Exhibit 4.2


 


FORM OF

COMMON STOCK PURCHASE WARRANT


 


To
Purchase ________ Shares of Class A Common Stock of

March ___, 2009


 


WAVE SYSTEMS CORP.


 


THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, Security
Research Associates, Inc. (the “Holder”), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on  March ___, 2012 (the “Termination
Date”) but not thereafter, to subscribe for and purchase from Wave Systems
Corp., a Delaware corporation (the “Company”), up to [  ] shares (the “Warrant Shares”) of Class A
Common Stock, par value $0.01 per share, of the Company (the “Common Stock”).
The purchase price of one share of Common Stock under this Warrant shall be
equal to the Exercise Price, as defined in Section 2(b).


 


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


 


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


 


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


 


Section 2.                                            Exercise.


 


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


 

















 


Form pursuant to the
terms hereof. The Company shall deliver an objection to any invalid Notice of
Exercise Form within 3 Trading Days of its receipt thereof. The Holder and
any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.


 


(b)                                 Exercise Price.  The
exercise price of the Common Stock under this Warrant shall be $0.55 subject to
adjustment hereunder (the “Exercise Price”).


 


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


 


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


 


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


 


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


 


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


 


(d)                                 Mechanics of Exercise.


 


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


 


ii.                                       Delivery of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise


 

















 


Form,
surrender of this Warrant (if required) and payment of the aggregate Exercise
Price as set forth above (“Warrant Share Delivery Date”). This Warrant
shall be deemed to have been exercised on the date the Exercise Price is
received by the Company. The Warrant Shares shall be deemed to have been
issued, and Holder or any other person so designated to be named therein shall
be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder, if any, have
been paid.


 


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


 


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


 


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


 


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


 


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


 


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


 


Section 3.                                            Certain Adjustments.


 


(a)                                  Stock Dividends and Splits.  If
the Company, at any time while this Warrant is outstanding: (A) pays a
stock dividend or otherwise make a distribution or distributions on shares of
its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock


 

















 


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


 


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


 


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


 


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


 


Section 4.                                            Transfer of Warrant.


 


(a)                                  Transferability.


 


(i)                                     Subject to Section 4(a)(ii) and Section 5(a) below,
this Warrant and all rights hereunder are transferable, in whole or in part,
upon surrender of this Warrant at the principal office of the Company, together
with a written assignment of this Warrant substantially in the form attached
hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such transfer.
Upon such surrender and, if required, such payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be


 

















 


cancelled. A Warrant, if properly assigned, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant issued.


 


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


 


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


 


Section 5.                                            Miscellaneous.


 


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


 


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


 


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


 


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


 


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


 

















 


its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant.


 


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


 


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


 


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


 


1.                                       if to the Company, to:


 


Wave Systems Corp.


480 Pleasant Street


Lee, MA 01238


Fax: (413) 243-0391


ATTN: Gerard Feeney, CFO


 


with copies to:


 


Bingham McCutchen LLP


399 Park Avenue


New York, NY 10022


Fax: (212) 752-5378


ATTN: Neil W. Townsend


 


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


 


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


 

















 


or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


Dated: March ___, 2009.


 


	
   

  	
  WAVE
  SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Gerard T. Feeney

  
	
   

  	
   

  	
  CFO

  



 

















 


NOTICE OF EXERCISE


 


TO:                            WAVE SYSTEMS CORP.


 


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


 


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


 


o                                    in lawful money of the United States; or


 


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


 


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


 


The Warrant Shares shall be
delivered to the following:


 

















 


ASSIGNMENT FORM


 


(To
assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the

warrant.)


 


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


 


 


whose address is


 


 


Dated:


 


 


	
  Holder’s Signature:

  	
   

  	
   

  
	
  Holder’s Address: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  	
   

  
				



 


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