Document:

Exhibit 10.1

 

SUBSCRIPTION
AGREEMENT

 

September 11, 2008

 

Wave Systems Corp.

480 Pleasant Street

Lee, MA 01238

 

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

 

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

 

2.                                      The
Company has authorized the sale and issuance to certain investors of (a) up
to 172 shares of Series I Convertible Preferred Stock (the “Securities”),
par value $0.01 per share (the “Series I Preferred Stock”) for a
purchase price of $4,400 per share (the “Purchase Price”).  The terms of the Series I Preferred
Stock are set forth in the form of Certificate of Designations attached hereto
as Annex III (the “Certificate of Designations”)

 

3.                                      The
offering and sale of the Securities (the “Offering”) are being made
pursuant to the Company’s registration statement including a base prospectus
(the “U.S. Base Prospectus”) on Form S-3 (Registration No. 333-150340) filed with the United States Securities and
Exchange Commission (the “Commission”) (which, together with all
amendments or supplements thereto is referred to herein as the “Registration
Statement”) and a Prospectus Supplement containing certain supplemental
information regarding the Securities and terms of the Offering that will be
filed with the Commission (the “Prospectus Supplement”).

 

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

 

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

 

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

 

 

6.                                      The
Investor acknowledges that, prior to or in connection with the execution and
delivery of this Agreement, it has reviewed the final U.S. Base Prospectus,
dated June 23, 2008, which is a part of
the Company’s Registration Statement, and the Prospectus Supplement.  THIS
AGREEMENT SHALL NOT CONSTITUTE A BINDING COMMITMENT ON THE PART OF THE
COMPANY UNTIL (A) THE COMPANY HAS TIMELY RECEIVED AN EXECUTED COPY OF THE
COMPLETED SUBSCRIPTION AGREEMENT FROM THE INVESTOR AND (B) THE COMPANY HAS
DELIVERED TO THE INVESTOR AN EXECUTED COUNTERPART SIGNATURE PAGE
HERETO.  THE INVESTOR ACKNOWLEDGES THAT,
AT ANY TIME PRIOR TO THE DELIVERY OF ITS EXECUTED COUNTERPART SIGNATURE
PAGE, THE COMPANY MAY ELECT TO NOT ENTER INTO THIS SUBSCRIPTION AGREEMENT
FOR ANY REASON.

 

 

CONFIDENTIAL

 

SIGNATURE PAGE

 

	
  Number of Investor Securities:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Price Per Investor Share:

  	
   

  	
  $

  	
  4,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

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

 

	
   

  	
  Dated as of: September 11, 2008

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Phone #:

  	
   

  
	
   

  	
  Email:

  	
   

  
						

 

Agreed and Accepted

September 11, 2008:

 

	
  WAVE SYSTEMS
  CORP.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name: 

  	
  Gerard T.
  Feeney

  	
   

  
	
  Title:

  	
  CFO

  	
   

  
				

 

 

CONFIDENTIAL

 

EXHIBIT A

 

WAVE SYSTEMS
CORP.

 

INVESTOR
QUESTIONNAIRE

 

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

  
	
   

  	
   

  
	
  1.

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

  
	
   

  	
   

  
	
  2.

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

  
	
   

  	
   

  
	
  3.

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

  
	
   

  	
   

  
	
  4.

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

  
	
   

  	
   

  
	
  5.

  	
  The mailing address where you would like your certificated securities
  to be sent to if different from item 3 above:

  

 

 

CONFIDENTIAL

 

ANNEX I

 

TERMS AND CONDITIONS FOR PURCHASE OF
SECURITIES

 

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

 

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

 

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

 

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

 

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

 

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

 

3.                                      Closings
and Delivery of the Securities and Funds.

 

3.1.                            Closing.  The completion of the purchase and sale of
the Securities (the “Closing”) will occur on or before September 15, 2008
(the “Closing Date”).  At the Closing: (a) the
Company will deliver (by overnight courier) a certificate representing the
number of shares of Series I Preferred Stock set forth on the Signature Page registered
in the name of the Investor or, if so indicated on the Investor Questionnaire
attached to the Subscription Agreement as Exhibit A, in the name of a
nominee designated by the Investor and (b) the aggregate purchase price
for the Investor Securities being purchased by the Investor will be paid by or
on behalf of the Investor to the Company by wire transfer of immediately
available funds to the account set forth on Annex II hereto the aggregate
purchase price for the Securities being purchased by the Investor hereunder.

 

 

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

 

(b)                                 Conditions to the Investor’s Obligations.  The
Investor’s obligation to purchase the Investor Securities will be subject to (i) the
filing by the Company of the Certificate of Designations with the Secretary of
State of the State of Delaware, substantially in the form attached hereto as
Annex III and (ii) the fulfillment of those other undertakings of the
Company with respect to the Investor Securities and/or the Investor to be
fulfilled prior to the Closing Date.  The
Investor’s obligations are expressly not conditioned on the purchase by any or
all of the Other Investors of the remaining Securities that they have agreed to
purchase from the Company.

