identified on Schedule 1.

 

Re:                               Securities Purchase
Agreement.

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

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

 

(i)                                     the
Purchase Agreement;

 

(ii)                                  the
Warrants;

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BINGHAM
  McCUTCHEN LLP

  

 

4

 

Schedule 1

 

Purchasers

 

	
  Alpha
  Capital AG

  
	
  Whalehaven
  Capital Fund Limited

  
	
  Ellis
  International

  
	
  Platinum
  Long Term Growth II, LLC

  
	
  Momona
  Capital

  
	
  Walton I.
  Rutherfoord

  
	
  Michael &
  Lisa Mcarthy

  
	
  Isabel B.
  Rutherford

  
	
  Gennette R.
  Huber

  
	
  George E.
  Kaskus

  

 

 

EXHIBIT B

 

COMMON
STOCK PURCHASE WARRANT

 

To Purchase             
Shares of Common Stock of

 

WAVE SYSTEMS CORP.

 

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

 

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

 

Section 2.                                            Exercise.

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

d)                                     Exercise
Limitations.

 

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

 

7

 

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

 

8

 

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

 

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

 

e)                                      Mechanics
of Exercise.

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

11

 

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

 

“Closing Price” means on any particular Trading
Day (a) the last reported closing price per share of Common Stock on such
date on the Trading Market (as reported by Bloomberg L.P. at 4:00 PM (New York
time) or at such other time as regular trading hours end), or (b)  if the
Common Stock is not then listed or quoted on the Trading Market and if prices
for the Common Stock are then reported in the “pink sheets” published by the
National Quotation Bureau Incorporated (or a similar organization or

 

12

 

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

 

Section 3.                                            Certain Adjustments.

 

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

 

b)                                     [INTENTIONALLY
DELETED]

 

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

 

13

 

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

 

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

 

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

 

14

 

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

 

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

 

g)                                     Notice
to Holders.

 

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

 

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

 

15

 

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

 

Section 4.                                            Transfer of Warrant.

 

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

 

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

 

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

 

Section 5.                                            Miscellaneous.

 

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

 

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

 

16

 

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

 

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

 

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

 

e)                                      Authorized
Shares.

 

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

 

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

 

17

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

19

 

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

 

 

	
  Dated:  February        ,
  2006

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WAVE SYSTEMS CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

20

 

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:

 

	
   

  	
   

  	
   

  

 

	
   

  	
   

  	
   

  

 

	
   

  	
   

  	
   

  

 

21

 

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:

  	
   

  	
   

  
					

 

22

 

 

	
   

  	
   

  	
   

  
	
   

  
	
   

  
	
  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.

 

23Exhibit 10.11.2

 

Execution Version

 

AMENDMENT NO. 2 TO CREDIT AGREEMENT AND WAIVER

 

This Amendment No. 2 to Credit Agreement and Waiver (this “Agreement”) dated as
of February 14, 2006, is made by and among WALTER INDUSTRIES, INC., a Delaware
corporation (the “Borrower”),
BANK OF AMERICA, N.A., a national banking association
organized and existing under the laws of the United States (“Bank of America”), in
its capacity as administrative agent for the Lenders (as defined in the Credit
Agreement (as defined below)) (in such capacity, the “Administrative Agent”),
and each of the Lenders signatory hereto, and each of the Guarantors (as
defined in the Credit Agreement) signatory hereto.

 

W I T N E S S E T H:

 

WHEREAS, the
Borrower, the Administrative Agent and the Lenders have entered into that
certain Credit Agreement dated as of October 3, 2005 (as amended by Amendment
No. 1 to Credit Agreement dated as of January 24, 2006, as hereby amended and
as from time to time hereafter further amended, modified, supplemented,
restated, or amended and restated, the “Credit Agreement”; the capitalized terms used
in this Agreement not otherwise defined herein shall have the respective
meanings given thereto in the Credit Agreement), pursuant to which the Lenders
have made available to the Borrower a term loan facility and a revolving credit
facility, including a letter of credit facility and a swing line facility; and

 

WHEREAS, each of the Guarantors has entered into a Guaranty pursuant to which
it has guaranteed certain or all of the obligations of the Borrower under the
Credit Agreement and the other Loan Documents; and

 

WHEREAS, the Borrower has informed the Administrative Agent and the Lenders
that it intends to effect an initial public offering of Equity Interests in New
Holdco (the “IPO”); and

 

WHEREAS, the Borrower has requested that the Administrative Agent and the
Lenders agree to amend certain terms of the Credit Agreement, which the
Administrative Agent and the Lenders party hereto are willing to do on the
terms and conditions contained in this Agreement; and

 

