SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

WAVE SYSTEMS CORP.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
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and 0-11.
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WAVE SYSTEMS CORP.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 22, 1999

TO THE STOCKHOLDERS:

The Annual Meeting of Stockholders of Wave Systems Corp. (the "Company")
will be held at 4 p.m. on Monday, November 22, 1999, at the Grand Hyatt, Park
Avenue and Grand Central Station, New York, New York, for the following
purposes:

1. TO ELECT SEVEN DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING
AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED; AND

2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.

The Board of Directors has fixed the close of business on October 8, 1999 as
the record date for the determination of the stockholders entitled to notice of,
and to vote at, the Annual Meeting of Stockholders and at any adjournments or
postponements thereof.

By Order of the Board of Directors,

[SIGNATURE]

Gerard T. Feeney
SECRETARY

Lee, Massachusetts
October 29, 1999

YOUR VOTE IS IMPORTANT
IF YOU DO NOT EXPECT TO ATTEND THE ANNUAL MEETING, OR IF YOU DO PLAN TO ATTEND
BUT WISH TO VOTE BY PROXY, PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

WAVE SYSTEMS CORP.

------------------------

PROXY STATEMENT

------------------------

ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 22, 1999

GENERAL

This Proxy Statement is being furnished in connection with the solicitation
by the Board of Directors of Wave Systems Corp., a Delaware corporation (the
"Company"), of proxies for use at the Annual Meeting of Stockholders to be held
on Monday, November 22, 1999, commencing at 4 p.m., at the Grand Hyatt, Park
Avenue and Grand Central Station, New York, New York, and at any adjournments or
postponements thereof. The matters to be considered and acted upon at the
meeting are described below in this Proxy Statement.

The principal executive offices of the Company are located at 480 Pleasant
Street, Lee, Massachusetts 01238. The approximate mailing date of this Proxy
Statement and the accompanying proxy is October 29, 1999.

VOTING RIGHTS AND VOTES REQUIRED

Only stockholders of record at the close of business on October 8, 1999 will
be entitled to notice of, and to vote at, the Annual Meeting. As of such record
date, the Company had outstanding 37,708,044 shares of Class A Common Stock and
2,156,507 shares of Class B Common Stock. Each stockholder is entitled to one
vote for each share of common stock held on the matters to be considered at the
Annual Meeting. The holders of a majority of the outstanding shares will
constitute a quorum for the transaction of business at the meeting. Shares of
common stock present in person, or represented by proxy (including shares which
abstain or do not vote with respect to one or more of the matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum exists at the meeting.

The affirmative vote of the holders of a plurality of the shares of common
stock present or represented at the meeting is required for the election of
directors. Abstentions will be treated as shares that are present and entitled
to vote for purposes of determining the number of shares present and entitled to
vote with respect to any particular matter, but will not be counted as a vote in
favor of such matter. Accordingly, an abstention from voting on a matter will
have the same legal effect as a vote against the matter. If a broker or nominee
holding stock in "street name" indicates on the proxy that it does not have
discretionary authority to vote as to a particular matter, those shares will not
be considered as present and entitled to vote with respect to such matter.

The accompanying proxy may be revoked at any time before it is exercised by
giving a later proxy, notifying the Secretary of the Company in writing, or
voting in person at the meeting.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information concerning the beneficial
ownership of the Company's Class A and Class B Common Stock as of October 8,
1999 (except as otherwise noted) by (i) each stockholder who is known by the
Company to own beneficially more than five percent of the outstanding Class A or
Class B Common Stock, (ii) each director of the Company, (iii) each of the
executive officers of the Company named in the Summary Compensation Table below,
and (iv) all directors and executive officers of the Company as a group. Holders
of Class A Common Stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders of the Company. Holders of Class B
Common Stock

are entitled to one vote per share on all matters submitted to a vote of the
stockholders, except that holders of Class B Common Stock will have five votes
per share in cases where one or more directors are nominated for election by
persons other than the Company's Board of Directors and where there is a vote on
any merger, consolidation or other similar transaction which is not recommended
by the Company's Board of Directors. In addition, holders of Class B Common
Stock will have five votes per share on all matters submitted to a vote of the
stockholders in the event that any person or group of persons acquires
beneficial ownership of twenty percent (20%) or more of the outstanding voting
securities of the Company. Shares of Class B Common Stock are convertible into
shares of Class A Common Stock on a one-for-one basis at the option of the
holder. In circumstances where our Class B common stock has five votes per
share, the percentages of total voting power reflected in the table below would
be as follows: Peter J. Sprague, 13.6%; Steven Sprague, 2.7%; John E. Bagalay,
Jr. less than 1%; Phillipe Bertin, less than 1%; George Gilder, less than 1%;
John E. McConnaughy, Jr., 4.0%; Nolan Bushnell, less than 1%; Gerard T. Feeney,
less than 1%; Aladdin Knowledge Systems, 4%; and all Executive officers and
directors as a group, 20.2%.

