Document:

Exhibit 4.2

 

COMMON STOCK PURCHASE WARRANT

 

To Purchase          Shares of Class A
Common Stock of

July     , 2008

 

WAVE SYSTEMS
CORP.

 

THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received, Security Research Associates, Inc. (the “Holder”), is
entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the 180th day
following the date hereof (the “Initial Exercise Date”) and on or prior
to the close of business on January     , 2010 (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Wave Systems
Corp., a Delaware corporation (the “Company”), up to
             shares
(the “Warrant Shares”) of Class A Common Stock, par value $0.01 per
share, of the Company (the “Common Stock”). The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

 

Section 1.               Definitions. As used herein,
the following terms shall have the following meanings:

 

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

 

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

 

Section 2.               Exercise.

 

(a)           Exercise of Warrant.  Exercise of the purchase rights represented
by this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company of a duly executed facsimile copy of the Notice of
Exercise Form annexed hereto (or such other office or agency of the
Company as it may designate by notice in writing to the registered Holder at
the address of such Holder appearing on the books of the Company); provided,
however, within 2 Trading Days of the date said Notice of Exercise is
delivered to the Company, if this Warrant is exercised in full, the Holder
shall have surrendered this Warrant to the Company and the Company shall have
received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier’s check drawn on a United States bank.
Notwithstanding anything herein to the contrary, the Holder shall not be
required to physically surrender this Warrant to the Company until the Holder
has purchased all of the Warrant Shares available hereunder and the Warrant has
been exercised in full. Partial exercises of this Warrant resulting in
purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of Warrant
Shares purchasable hereunder in an amount equal to the applicable number of
Warrant Shares purchased. The Holder and the Company shall maintain records
showing the number of Warrant Shares purchased and the date of such purchases.
The Company shall honor any valid Notice of Exercise Form pursuant to the
terms hereof. The Company shall deliver an objection to any invalid Notice of
Exercise Form within 3 Trading Days of its receipt thereof. The Holder and
any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.

 

 

(b)           Exercise Price.  The exercise price of the Common Stock under
this Warrant shall be $0.90 subject to adjustment hereunder (the “Exercise
Price”).

 

(c)           Cashless Exercise. This
Warrant may also be exercised by means of a “cashless exercise” in which the
Holder shall be entitled to receive a certificate for the number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

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

 

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

 

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

 

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

 

(d)           Mechanics of Exercise.

 

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

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Section 3.               Certain Adjustments.

 

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

 

 

of this Warrant shall be
proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

(b)           Fundamental Transactions.  If, at any time after the Initial Exercise
Date, there shall occur any capital reorganization or reclassification of the
Common Stock (other than a change in par value or a subdivision or combination
as provided for in Section 3 (a) above), or any consolidation or
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, or the payment of a liquidating
distribution, then, as part of any such reorganization, reclassification,
consolidation, merger, sale, or liquidating distribution, lawful provision
shall be made so that Holder shall have the right thereafter to receive upon
the exercise hereof (to the extent still exercisable) the kind and amount of
shares of stock or other securities or property to which Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger, sale, or liquidating distribution, as
the case may be, Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interests thereafter of Holder such that
the provisions set forth in this paragraph (b) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares
of stock or other securities or property thereafter deliverable upon the
exercise of this Warrant.

 

(c)           Calculations.  All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.

 

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

 

Section 4.               Transfer of Warrant.

 

(a)           Transferability.  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.

 

 

Section 5.               Miscellaneous.

 

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

 

(b)           No Rights as Shareholder Until
Exercise.  This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and
the payment of the aggregate Exercise Price (or by means of a cashless
exercise), the Warrant Shares so purchased shall be and be deemed to be issued
to such Holder as the record owner of such shares as of the close of business
on the later of the date of such surrender or payment.

 

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

 

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

 

(e)           Authorized Shares.  The Company covenants that during the period
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant.

 

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

 

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

 

 

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

 

1.             if to the Company, to:

 

Wave
Systems Corp.

480 Pleasant Street

Lee, MA 01238

Fax: (413) 243-0391

ATTN: Gerard Feeney, CFO

 

with
copies to:

 

Bingham
McCutchen LLP

399 Park Avenue

New York, NY 10022

Fax: (212) 752-5378

ATTN: Neil W. Townsend

 

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

 

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

 

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

 

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

 

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

 

(m)          Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall

 

 

be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

 

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

 

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

 

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

 

Dated: July     , 2008.