 

4.                                      Representations, Warranties and
Covenants.

 

4.1.                            Representations,
Warranties and Covenants of the Investor.

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

	
  (a)

  	
  if to the Company, to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Wave Systems Corp.

  	
   

  
	
   

  	
  480 Pleasant Street

  	
   

  
	
   

  	
  Lee, MA 01238

  	
   

  
	
   

  	
  Fax: (413) 243-0391

  	
   

  
	
   

  	
  ATTN:  Gerard
  Feeney, CFO

  	
   

  

 

 

	
   

  	
  with copies to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Bingham McCutchen LLP

  	
   

  
	
   

  	
  399 Park Avenue

  	
   

  
	
   

  	
  New York, NY 10022

  	
   

  
	
   

  	
  Fax: (212) 752-5378

  	
   

  
	
   

  	
  ATTN:  Neil W.
  Townsend

  	
   

  

 

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

 

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

 

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

 

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

 

10.                               Governing Law; Jurisdiction.  This Agreement will be governed by, and
construed in accordance with, the internal laws of the State of New York,
without giving effect to the principles of conflicts of law that would require
the application of the laws of any other jurisdiction.  Any legal action, suit or proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby
shall only be instituted, heard and adjudicated (excluding appeals) only in a
state or federal court located in New York, and each party hereto knowingly,
voluntarily and intentionally waives any objection which such party may now or
hereafter have to the laying of the venue of any such action, suit or
proceeding, and irrevocably submits to the exclusive personal jurisdiction of
any such court in any such action, suit or proceeding.  Service of process in connection with any
such action, suit or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under
this Agreement.

 

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

 

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

 

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

 

 

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

 

 

ANNEX II

 

Company
Wire Instructions

 

In accordance with section 3.1(b) of the
terms and conditions attached hereto as Annex I, remit by wire transfer the
amount of funds equal to the aggregate purchase price for the shares being
purchased by the investor to the following account:

 

Wire info for:  Wave Systems Corp

 

480 Pleasant Street

 

Lee, MA 01238

 

Account: 
Wave Systems Corp

 

HSBC Bank

 

452 Fifth Avenue

 

New York, NY 10018

 

Bank ABA/Routing #  021001088

 

US Govt MM Fund:  610185055

 

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

 

International Transactions:  Use Swift #  
MRMDUS33

 

 

ANNEX III

 

Form of
Certificate of Designation

 

CERTIFICATE
OF DESIGNATIONS

 

of

 

SERIES I
CONVERTIBLE PREFERRED STOCK

 

of

 

WAVE
SYSTEMS CORP.

 

Wave Systems Corp., a
corporation organized and existing under the laws of the State of Delaware (the
“Corporation”), does hereby certify that, pursuant to the authority
conferred on the Board of Directors of the Corporation by the Restated
Certificate of Incorporation (the “Certificate of Incorporation”) of the
Corporation, on September     , 2008 the Board of
Directors of the Corporation duly adopted the following resolution establishing
a series of 2,000 shares of Preferred Stock of the Corporation designated as “Series I
Convertible Preferred Stock” (referred to herein as the “Series I
Preferred Stock”):

 

RESOLVED, that the Board has
determined that it is in the best interests of the Corporation to provide for
the designation and issuance of Series I Preferred Stock, par value $0.01
per share, to consist of up to 2,000 shares, and hereby fixes the powers,
designations, preferences and relative other special rights of the shares of
such Series I Preferred Stock as follows:

 

SERIES I PREFERRED
STOCK

 

9.             Designation.  This resolution shall provide for a series of
preferred stock, the designation of which shall be “Series I Preferred
Stock”, par value $0.01 per share. 
The number of authorized shares constituting the Series I Preferred
Stock is 2,000.  The Series I
Preferred Stock will have the liquidation preferences set forth in Section 4
below.

 

10.           Rank. 
With respect to the payment of dividends and other distributions on the
capital stock of the Corporation, including distribution of the assets of the
Corporation upon a Liquidation Event (as defined below), the Series I
Preferred Stock shall be senior to the Class A Common Stock of the
Corporation, $0.01 par value per share (“Class A Common Stock”),
and the Class B Common Stock of the Corporation, $0.01 par value per share
(collectively with the Class A Common Stock, the “Common Stock”),
and, except for any series of preferred stock that is designated by the Board
of Directors after the date hereof as senior to the Series I Preferred
Stock (“Senior Stock”) or as pari passu with the Series I Preferred
Stock (the “Pari Passu Stock”), senior to all other series of preferred
stock (collectively, the Common Stock and all such other series of preferred
stock that are not Senior Stock or Pari Passu Stock, the “Junior Stock”).