NUMBER OF NUMBER OF PERCENT
SHARES SHARES OF ALL
OF CLASS A PERCENT OF CLASS B PERCENT OUTSTANDING
COMMON STOCK OF COMMON OF COMMON
BENEFICIAL OWNER(1) OWNED(2) CLASS STOCK OWNED CLASS STOCK
- ------------------- ------------ -------- ----------- -------- -----------

Peter J. Sprague(3)........................... 330,496 * 1,252,899 58.1 4.0
Steven Sprague(4)............................. 327,163 * 194,659 9.0 1.3
John E. Bagalay, Jr........................... 86,000 * 0 *
Philippe Bertin............................... 66,000 * 0 * *
George Gilder................................. 162,000 * 0 * *
John E. McConnaughy, Jr....................... 75,115 * 275,000 12.8 *
Nolan Bushnell................................ 0 * 0 0 *
Gerard T. Feeney(5)........................... 150,000 * 0 * *
Aladdin Knowledge Systems, Ltd.(6)............ 1,961,629 5.2 0 * 4.9
All executive officers and directors as a
group
(8 persons)(7).............................. 1,196,774 3.2 1,722,558 79.9 7.3

- ------------------------

* Less than one percent.

(1) Each individual or entity has sole voting and investment power, except as
otherwise indicated.

(2) Does not include shares of Class A Common Stock issuable upon the conversion
of Class B Common Stock.

(3) Includes 330,496 shares that are subject to options presently exercisable or
exercisable within 60 days. Also includes 320,000 shares held in trust for
the benefit of Mr. Sprague's adult children, and for which Mr. Sprague is a
trustee.

(4) Includes 320,163 shares that are subject to options presently exercisable or
exercisable within 60 days.

(5) Includes 150,000 options that are subject to options presently exercisable
or exercisable within 60 days.

(6) Includes 1,279,193 shares that are subject to warrants presently exercisable
or exercisable within 60 days.

(7) Includes 800,659 shares that are subject to options presently exercisable or
exercisable within 60 days.

1. ELECTION OF DIRECTORS

At the Annual Meeting, seven directors are to be elected, each to hold
office until the next annual meeting of stockholders and until his respective
successor has been duly elected and qualified. If no direction is given to the
contrary, all proxies received by the Board of Directors will be voted "FOR" the
election as directors of each of the following nominees. In the event that any
nominee declines or is unable to serve, the proxy solicited herewith may be
voted for the election of another person in his stead at the discretion of the
proxies. The Board of Directors has no reason to believe that any of the
nominees will not be available to serve. Set forth below is certain information
concerning each nominee. Each nominee is currently a director of the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE"FOR" THE
ELECTION OF EACH OF THE NOMINEES.

MANAGEMENT

DIRECTORS

BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OR
EMPLOYMENT DURING PAST 5 YEARS; POSITIONS HELD WITH DIRECTOR
NAME AGE WAVE SYSTEMS; OTHER DIRECTORSHIPS SINCE
- ---- -------- --------------------------------------------------- --------

Peter J. Sprague(1)(4)............... 60 Chairman of the Board since 1988 and Chief 1988
Executive Officer of the Company since July 1991;
Chairman of National Semiconductor Corporation from
1965 until May 1995; Director of EnLighten
Software, Inc. and Imagek, Inc.; Trustee of the
Strang Clinic; Member of Academy of Distinguished
Entrepreneurs, Babson College.

John E. Bagalay, Jr.,
Ph.D.(1)(2)(4)..................... 66 Senior Advisor to the Chancellor of Boston 1993
University since January 1998; Chief Operating
Officer and Chief Financial Officer of Eurus
Technologies, Inc. since January 1999; President
and CEO of Cytogen Corporation from January 1998
and Chief Financial Officer from October 1997 to
September 1998; Managing Director, Community
Technology Fund, venture capital affiliate of
Boston University from September 1989 to December
1997; former General Counsel of Lower Colorado
River Authority, Texas Commerce Bancshares, Inc.
and Houston First Financial Group; Director of
Cytogen Corporation, AES, Inc., and several
privately held companies.