 

	
   

  	
  WAVE SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BY:

  	
   

  
	
   

  	
   

  	
  Gerard T. Feeney

  	
   

  
	
   

  	
   

  	
  CFO

  	
   

  

 

 

NOTICE OF EXERCISE

 

TO:         WAVE SYSTEMS CORP.

 

(1)          The undersigned
hereby elects to purchase             Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

 

(2)          Payment shall take
the form of (check applicable box):

 

o           in
lawful money of the United States; or

 

o           the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the cashless
exercise procedure set forth in subsection 2(c).

 

(3)          Please issue a
certificate or certificates representing said Warrant Shares in the name of the
undersigned or in such other name as is specified below:

 

The Warrant Shares shall be delivered to the following:

 

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute this

form and supply required information.

Do not use this form to exercise the warrant.)

 

FOR
VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to

 

 

whose
address is

 

 

Dated:

 

 

	
  Holders Signature:

  	
   

  	
   

  
	
  Holder’s Address:

  	
   

  	
   

  

 

 

	
  Signature Guaranteed:

  	
   

  	
   

  

 

NOTE: The signature to this Assignment Form must correspond with
the name as it appears on the face of the Warrant, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

June 30, 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 1,880,500 shares of Class A
Common Stock (the “Total Shares”), par value $0.01 per share (the “Common
Stock”) for a purchase price of $0.85 per share (the “Purchase Price”)
and (b) warrants, in substantially form attached hereto as Annex II (the “Warrants”
and, collectively with the Total Shares, the “Securities”), to purchase
up to 470,125 shares of Common Stock at an exercise price of $0.90 per share
(the “Exercise Price”).

 

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

 

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

 

 

5.             The transaction for the purchase of the
Investor Shares will to settle via DVP (as defined below) UNLESS (a) you elect to receive
your Investor Shares using the Deposit Withdrawal Agent Commission (“DWAC”)
system of the Depository Trust Company or (b) you have a cash account with
Security Research Associates, Inc. (“SRA”) with sufficient cash to
fund the Purchase Price and you elect to settle through such account by
initialing on the following line:

 

            
(Initial Here For  Settlement through
account with SRA).

            
(Initial Here For  Settlement through
DWAC)

 

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

 

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

 

·              The exact registration name of the account

 

·              Tax ID or Social Security number of registered holder

 

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

 

·              Internal Account number at Prime Broker

 

·              Institutional and Agent ID

 

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

 

 

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

 

7.             The Investor acknowledges that, prior to or in
connection with the execution and delivery of this Agreement, it has reviewed
the final U.S. Base Prospectus, dated April 27, 2007,
which is a part of the Company’s Registration Statement, and the Prospectus
Supplement.  THIS AGREEMENT SHALL NOT CONSTITUTE A BINDING COMMITMENT ON THE PART OF
THE COMPANY UNTIL (A) THE COMPANY HAS TIMELY RECEIVED AN EXECUTED COPY OF
THE COMPLETED SUBSCRIPTION AGREEMENT FROM THE INVESTOR AND (B) THE COMPANY

 

 

HAS
DELIVERED TO THE INVESTOR AN EXECUTED COUNTERPART SIGNATURE PAGE
HERETO.  THE INVESTOR ACKNOWLEDGES THAT,
AT ANY TIME PRIOR TO THE DELIVERY OF ITS EXECUTED COUNTERPART SIGNATURE
PAGE, THE COMPANY MAY ELECT TO NOT ENTER INTO THIS SUBSCRIPTION AGREEMENT
FOR ANY REASON.

 

 

SIGNATURE
PAGE

 

Number of Investor Shares:                 Shares
issuable upon exercise of Warrant

 

Price Per Investor Share:    $0.85         Warrant
Exercise Price $0.90

 

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: June 30, 2008

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
  Print Name:

  
	
   

  	
  Title:

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Phone #:

  
	
   

  	
  Email:

  

 

Agreed and Accepted

June 30, 2008:

 

	
  WAVE SYSTEMS CORP.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

 

EXHIBIT A

 

WAVE
SYSTEMS CORP.

 

INVESTOR
QUESTIONNAIRE

 

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

 

	
  1.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

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

  	
   

  

 

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

 

	
  1.