 

 

11.           Dividends.

 

(a)           Holders of shares of
outstanding Series I Preferred Stock shall be entitled to receive, out of
funds of the Corporation legally available therefor, dividends at the annual
rate of 8.0% per share on the Original Purchase Price (the “Dividend Rate”).  Dividends shall be declared by the
Corporation and paid in arrears on each Dividend Payment Date (as defined
below) commencing on March 15, 2009 for the Dividend Period ending
immediately prior to such Dividend Payment Date.  Such dividends shall be payable to the record
holders of Series I Preferred Stock on the record date on which such
dividends are declared (notwithstanding any transfer or other disposition after
such record date and prior to the Dividend Payment Date).  If a Dividend Payment Date is not a business
day, payment will be made on the next succeeding business day, without any
interest or other payment in lieu of interest accruing with respect to this
delay.  Subject to Section 3(e) below,
all such dividends shall accrue from the most recent date as to which dividends
shall have been paid or, if no dividends have been paid, from the original date
of issuance of the Series I Preferred Stock (the “Issue Date”),
whether or not in any Dividend Period(s) there shall have been funds of
the Corporation legally available for the payment of such dividends.  Notwithstanding the foregoing, such dividends
shall be paid only to the extent assets are legally available therefor on the
Dividend Payment Date and any amounts for which assets are not legally
available shall be paid promptly as assets become legally available therefore.  Any partial payment of dividends otherwise
required to be paid on a Dividend Payment Date will be made pro rata among the
applicable record holders of shares of Series I Preferred Stock based on
their respective holdings of such shares.

 

(i)            The term “Dividend Payment Date”
shall mean September 15th and March 15th of
each year, beginning with March 15, 2009.

 

(ii)           The term “Dividend Period” shall mean
the period from and including a Dividend Payment Date through the day
immediately preceding the next Dividend Payment Date, except that the initial
Dividend Period will commence on and include the Issue Date and will end on the
day immediately preceding the first Dividend Payment Date

 

(b)           Method of Payment of
Dividends.  Prior to the fifth
anniversary of the date hereof, the Company may elect to pay any declared
dividend on the Series I Preferred Stock (in accordance with the
applicable Stockholder Instructions) in any one of the following manners:

 

(i)            in cash;

 

(ii)           by delivery of shares of Class A Common
Stock; or

 

(iii)          through any combination of cash and shares of
Class A Common Stock.

 

Class A Common Stock issued in payment
or partial payment of a declared dividend shall be issued at a price per share
equal to the then current Series I Conversion Price (as defined below).
After the fifth (5th) anniversary of the date hereof the Company may dividends
only in cash.

 

The term “Stockholder Instructions”
means (A) with respect to the payment of cash dividends to a holder of Series I
Preferred Stock, the address of the stockholder on the books and records of 

 

2

 

the Corporation to which a check representing
such dividends may be mailed and (B) with respect to the payments of
dividends in Class A Common Stock or the issuance of Class A Common
Stock upon any conversion of shares of Series I Preferred Stock pursuant
to Section 6 below, the account of the holder with the Depository Trust
Company on record with the Corporation (to which such shares of Class A
Common Stock may be transferred via the Deposit Withdrawal Agent Commission
System) as set forth in (x) in the Subscription Agreement pursuant to
which the shares were purchased from the Corporation or (y) the Conversion
Notice.  The Stockholder Instructions may
include any other manner of payment or delivery agreed to by the Corporation
and the stockholder.

 

(c)           So long as any shares
of Series I Preferred Stock are outstanding, the Corporation shall not
declare, pay or set apart for payment any dividend or make any distribution on
any Junior Stock (other than dividends or distributions payable in additional
shares of Junior Stock), unless at the time of such dividend or distribution
the Corporation shall have paid all accrued and unpaid dividends on the
outstanding shares of Series I Preferred Stock.  For purposes hereof, unless the context
otherwise requires, “distribution” shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in shares of Class A Common Stock or other equity securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Class A Common Stock held by employees or consultants
of the Corporation upon termination of their employment or services pursuant to
agreements providing for such repurchase or upon the cashless exercise of
options held by employees or consultants) for cash or property.

 

(d)           In the event that the
Board of Directors shall declare and set apart for payment, out of funds
legally available therefore, any cash dividend on the shares of Class A
Common Stock, in addition to the dividends and preferences provided for in
Sections 3(a) and (c) above, the holders of the series I Preferred
Stock shall be entitled to receive, on a pro rata basis with the holders of Class A
Common Stock, the cash dividend such holders would have otherwise been entitled
to if they had elected to convert all of their shares of Series I
Preferred Stock pursuant to Section 6 immediately prior to the declaration
of such dividend.

 

(e)           Notwithstanding the
foregoing provisions, upon any conversion of a share of Series I Preferred
Stock pursuant to Section 6 below, all dividends that have accrued since
the last Dividend Payment Date shall be waived and cancelled.

 

(f)            All numbers relating
to calculation of dividends shall be subject to equitable adjustment in the
event of any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving the Preferred
Stock or the Common Stock.

 

12.           Liquidation, Dissolution or Winding Up.

 

(a)           In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation (a “Liquidation Event”), the holders of shares of  Series I Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, but before any payment shall be
made to the holders of Junior Stock, by reason of their ownership thereof, an
amount per share equal to the sum (the 

 

3

 

“Series I Liquidation Preference”) of (i) $4,400
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares)
(the “Original Issue Price”), plus (ii) all accrued and
unpaid dividends.  If upon any such
liquidation, dissolution or winding up of the Corporation the assets of the
Corporation available for distribution to its stockholders shall be
insufficient to pay the full Series I Liquidation Preference, the holders
of shares of  Series I Preferred
Stock and any Pari Passu Stock shall share ratably in the assets and funds of
the Corporation available for distribution to its stockholders in proportion to
the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.