WHEREAS, the Borrower has requested that the Administrative Agent and the
Lenders agree waive a portion of a mandatory prepayment otherwise required by
the terms of the Credit Agreement, which the Administrative Agent and the
Lenders party hereto are willing to do on the terms and conditions contained in
this Agreement; and

 

NOW, THEREFORE, in consideration of the premises and
further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

 

1.             Amendments
to Credit Agreement.  Subject to the
terms and conditions set forth herein, the Credit Agreement is hereby amended
as follows:

 

 

(a)           A new Section 1.07 is hereby added to the Credit
Agreement after Section 1.06 thereof that reads as follows:

 

“1.07      Certain Calculations of Consolidated EBITDA.  In the event that any provision of this Agreement requires a
calculation of Consolidated EBITDA prior to the date
that the Borrower is required to deliver financial statements for the fiscal
year ending December 31, 2005 pursuant to Section 7.01(a), Consolidated EBITDA shall be calculated using the Borrower’s unaudited financial statements for the Four-Quarter Period
ending December 31, 2005 so long as (a) such financial statements have
been previously delivered to the Administrative Agent in the detail and with
the certification that would be required pursuant to Section 7.01(b),
and (b) prior to or simultaneously with the first time Consolidated EBITDA is calculated for any purpose in accordance with
this Section 1.07, the Borrower has also delivered to the Administrative
Agent a Compliance Certificate calculated as of December 31, 2005 utilizing
such unaudited financial statements.”

 

(b)           Section 8.02(r) is hereby
amended so that, as amended, it shall read as follows:

 

“(r)          Investments
by the Borrower in New Holdco on the Closing Date of
those amounts necessary to consummate the Merger and the other Transactions in
accordance with the sources and uses of funds provided to the Lenders prior to
the Closing Date.”

 

(c)           Section 8.06(e) is hereby
amended so that, as amended, it shall read as follows:

 

“(e)         the Borrower may make
a Restricted Payment to its shareholders of all or any portion of the Equity
Interests in New Holdco owned by the Borrower in a
Permitted Securities Transaction so long as prior to the making of any such
Restricted Payment the Borrower has made prepayments (whether optional
prepayments pursuant to Section 2.06(a) or mandatory prepayments pursuant
to Section 2.06(d), or any combination thereof) of the Term Loan in an
aggregate amount of not less than $50,000,000 (exclusive of any prepayments
pursuant to Section 2.06(d)(iv)).”

 

(d)           Section 8.11(a) is hereby
amended by deleting the parenthetical phrase in line 4 thereof and substituting
in lieu thereof the following:

 

“(including, the Borrower’s guaranty
obligations under the Subordinated New Holdco Note).”

 

2.             Partial Waiver of Mandatory Prepayment and Section
8.15(c).  Subject to the terms and
conditions set forth herein, the parties hereto:

 

(a)           agree that the
Borrower shall not be required to make any prepayment of the Outstanding Amount
of the Term Loan pursuant to Section 2.06(d)(vi) of the Credit Agreement
from any portion of the Net Cash Proceeds received by New Holdco
from the IPO so long as, prior to or simultaneously with the IPO, the Borrower
has made prepayments (whether optional prepayments pursuant to Section
2.06(a) or mandatory prepayments pursuant to Section 2.06(d), or any
combination thereof) of the Term Loan

 

 

in an aggregate amount of not less than
$50,000,000 (exclusive of any prepayments pursuant to Section 2.06(d)(iv));
and

 

(b)           agree that the
requirement in Section 8.15(c) regarding the Borrower’s ownership of the
Equity Interests of New Holdco shall be satisfied as
a result of the dilution of the Borrower’s percentage ownership of New Holdco resulting from the IPO (regardless of  whether or not at least 50% of the Net Cash
Proceeds from the IPO are received by the Borrower) so long as the prepayment
required by Section 2.06(d)(vi), as modified by clause (a) of this Paragraph
2, is made.

 

3.             Effectiveness;
Conditions Precedent.  The
effectiveness of this Agreement, the amendments to the Credit Agreement
provided in Paragraph 1 hereof and the waivers provided in Paragraph
2 hereof are all subject to the satisfaction of each the following
conditions precedent:

 

(a)           The Administrative
Agent shall have received each of the following documents or instruments in
form and substance reasonably acceptable to the Administrative Agent:

 

(i)            counterparts
of this Agreement, duly executed by the Borrower, the Administrative Agent,
each Guarantor and the Required Lenders, which counterparts may be delivered by
telefacsimile or other electronic means, but such
delivery will be promptly followed by the delivery of four (4) original
signature pages by each Person party hereto unless waived by the Administrative
Agent; and

 

(ii)           such
other assurances, certificates, documents, consents or opinions as the
Administrative Agent reasonably may require.