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

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  DTC Participant Number

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Name of Account at DTC Participant being
  credited with the Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Account Number at DTC Participant being
  credited with the Shares

  	
   

  

 

 

EXHIBIT B

 

Institutional
DVP/RVP New Account Form.

 

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

 

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

Send “Attention Devon Wygaerts”

Devon can be reached at 415-925-0346.

 

	
  ACCOUNT #

  	
   

  	
  REP #

  	
   

  	
  TAX ID#

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

DVP INSTRUCTIONS:

 

	
  DTC #

  	
   

  	
  INSTITUTION #

  	
   

  	
  AGENT BANK #

  	
   

  	
  INTERNAL A/C #

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  SHORT NAME:

  	
   

  
	
   

  
	
  ORIGINAL CONFIRMATION:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  DUPLICATE INSTRUCTIONS:

  	
   

  
	
   

  
	
  INSTITUTION OR I/P #

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TRIPLICATE INSTRUCTIONS:

  	
   

  	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SENT BY:

  	
   

  	
  DATE:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CONTACT INFORMATION:

  	
   

  	
   

  
	
   

  
	
  Name (Printed):

  	
   

  	
   

  
	
   

  
	
  Telephone #:

  	
   

  	
   

  	
  Email Address:

  	
   

  
															

 

 

ANNEX I

 

TERMS
AND CONDITIONS FOR PURCHASE OF SECURITIES

 

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

 

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

 

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

 

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

 

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

 

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

 

3.             Closings
and Delivery of the Securities and Funds.

 

3.1.         Closing.  The completion of the purchase and sale of
the Securities (the “Closing”) will occur on or before July 3, 2008 (the “Closing
Date”).  At the Closing and in accordance
with paragraph 5 of the Subscription Agreement: (a) the Company will cause
the Transfer Agent to deliver to the Investor the number of Investor Shares set
forth on the Signature Page registered in the name of the Investor or, if
so indicated on the Investor Questionnaire attached to the Subscription
Agreement as Exhibit A, in the name of a nominee designated by the
Investor; (b) the Company will deliver (by overnight courier) a Warrant to
purchase the number of shares of Common Stock set forth on the Signature Page registered
in the name of the Investor or, if so indicated on the Investor Questionnaire
attached to the Subscription Agreement as Exhibit A, in the name of a
nominee designated by the Investor and (c) the aggregate purchase price
for the Investor Securities being purchased by the Investor will be paid by or
on behalf of the Investor to the Company in the manner set forth in Section 3.3
below.

 

3.2.         (a)           Conditions to the Company’s
Obligations.  The
Company’s obligation to issue the Investor Securities to the Investor will be
subject to the receipt by the Company of the aggregate purchase price for the
Investor Securities being purchased hereunder as set forth on the Signature
Page, (b) the accuracy of the representations and warranties made by the
Investor in this Agreement, (c) the fulfillment of those undertakings of
the Investor to be fulfilled prior to the Closing Date, (d) the
Registration Statement remaining in effect and no stop order proceedings with
respect 

 

 

thereto being pending or
threatened, and (e) there being no objections raised by the staff of the
NASDAQ Stock Market to the consummation of the sale without the approval of the
Company’s stockholders.

 

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

 

3.3.         Delivery of Funds;
Delivery of Investor Shares.

 

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

 

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

 

(c)           If the Investor elects
to settle the Investor Securities purchased by such Investor by means of the
DWAC system of the Depository Trust Company, no later than three (3) business days after the execution of this
Agreement by the Investor and the Company, the Investor shall (i) pay
to the Company by wire transfer of immediately available funds to the account
set forth on Annex III hereto the aggregate purchase price for the Shares being
purchased by the Investor hereunder and (ii) direct the broker-dealer at
which the account or accounts to be credited with the Shares being purchased by
such Investor are maintained, which broker/dealer shall be a DTC participant,
to set up a Deposit/Withdrawal at Custodian (“DWAC”) instructing
American Stock Transfer Corporation, the Company’s transfer agent, to credit
such account or accounts with the Shares by means of an electronic book-entry
delivery.  Promptly following the
delivery to the Company of the purchase price for the Shares as described
herein, the Company shall direct its transfer agent to credit the Investor’s
account or accounts with the Shares pursuant to the information contained in
the DWAC.

 

4.             Representations, Warranties and Covenants.

 

4.1.         Representations,
Warranties and Covenants of the Investor.

 

(a)           The Investor represents
and warrants to, and covenants with, the Company that: (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.

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