 

(b)           After payment in full
of the Series I Liquidation Preference to holders of all shares of Series I
Preferred Stock, the Series I Preferred Stock shall not be entitled to
receive any additional cash, property or other assets of the Corporation upon
the liquidation, dissolution or winding up of the Corporation.

 

(c)           Any merger or
consolidation of the Corporation into or with another corporation (except one
in which the holders of capital stock of the Corporation immediately prior to
such merger or consolidation continue to hold a majority of the voting power of
the capital stock of the surviving or acquiring corporation (on a fully diluted
basis) immediately after such merger or consolidation), or sale of all or
substantially all the assets of the Corporation (each of the foregoing, a “Sale
Event”), shall be deemed to be a Liquidation Event of the Corporation for
purposes of this Section 4, and the agreement or plan of merger or
consolidation with respect to such merger, consolidation or sale shall provide
that the consideration payable to the stockholders of the Corporation (in the
case of a merger or consolidation), or consideration payable to the
Corporation, together with all other available assets of the Corporation (in
the case of an asset sale), shall be distributed to the holders of capital stock
of the Corporation in accordance with Section 4(a).  The amount deemed distributed to the holders
of Series I Preferred Stock upon any such merger, consolidation or sale
shall be determined by the Board of Directors of the Corporation based on the
net cash or the net value of the property, rights or securities distributed to
such holders by the Corporation or the acquiring person, firm or other
entity.  The provisions of this Section 4(c) shall
not apply to any Sale Event (i) involving (a) only a change in the
state of  incorporation of the
Corporation or (b) a merger of the Corporation with or into a wholly-owned
subsidiary of the Corporation that is incorporated in the United States or (ii) that
the holders of at least a majority of the outstanding shares of Series I
Preferred Stock elect not to treat as a Sale Event for purposes of this Section 4.

 

13.           Voting.  The holders of the Series I Preferred
Stock shall not be entitled to any voting rights except as may be required by
law and except that the Corporation may not amend or repeal the preferences,
special rights or other powers of the Series I Preferred Stock set forth
herein so as to affect adversely the Series I Preferred Stock without the
written consent or affirmative vote of the holders of a majority of the then
outstanding shares of Series I Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class.  Any such amendment or repeal that
is that is so approved by the holders of a majority of the then outstanding
shares of Series I Preferred Stock shall be effective and binding upon all
of the holders of shares of Series I Preferred Stock.  The Class A Common 

 

4

 

Stock into which the Series I Preferred Stock is convertible
shall, upon issuance, have all of the same voting rights as other issued and
outstanding Class A Common Stock of the Corporation.

 

14.           Conversion Rights.

 

(a)           Right to Convert.

 

(i)            Each share of Series I Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Class A
Common Stock as is determined by dividing (x) the Original Issue Price by
(y) the Series I Conversion Price (as defined below) in effect at the
time of conversion (a “Voluntary Conversion”).  The Series I Conversion Price shall
initially be $0.44.  The Series I
Conversion Price, and the rate at which shares of Series I Preferred Stock
may be converted into shares of Class A Common Stock, shall be subject to
adjustment as provided below.

 

(ii)           To complete a Voluntary Conversion of shares
of Series I Preferred Stock the holder thereof shall deliver to the
Corporation at its principal office (A) a completed and executed notice of
conversion substantially in the form attached hereto as Exhibit A (the “Conversion
Notice”) and (B) the certificate representing the shares of Series I
Preferred Stock to be so converted.  The
Corporation shall, within three (3) trading days following the date of
receipt by the Corporation of the executed Conversion Notice and such share
certificate, direct its transfer agent to issue and deliver, in accordance with
the Stockholder Instructions, the number of shares of Class A Common Stock
to which the holder shall be entitled. 
In the event that any such conversion is for a portion of the shares of Series I
Preferred Stock represented by the share certificate surrendered for
conversion, the Corporation shall issue and deliver to the holder (to the
address of such holder on the books and records of the Corporation) promptly
after such conversion a new share certificate representing the remainder of the
shares of Series I Preferred Stock.

 

(iii)          All shares of Series I Preferred Stock
which shall have been converted as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the date the Conversion Notice is received by the Corporation,
except only the right of the holders thereof to receive shares of Class A
Common Stock in exchange therefor.  Any
shares of Series I Preferred Stock so converted shall be retired and
cancelled and shall not be reissued, and the Corporation (without the need for
stockholder action) may from time to time take such appropriate action as may
be necessary to reduce the authorized number of shares of Series I
Preferred Stock accordingly.

 

(b)           Mandatory Conversion.

