EXHIBIT
10.1


 


NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.  THIS SECURITY AND THE
SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.


 


COMMON STOCK PURCHASE WARRANT


 


To Purchase
             Shares
of Common Stock of


 


Wave Systems Corp.


 


THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
CERTIFIES that, for value received,
              
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after November    , 2003 (the “Initial Exercise
Date”) and on or prior to the close of business on the third anniversary of
the Initial Exercise Date (the “Termination Date”) but not thereafter
(the “Exercise Period”), to subscribe for and purchase from Wave Systems Corp.,
a corporation incorporated in Delaware (the “Company”), up to
               
shares (the “Warrant Shares”) of Common Stock, par value $0.01 per
share, of the Company (the “Common Stock”).  The purchase price of one share of Common Stock (the “Exercise
Price”) under this Warrant shall be $2.62 (1), subject to adjustment
hereunder.  The Exercise Price and the
number of Warrant Shares for which the Warrant is exercisable shall be subject
to adjustment as provided herein. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated November   , 2003, between the Company and the purchasers
signatory thereto.


 












(1)           110% of the average of the five VWAPs for the five Trading
Days immediately prior to the Closing Date.


 


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1.               Title to Warrant. 
Prior to the Termination Date and subject to compliance with applicable
laws and Section 7 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.  The transferee shall sign an
investment letter in form and substance reasonably satisfactory to the Company.


 


2.               Authorization of Warrant Shares. 
The Company represents and warrants 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).


 


3.               Exercise of Warrant.


 


(a)               Except as provided in Section 4
herein, exercise of the purchase rights represented by this Warrant may be made
at any time or times on or after the Initial Exercise Date and on or before the
Termination Date by the surrender of this Warrant and the Notice of Exercise
Form annexed hereto duly executed, at the office of the Company (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) and upon payment of the Exercise Price of the shares thereby purchased
by wire transfer or cashier’s check drawn on a United States bank or by means
of a cashless exercise pursuant to Section 3(d), the Holder shall be entitled
to receive a certificate for the number of Warrant Shares so purchased.  Certificates for shares purchased hereunder
shall be delivered to the Holder within five (5) Trading Days after the date on
which this Warrant shall have been exercised as aforesaid. This Warrant shall
be deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares for
all purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 5 prior to the issuance of such shares, have
been paid.  If the Company fails to
deliver to the Holder a certificate or certificates representing the Warrant
Shares pursuant to this Section 3(a) by the fifth Trading Day after the
date of exercise, then the Holder will have the right to rescind such exercise.  In addition to any other rights available to
the Holder, if the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise by the
fifth Trading Day after the date of exercise and the Holder has not rescinded
such exercise pursuant to this Section 3(a), and if after such fifth
Trading Day the Holder is required by its broker to purchase (in an open market


 


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transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the Company shall
(1) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A)
the number of Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (B) the price at which
the sell order giving rise to such purchase obligation was executed, and (2) at
the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or
deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery
obligations hereunder.  For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of
$10,000, under clause (1) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the
Company written notice indicating the amounts payable to the Holder in respect
of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant
as required pursuant to the terms hereof.


 


(b)              If this Warrant shall have been
exercised in part, the Company shall, 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.


 


(c)               The Company shall not effect any
exercise of this Warrant, and the Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 3(a) or otherwise, to the
extent that after giving effect to such issuance after exercise, the Holder
(together with the Holder’s affiliates), as set forth on the applicable Notice
of Exercise, would beneficially own in excess of 4.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to such
issuance.  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) exercise of the remaining, nonexercised portion of
this Warrant beneficially owned by the Holder or any of its affiliates and (B)


 


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exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder or any of
its affiliates.  Except as set forth in
the preceding sentence, for purposes of this Section 3(c), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act.  To the extent that the
limitation contained in this Section 3(c) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by
the Holder) and of which a portion of this Warrant is exercisable shall be in
the sole discretion of such Holder, and the submission of a Notice of Exercise
shall be deemed to be such Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which
portion of this Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. 
For purposes of this Section 3(c), in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company’s Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral
request of the Holder, the Company shall within two Trading Days confirm orally
and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Warrant, by the Holder or its affiliates since the date as of which such number
of outstanding shares of Common Stock was reported.  The provisions of this Section 3(c) may be waived by the
Holder upon, at the election of the Holder, not less than 61 days’ prior notice
to the Company, and the provisions of this Section 3(c) shall continue to
apply until such 61st day (or such later date, as determined by the Holder, as
may be specified in such notice of waiver).