 

(b)           The
Administrative Agent shall have received for its own account and for the
account of each Lender party to this Agreement, an amendment fee for each
Lender party to this Agreement whose signature page has been received by the
Administrative Agent or its counsel not later than 5:00 p.m. Eastern Standard
Time on Tuesday, February 14, 2006 (collectively, the “Amendment Fees”)
in an amount equal to the product of (i) 0.100%, multiplied
by, (ii) the sum of (A) the amount of such Lender’s Revolving Credit
Commitment, plus (B) the Outstanding Amount of such Lender’s portion of
the Term Loan.  The Amendment Fees shall
be nonrefundable and shall be deemed to have been earned in full when this
Agreement has been executed and delivered to the Administrative Agent by the
Borrower and Lenders constituting the Required Lenders, whether or not this
Agreement becomes effective.

 

(c)           All
fees and expenses payable to the Administrative Agent and the Lenders
(including the reasonable fees and expenses of counsel to the Administrative
Agent) shall have been paid in full (without prejudice to final settling of
accounts for such fees and expenses).

 

4.             Consent of the Guarantors.  Each Guarantor hereby consents, acknowledges
and agrees to the amendments, the waiver and other matters set forth herein and
hereby confirms and

 

 

ratifies in all
respects the Guaranty to which such Guarantor is a party  (including without limitation the
continuation of such Guarantor’s payment and performance obligations thereunder upon and after the effectiveness of this
Agreement and the amendments, waivers and consents contemplated hereby) and the
enforceability of such Guaranty against such Guarantor in accordance with its
terms.

 

5.             Representations and Warranties.  In order to induce the Administrative Agent
and the Lenders to enter into this Agreement, the Borrower represents and
warrants to the Administrative Agent and the Lenders as follows:

 

(a)           The
representations and warranties made by the Borrower in Article VI of the Credit Agreement and in each of
the other Loan Documents to which it is a party are true and correct in all
material respects on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date;

 

(b)           The
Persons appearing as Guarantors on the signature pages to this Agreement
constitute all Persons who are required to be Guarantors pursuant to the terms
of the Credit Agreement and the other Loan Documents, including without
limitation all Persons who became Subsidiaries or were otherwise required to
become Guarantors after the Closing Date, and each of such Persons has become
and remains a party to a Guaranty as a Guarantor;

 

(c)           This
Agreement has been duly authorized, executed and delivered by the Borrower and
Guarantors party hereto and constitutes a legal, valid and binding obligation
of such parties; and

 

(d)           After
giving effect to this Agreement, no Default or Event of Default has occurred
and is continuing.

 

6.             Entire Agreement. 
This Agreement, together with all the Loan Documents (collectively, the “Relevant Documents”),
sets forth the entire understanding and agreement of the parties hereto in
relation to the subject matter hereof and supersedes any prior negotiations and
agreements among the parties relating to such subject matter.  No promise, condition, representation or
warranty, express or implied, not set forth in the Relevant Documents shall
bind any party hereto, and no such party has relied on any such promise,
condition, representation or warranty. 
Each of the parties hereto acknowledges that, except as otherwise
expressly stated in the Relevant Documents, no representations, warranties or
commitments, express or implied, have been made by any party to the other in
relation to the subject matter hereof or thereof.  None of the terms or conditions of this
Agreement may be changed, modified, waived or canceled orally or otherwise,
except in writing and in accordance with Section 11.01 of the Credit Agreement.

 

7.             Full Force and Effect of Agreement.  Except as hereby specifically amended,
modified or supplemented, the Credit Agreement and all other Loan Documents are
hereby confirmed and ratified in all respects and shall be and remain in full
force and effect according to their respective terms.

 

 

8.             Counterparts. 
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same
instrument.

 

9.             Governing Law. 
This Agreement shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed and to be performed entirely within such State, and shall be further
subject to the provisions of Sections 11.14 and 11.15 of the
Credit Agreement.

 

10.           Enforceability. 
Should any one or more of the provisions of this Agreement be determined
to be illegal or unenforceable as to one or more of the parties hereto, all
other provisions nevertheless shall remain effective and binding on the parties
hereto.

 

11.           References. 
All references in any of the Loan Documents to the “Credit Agreement”
shall mean the Credit Agreement, as amended hereby.

 

12.           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Administrative Agent and each of the
Guarantors and Lenders, and their respective successors, legal representatives,
and assignees to the extent such assignees are permitted assignees as provided
in Section 11.06 of the Credit Agreement.

 

[Signature pages omitted.]

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