 

(i)            Each share of Series I Preferred Stock
outstanding on the Mandatory Conversion Date shall, automatically and without
any action on the part of the holder thereof, convert into a number of fully
paid and nonassessable shares of Class A Common Stock as is determined by
dividing (x) the Original Issue Price by (y) the Series I
Conversion Price in effect on the Mandatory Conversion Date.

 

5

 

(ii)           As used herein, “Mandatory Conversion
Date” shall be the first date on which the average of the Closing Bid
Prices (as defined below) of the Class A Common Stock for the fifteen (15)
trading day period then ended equals or exceeds $1.10 per share (the “Bid
Price Target”).

 

(ii)           The term “Closing Bid Price” shall
mean, for any date, the last closing bid price determined by the first of the
following clauses that applies: (a) if the Class A Common Stock is
then listed or quoted on a Trading Market, the last closing bid price of the Class A
Common Stock for such date on the Trading Market on which the Class A
Common Stock is then listed or quoted for trading as reported by Bloomberg
Financial L.P.; (b) if the Class A Common Stock is not then quoted for
trading on a Trading Market and if prices for the Common Stock are then
reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
last closing bid price per share of the Class A Common Stock so reported
for such date; or (d) in all other cases, the fair market value of a share
of Class A Common Stock as determined in a reasonable manner and in good
faith by the Company.

 

As used herein, the term “Trading Market”,
shall mean:  the NASDAQ Global Market,
the American Stock Exchange, the New York Stock Exchange, the NASDAQ Capital
Market or the OTC Bulletin Board.

 

(iii)          On the Mandatory Conversion Date, the
outstanding shares of Series I Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the Corporation
shall not be obligated to issue the shares of Class A Common Stock
issuable upon conversion of any shares of Series I Preferred Stock unless
the certificates representing such shares are either delivered to the
Corporation or the holder certifies to the Corporation that such certificates
have been lost, stolen, or destroyed, and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith.  Upon the
occurrence of the automatic conversion of the Series I Preferred Stock
pursuant to this Section 6, each holder of the Series I Preferred
Stock shall surrender his, her or its certificates representing the shares of Series I
Preferred Stock to the Corporation and the Corporation shall deliver the shares
of Class A Common Stock issuable upon such conversion to such holder (in
accordance with the Stockholder Instructions) within three (3) business
days of the holder’s delivery of such certificates.

 

(iv)          All certificates evidencing shares of Series I
Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series I Preferred Stock represented thereby converted into Class A
Common Stock for all purposes, notwithstanding the failure of the holder or
holders thereof to surrender such certificates on or prior to such date.  Such converted Series I Preferred Stock
may not be reissued, and the Corporation may thereafter take such appropriate
action (without the need for stockholder action) as may be necessary to reduce
the authorized number of shares of Series I Preferred Stock accordingly.

 

6

 

(c)           Dividends Upon
Conversion.  Upon any conversion of
the Series I Preferred Stock pursuant to this Section 6, the
Corporation shall pay to the holder of the Series I Preferred Stock so
converted (in accordance with Section 3(b) above) any dividends in
respect of such shares that have accrued through the immediately preceding
Dividend Payment Date and that have not yet been paid (if any), and all
dividends that have accrued since the last Dividend Payment Date shall be
waived and cancelled in accordance with Section 3(e) above.

 

(d)           Adjustment for Stock
Splits and Combinations.  If the
Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the outstanding Class A Common Stock, the Series I
Conversion Price and the Bid Price Target then in effect immediately before
that subdivision shall be proportionately decreased.  If the Corporation shall at any time or from
time to time after the Original Issue Date combine the outstanding shares of Class A
Common Stock, the Series I Conversion Price and the Bid Price Target then
in effect immediately before the combination shall be proportionately
increased.  Any adjustment under this Section shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

 

(e)           Adjustment for
Reclassification, Exchange, or Substitution.  If the Class A Common Stock issuable
upon the conversion of the Series I Preferred Stock shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each such share of Series I
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property
receivable, upon such reorganization, reclassification, or other change, by
holders of the number of shares of Class A Common Stock into which such
shares of Series I Preferred Stock might have been converted immediately
prior to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.

 

(f)            Adjustment for
Merger or Reorganization, etc. 
Subject to the provisions of Section 4(c), in case of any
consolidation or merger of the Corporation with or into another corporation,
each share of Series I Preferred Stock that remains outstanding upon such
consolidation or merger shall thereafter be convertible (or shall be converted
into a security which shall be convertible) into the kind and amount of shares
of stock or other securities or property to which a holder of the number of
shares of Class Common Stock of the Corporation deliverable upon
conversion of one share of Series I Preferred Stock would have been
entitled upon such consolidation or merger; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be
made in the application of the provisions in this Section 6 set forth with
respect to the rights and interest thereafter of the holders of the Series I
Preferred Stock, to the end that the provisions set forth in this Section 6
(including provisions with respect to changes in and other adjustments of the Series I
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series I Preferred Stock.

 

(g)           No Impairment.  The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, 

 

7

 

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 to be observed or performed hereunder by the Corporation, but will at all
times in good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series I
Preferred Stock against impairment.