 


(d)              If at any time after one year from
the date of issuance of this Warrant there is no effective Registration
Statement registering the resale of the Warrant Shares by the Holder, then this
Warrant may also be exercised at such time by means of a “cashless exercise” in
which the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:


 


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


 


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


 


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(X) = the number of Warrant Shares issuable
upon exercise of this Warrant in accordance with the terms of this Warrant.


 


4.               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.


 


5.               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.


 


6.               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.


 


7.               Transfer, Division and Combination.


 


(a)               Subject to compliance with any
applicable securities laws and the conditions set forth in Sections 1 and 7(f)
hereof and to the provisions of Section 4.1 of the Purchase Agreement,
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)              Subject to 7(e) below, 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


 


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agent or attorney.  Subject to compliance with
Section 7(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.


 


(c)               Subject to 7(e) below, the Company
shall prepare, issue and deliver at its own expense (other than transfer taxes)
the new Warrant or Warrants under this Section 7.


 


(d)              The Company agrees to maintain, at
its aforesaid office, books for the registration and the registration of
transfer of the Warrants.


 


(e)               If, at the time of the surrender of
this Warrant in connection with any transfer of this Warrant, the transfer of
this Warrant shall not be registered pursuant to an effective registration
statement under the Securities Act and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
transfer (i) that the Holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without registration
under the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a
qualified institutional buyer as defined in Rule 144A(a) under the Securities
Act.


 


8.               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.


 


9.               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.


 


10.         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


 


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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.


 


11.         Adjustments of Exercise Price and Number of Warrant
Shares.  The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following.  In case the Company shall
(i) pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof.  Upon each such adjustment of
the kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the Holder shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment.  An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.


 


12.         Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.  In case the
Company shall reorganize its capital, reclassify its capital stock, consolidate
or merge with or into another corporation (where the Company is not the
surviving corporation or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, transfer or otherwise
dispose of all or substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation (“Other Property”), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, at the option of
the Holder, (a) upon exercise of this Warrant, the number of shares of Common
Stock of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of
such reorganization, reclassification, merger, consolidation or disposition of
assets by a Holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such event or (b) cash equal to the value
of this Warrant as determined in accordance with the Black-Scholes option
pricing formula.  In case of any such
reorganization, reclassification, merger,


 


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consolidation or disposition of assets, the successor or
acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board
of Directors of the Company) in order to provide for adjustments of Warrant
Shares for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this
Section 12.  For purposes of this
Section 12, “common stock of the successor or acquiring corporation” shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock.  The foregoing provisions of this Section 12 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.


 


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


 


14.         Notice of Adjustment. 
Whenever the number of Warrant Shares or number or kind of securities or
other property purchasable upon the exercise of this Warrant or the Exercise
Price is adjusted, as herein provided, the Company shall give notice thereof to
the Holder, which notice shall state the number of Warrant Shares (and other
securities or property) purchasable upon the exercise of this Warrant and the
Exercise Price of such Warrant Shares (and other securities or property) after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.


 


15.         Notice of Corporate Action. 
If at any time:


 


(a)               the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or


 


(b)              there shall be any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger of the Company
with, or any sale, transfer or other disposition of all or substantially all
the property, assets or business of the Company to, another corporation or,


 


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(c)               there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company;


 


then, in any one or more of such cases, the Company shall give to
Holder (i) at least 10 days’ prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
liquidation or winding up, and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 10 days’ prior written notice
of the date when the same shall take place. 
Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up.  Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 18(d).