 

(h)           Certificate as to
Adjustments.  Upon the occurrence of
each adjustment or readjustment of the Series I Conversion Price pursuant
to this Section 6, the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series I Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.  The
Corporation shall, upon the written request at any time of any holder of Series I
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Series I Conversion Price then in effect, and (iii) the number of
shares of Class A Common Stock and the amount, if any, of other
securities, cash or property which then would be received upon the conversion
of Series I Preferred Stock.

 

(i)            Reservation of
Shares.  The Corporation shall at all
times when the Series I Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series I Preferred Stock, such number of
its duly authorized shares of Class A Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding Series I
Preferred Stock.  Before taking any
action which would cause an adjustment reducing the Series I Conversion
Price below the then par value of the shares of Class A Common Stock
issuable upon conversion of the Series I Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Class A Common Stock at such adjusted Series I
Conversion Price.

 

(j)            No Fractional
Shares.  No fractional shares of Class A
Common Stock shall be issued upon conversion of the Series I Preferred
Stock.  In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Series I
Conversion Price.

 

15.           Transfers.  Shares of Series I Preferred Stock may
not be assigned, sold, pledged, hypothecated or otherwise transferred (a “Transfer”),
other than by operation of law without the prior written consent of the
Corporation and any such attempted Transfer without the prior written consent
of the Corporation shall be null and void and of no force or effect.  Each share certificate representing shares of
Series I Preferred Stock shall bear the following legend:

 

THE SHARES OF SERIES I CONVERTIBLE PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE MAY NOT BE ASSIGNED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED,
OTHER THAN BY OPERATION OF LAW, WITHOUT THE PRIOR 

 

8

 

WRITTEN CONSENT OF THE CORPORATION AND ANY SUCH ATTEMPTED TRANSFER
WITHOUT THE PRIOR WRITTEN CONSENT OF THE CORPORATION SHALL BE NULL AND VOID AND
OF NO FORCE OR EFFECT, AS SET FORTH IN SECTION 7 OF THE SERIES I
CONVERTIBLE PREFERRED STOCK CERTIFIATE OF DEISGNATIONS FILED WITH THE SECRETARY
OF STATE OF THE STATE OF DELAWARE ON SEPTEMBER
      , 2008. 
A COPY OF THIS CERTIFICATE OF DESIGNATIONS MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.

 

16.           Miscellaneous.

 

(a)           Headings of
Subdivisions.  The headings of the
various Sections hereof are for convenience of reference only and shall not
affect the interpretation of any of the provisions hereof.

 

(b)           Waiver.  The holders of record of at least a majority
of the shares of Series I Preferred Stock may be written notice to the
Corporation waive or modify past, present or future compliance by the
Corporation with any of the conditions, covenants or obligations set forth
herein applicable to the Series I Preferred Stock.  Any waiver by the holders of Series I
Preferred Stock of a breach of any provision herein as contemplated by the
preceding sentence, shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by the holders of the Series I
Preferred Stock, as applicable, to exercise any right or privilege hereunder
shall be deemed a waiver of such holders’ rights to exercise the same at any
subsequent time or times hereunder.

 

(c)           Severability of
Provisions. If any right, preference or limitation of the Series I
Preferred Stock set forth herein (as this resolution may be amended from time
to time) is invalid, unlawful or incapable of being enforced by reason of any rule of
law or public policy, all other rights, preferences and limitations set forth
in this resolution (as so amended), which can be given effect without the
invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless,
remain in full force and effect, and no right, preference or limitation herein
set forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed.

 

9

 

IN WITNESS
WHEREOF, Wave Systems Corp. has caused this
certificate to be signed on its behalf by Gerard T. Feeney, its Chief Financial
Officer, this            day
of September, 2008.

 

	
   

  	
  WAVE SYSTEMS CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Gerard T. Feeney

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
					

 

 

EXHIBIT A

 

WAVE SYSTEMS CORP.

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations of the Series I
Convertible Preferred Stock (the “Certificate of Designations”) of Wave Systems
Corp., a Delaware corporation (the “Company”). In accordance with and pursuant
to the Certificate of Designations, the undersigned hereby elects to convert
the number of shares of Series I Convertible Preferred Stock, par value
$.01 per share (the “Preferred Stock”), of the Company, indicated below into
shares of Class A Common Stock, par value $.01 per share (the “Common
Stock”), of the Company, by tendering the stock certificate(s) representing
the share(s) of Preferred Stock specified below as of the date specified
below.

 

	
  Date:

  	
   

  
	
   

  	
   

  
	
  Number of shares of Preferred Stock to be converted:

  	
   

  
	
   

  	
   

  
	
  Stock certificate no(s). of the Preferred Stock to be converted:

  	
   

  

 

Please issue the Common Stock into which the Preferred Stock is being
converted in the following name and to the following account number at the
Depository Trust Company (to which the Common Stock will be transferred via the
Deposit Withdrawal Agent Commission System):

 

	
  Issue to:

  	
   

  
	
   

  	
   

  
	
  Account No.:

  	
   

  
	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
  Dated:Exhibit 10.2

 

September 11,
2008

 

Gerard
T. Feeney

Chief
Financial Officer

Wave
Systems Corp.

480
Pleasant Street

Lee,
MA 01238

 

Dear
Mr. Feeney:

 

We are pleased to confirm the arrangements
under which Security Research Associates, Inc. (“SRA”) is engaged by Wave
Systems Corp. (the “Company”) as non-exclusive placement agent on a “best-efforts”
basis in connection with one or more equity financing transactions to be
completed by the Company (a “Financing”). 
The term of this Agreement shall extend to September 15, 2008 (the “Term”).

 

During the term of our engagement, we will
provide you with assistance in connection with the Financing, which may include
performing valuation analyses and assisting you in negotiating the financial
aspects of the transaction.  During the
term of our engagement, we will also identify and contact potential investors
for the Company (the “SRA Investors”).

 

In the event the Financing is consummated,
the Company agrees to pay to SRA a transaction fee (the “Transaction Fee”)
consisting of (i) 6% (six percent) of the gross proceeds from the
Financing received by the Company at closing, and (ii) 18 month warrants
to acquire a number of shares of the Company’s Common Shares equal to 6% (six
percent) of the aggregate gross proceeds from the Financing received by the
Company divided by the effective price per share of the Company’s common shares
(on an as-if converted basis in the event of a convertible security) paid by
all of the investors in the Financing received by the Company at closing (the “SRA
Warrants”).  The warrants will not be
exercisable for a period of 180 days following the closing.  There will be no Transaction Fees or Warrants
issued to SRA on the exercise of Warrants by Investors.

 

The SRA Warrants issued to SRA pursuant to
this agreement will have a “cashless exercise” provision and will have an
exercise price of $0.50 per share and the underlying shares will be fully
registered and issued from the Company’s shelf.

 

The SRA Warrants received by SRA from the
Company pursuant to this agreement shall be subject to a lock-up restriction
which complies with NASD Conduct Rule 2710(g)(1). The SRA warrants shall
not be sold by SRA during the offering, or sold, transferred, assigned,
pledged, or hypothecated, or be the subject of any hedging, short sale,
derivative, put, or call transaction that would result in the effective
economic disposition of the securities by any person for a period of 180 days
immediately following the date of effectiveness or commencement of sales of the
public offering of the Company’s stock, except as provided in NASD Conduct Rule 2710(g) (2).

 

 

Subject to applicable laws, rules and
regulations, the Company agrees to provide all information and documents
reasonably required to permit the SRA Investors to make an informed investment
decision with respect to an investment in the Company. Such information and
documents shall be provided at the cost of the Company.

 

The Company also agrees to reimburse SRA
periodically, upon request, or upon termination of our services pursuant to
this letter (the “Agreement”), for our reasonable and reasonably documented
out-of-pocket expenses, incurred in connection with our financial advisory
services and the Financing, including the reasonable fees and expenses of legal
counsel, travel expenses and printing. All such out-of-pocket fees and expenses
shall not exceed a combined aggregate amount of $10,000.

 

Please note that any written or oral opinion
or advice provided by SRA in connection with our engagement is exclusively for
the information of the Board of Directors and senior management of the Company,
and may not be disclosed to any third party (other than the Company’s legal,
accounting or other advisors, who shall have been instructed with respect to
the confidentiality of such advice) or circulated or referred to publicly
without our prior written consent, except as to the extent required by law,
judicial or administrative process or regulatory demand.

 

The
Company or SRA shall be entitled to terminate this Agreement before the end of
the agreement Term on written notice to the other party at the address set
forth for such party on the signature page hereof.  In the event of the termination of this
Agreement, SRA shall be entitled to be paid its existing reasonable out-of-pocket
expenses subject to the terms described above. 
The confidentiality provisions of this Agreement shall be unaffected by
the termination of this agreement.  The
Company shall not be obligated to reimburse any expenses incurred by SRA or its
advisors with respect to activities undertaken after notification of
termination is given.  In the event this
Agreement is terminated and prior to the expiration of 6 (six) months from the
date of such termination, an agreement is entered into by the Company with
respect to any transaction contemplated by this agreement with any SRA
Investors, SRA will be entitled to the Transaction Fee set forth above,
including transactions involving the sale of the company, its divisions or its
material assets.  Upon the termination or
expiration of this Agreement, SRA and the Company shall agree to a list of SRA
Investors introduced to the Company by SRA pursuant hereto.

 

SRA is an independent contractor and
placement agent of the Company. SRA will not have any right or authority to
bind the Company or otherwise create any obligations of any kind on behalf of
the Company and will make no representation to any third party to the contrary.

 

During the term of this Agreement and
thereafter, each of the Company and SRA agrees to keep confidential and not
disclose to any third party any confidential information of the other party,
and to use such confidential information only in connection with the engagement
hereunder; provided, however, the foregoing will not prohibit disclosures (i) to
the parties’ employees, agents and other representatives to the extent
necessary to enable the Company or SRA to perform its responsibilities under
this Agreement, (ii) to the extent required by law, judicial or
administrative process or regulatory demand, or (iii) with respect to
matters which become public other than by the 

 

 

actions
of the disclosing party hereunder. This section will survive the termination of
this Agreement for a period of five years.