 


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


 


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


 


9

















 


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


 


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


 


17.         Call.  At any time
and from time to time following the Effective Date, the Company shall have the
right, upon 15 Business Days’ prior written notice to the Holder (“Call
Notice”), to call all or any portion of this Warrant at a price equal to $.05
per Warrant at any time, provided that (i) the Warrant Shares are registered
for resale pursuant to the Securities Act and have been for at least the
20-Trading Day period preceding the Call Notice and remains effective through
the effective date of the Call, (ii) the VWAP of the Common Stock on a Trading
Market is equal to or greater than $[200% of the average of the five VWAPs for
the five Trading Days immediately prior to the Closing Date] (subject to
adjustment to reflect forward or reverse stock splits, stock dividends,
recapitalizations and the like)(the “Threshold Price”) for each of at least 5
consecutive Trading Days following the Effective Date, and (iii) the Call
Notice is delivered within 3 Business Days’ of the most recent day in the
previous clause (ii) that the Common Stock equaled or exceeded the Threshold
Price for at least five consecutive Trading Days.  At any time prior to the effective date of such call, the Holder
shall have the right to exercise this Warrant in accordance with its terms.


 


18.         Miscellaneous.


 


(a)               Jurisdiction. 
This Warrant shall constitute a contract under the laws of New York,
without regard to its conflict of law, principles or rules.


 


(b)              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.


 


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


 


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


 


(e)               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.


 


(f)                 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.


 


(g)              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.


 


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


 


(i)                  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.


 


(j)                  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.


 


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


 


11

















 


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


 


	
  Dated:  November 18, 2003

  	
   

  
	
   

  	
   

  
	
   

  	
  WAVE SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:  

  	
   /s/ Gerard T. Feeney

  	
   

  
	
   

  	
  Name:

  	
  Gerard T. Feeney

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
						



 


12

















 


NOTICE OF EXERCISE


 


	
  To:

  	
   

  	
  Wave Systems Corp.

  



 


(1)   The undersigned hereby
elects to purchase
             
Warrant Shares of Wave Systems Corp. 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 3(d), to exercise
  this Warrant with respect to the maximum number of Warrant Shares purchasable
  pursuant to the cashless exercise procedure set forth in
  subsection 3(d).

  



 


(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:


 


                                              


 


                                              


 


                                              


 


(4)   Accredited
Investor/Qualified Institutional Buyer.  The undersigned is either: (i) an “accredited investor” as defined
in Regulation D under the Securities Act of 1933, as amended.


 


	
   

  	
  [PURCHASER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  
						



 


13

















 


ASSIGNMENT FORM


 


(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)


 


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


 


                                                                                                           
whose address is


 


                                                                                                                                           .


 


 


 


	
   

  	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  
	
   

  
	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  
	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
								



 


 


	
  Signature Guaranteed:

  	
   

  	
   

  



 


 


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


 


14

















 


SCHEDULE TO COMMON STOCK PURCHASE WARRANTS


 


 




	
  HOLDER

  	
   

  	
  WARRANT
  SHARES

  
	
   

  	
   

  	
   

  
	
  Spectra Capital Management

  	
   

  	
  13,157

  
	
  Enable Growth Partners

  	
   

  	
  19,736

  
	
  Gamma Opportunity Capital Partners, LP

  	
   

  	
  26,315

  
	
  Elliot Associates, L.P.

  	
   

  	
  39,473

  
	
  Elliot International, L.P.

  	
   

  	
  59,210

  
	
  Bristol Investment, Ltd.

  	
   

  	
  32,894

  
	
  Mark M. Mathes & Teri Mathes

  	
   

  	
  50,000

  
	
  Deephaven Small Cap Growth Fund, LLC

  	
   

  	
  115,131

  
	
  Cranshire Capital, LP

  	
   

  	
  65,789

  
	
  Alexandra Global Master Fund Ltd.

  	
   

  	
  100,000

  
	
  Portside Growth & Opportunity Fund

  	
   

  	
  65,789

  
	
  Longview International Equity Fund, LP

  	
   

  	
  10,526

  
	
  Longview Equity Fund, LP

  	
   

  	
  15,789

  
	
  Crescent International, Ltd.

  	
   

  	
  55,000

  
	
  Langley Partners, L.P.

  	
   

  	
  112,500

  
	
  Omicron Master Trust

  	
   

  	
  50,000

  
	
  Mike McCarthy

  	
   

  	
  75,000

  
	
  Midsummer Investment Ltd.

  	
   

  	
  25,000

  






 


15