 

Each of the Company and SRA agrees that in
connection with any Financing intended to qualify for the exemption from the
registration requirements of the Securities Act of 1933, as amended (the “Act”),
provided by Section 4(2) of the Act, the Company and SRA shall limit
offers to sell, and solicitations of offers to buy, securities of the Company
in connection with the Financing to persons reasonably believed by it to be “qualified
institutional buyers” as such term is defined in Rule 144A under the Act
or “accredited investors” as such term is defined in Rule 501(a) of
Regulation D promulgated under the Act.

 

Each of the Company and SRA agrees that any
offers it makes in connection with the Financing will be made only to
prospective purchasers on an individual basis and that it will not engage in any
form of general solicitation or general advertising (within the meaning of Rule 502
under the Act) in connection with the Financing.  Each of the Company and SRA agrees to conduct
the Financing in a manner intended to comply with the registration or qualification
requirements, or available exemptions there from, under applicable state “blue
sky” laws and applicable securities laws of other jurisdictions.

 

The Company may decline to consummate the
Financing with any prospective purchaser in the Company’s sole discretion.

 

The
Company agrees to:

 

(a)           Indemnify and hold SRA harmless
against any and all losses, claims, damages or liabilities to which SRA may
become subject arising out of or in connection with any of the services
rendered by SRA pursuant to this Agreement, unless such losses, claims, damages
or liabilities resulting  from the gross
negligence or willful misconduct of SRA or a breach of this agreement by SRA;
and

 

(b)           Reimburse SRA periodically for
reasonable legal or other expenses incurred by SRA in connection with
investigating, preparing to defend or defending, or providing evidence in or
preparing to serve or serving as a witness with respect to, any lawsuits,
investigations, claims or other proceedings arising in any manner out of or in
connection with the rendering of services by SRA pursuant to this Agreement
(including, without limitation, in connection with the enforcement of this
Agreement and the indemnification obligations set forth herein); it being
understood however that the Company shall have no obligation to reimburse SRA
for any such expenses and SRA shall immediately repay any such reimbursements
by the Company in the event any losses, claims, damages or liabilities are
finally judicially determined to have resulted from the gross negligence or
willful misconduct of SRA or a breach of this agreement by SRA.

 

The Company agrees that the indemnification
and reimbursement commitments set forth in this document shall apply whether or
not SRA is a formal party to any lawsuits, arbitrations, claims or other
proceedings and that such commitments shall extend upon the terms set forth in
this paragraph to any controlling person, affiliate, director, officer,
employee or agent of SRA (each, with SRA, an “Indemnified Person”).  In the event an Indemnified Person is made a
formal party to a lawsuit, claim or other proceeding arising 

 

 

out
of or in connection with any of the services rendered by SRA pursuant to this
Agreement, and the Company takes over the defense of such action for an Indemnified
Person, the Company further agrees that it will not, without such Indemnified
Person’s prior written consent, which consent shall not be unreasonably
withheld, enter into any settlement of a lawsuit, claim or other proceeding
arising out of or in connection with the transaction unless such settlement
includes an express and unconditional release from the party bringing the
lawsuit, claim or other proceeding of all Indemnified Persons.  With respect to the immediately preceding
sentence, in the event an Indemnified Person reasonably withholds their consent
to a settlement, the Indemnified Person shall be responsible for all subsequent
costs and expenses arising out of the defense of the Indemnified Person.

 

The Company further agrees that the Indemnified
Persons are entitled to retain separate counsel of their selection in
connection with any of the matters in respect of which indemnification,
reimbursement or contribution may be sought under this Agreement, provided
that, in connection with any one action or proceeding, the Company shall not be
responsible for the fees and expenses of more than one separate law firm or
individual attorney in any one jurisdiction for all Indemnified Persons.

 

Any dispute arising out of this Agreement
shall be resolved in an arbitration conducted pursuant to the rules of the
National Association of Securities Dealers, Inc. in New York, NY.

 

Please confirm that the foregoing is in
accordance with your understanding by signing and returning to us the enclosed
copy of this Agreement, which shall become a binding agreement upon our
receipt. We are delighted to accept this engagement and look forward to working
with you on this assignment.

 

	
  Very
  truly yours,

  	
   

  
	
  Brian
  G. Swift, Chairman and CEO

  	
   

  
	
  Agreement
  Confirmed by:

  	
   

  
	
  Security
  Research Associates, Inc.

  	
  Wave
  Systems Corp.

  
	
  80
  E. Sir Francis Drake Boulevard, Suite 3F

  	
  480
  Pleasant Street

  
	
  Larkspur,
  CA 94939    Lee, MA 01238

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  David N. Olson

  	
  Mr. Gerard
  T. Feeney

  
	
  Managing Director

  	
  Chief
  Financial Officer

  
	
  Date:

  	
   

  	
   

  	
  Date:

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