Philippe Bertin(3)................... 50 Manager of Financiere Wagram Poncelet since 1993
December 1991; Manager of Midial S.A. from 1984
until 1991; Manager of FINOVELEC since October
1997.

George Gilder(4)..................... 60 Chairman of the Executive Committee since 1996; 1993
Senior Fellow at the Discovery Institute in
Seattle, Washington; author of nine books,
including LIFE AFTER TELEVISION, MICROCOSM, THE
SPIRIT OF ENTERPRISE AND WEALTH AND POVERTY;
contributing editor to Forbes Magazine; Director
and President of Gilder Technology Group, Inc.
(publisher of monthly Technology reports); former
chairman of the Lehrman Institute Economic
Roundtable; former Program Director for the
Manhattan Institute; recipient of White House award
for Entrepreneurial Excellence from President
Reagan.

John E. McConnaughy, Jr.
(1)(2)(3)(4)....................... 70 Chairman and Chief Executive Officer of JEMC 1988
Corporation; Chairman and Chief Executive Officer
of Peabody International Corporation from 1969
through 1985; Chairman and Chief Executive Officer
of GEO International Corporation (nondestructive
testing, screen printing and oil field services
company spun off from Peabody International
Corporation) from February 1981 to October 1992;
Director of Riddell Sports Inc., Levcor
International, Inc., Transact International, Inc.,
De-Vlieg Bullard, Inc. and Mego Financial Corp. Mr.
McConnaughy is also a member of the Board of
Trustees of the Strang Clinic and the Chairman of
the Board of the Harlem School of the Arts.

Steven Sprague....................... 35 President and Chief Operating Officer since May 1997
1996; President of Wave Interactive Network from
June 1995 to December 30, 1996; Vice President of
Operations from April 1994 to June 1995; Wave
employee in the areas of operations and strategic
planning from November 1992 to April 1994;
consultant to the Company from March 1992 to
November 1992; President of Tech Support,
Incorporated (hardware technical support
information on CD-ROM) from June 1992 to November
1992; sole proprietor of SKS Environmental Sales
(manufacturers' representative for water treatment
companies) from June 1991 to November 1992.

Nolan Bushnell....................... 56 Chairman and Chief Executive Officer of uWink.com, 1999
Inc. since 1996; Chairman of OCTuS, Inc. from 1991
to 1995; consultant to IBM, Commodore International
and Bally Manufacturing.

- ------------------------

(1) Member of Nominating Committee.

(2) Member of Compensation Committee.

(3) Member of Audit Committee.

(4) Member of Executive Committee.

BOARD AND COMMITTEE MEETINGS; DIRECTORS' COMPENSATION

The Board of Directors met three times during 1998. No director attended
fewer than 75 percent of the aggregate number of meetings of the Board and the
Board Committees on which such director served. The Board Committees include an
Audit Committee, a Compensation Committee, a Nominating Committee and an
Executive Committee.

The members of the Audit Committee are Messrs. Bertin and McConnaughy. The
Audit Committee reviews the services provided by the Company's independent
auditors, consults with the independent auditors on audits and proposed audits
of the Company, and reviews the need for internal auditing procedures and the
adequacy of the Company's internal control systems. In 1998, the Audit Committee
held no meetings.

The members of the Compensation Committee are Messrs. Bagalay and
McConnaughy. The Compensation Committee administers the Company's stock option
plans, and reviews and recommends compensation levels of the Company's executive
officers. In 1998, the Compensation Committee held two meetings.

The members of the Nominating Committee are Messrs. Bagalay, McConnaughy and
Peter J. Sprague. The Nominating Committee establishes procedures for
identifying potential candidates for appointment or election as directors,
reviews and makes recommendations regarding the criteria for Board membership,
and proposes nominees for election at the annual meeting and candidates to fill
Board vacancies. The Nominating Committee will consider recommendations for
nominees from any stockholder who is entitled to vote for the election of
directors. Stockholders should send recommendations of candidates for nomination
for the 2000 slate of directors, in writing, no later than December 31, 1999 to
the Company's Secretary, 480 Pleasant Street, Lee, Massachusetts 01238.
Recommendations must be accompanied by the consent of the individual being
recommended to be nominated, to be elected and to serve. The submission also
should include a statement of the candidate's business experience and other
business affiliations. In 1998, the Nominating Committee held two meetings.

The members of the Executive Committee are Messrs. Bagalay, Gilder,
McConnaughy and Peter J. Sprague. The Executive Committee assists the Chairman
of the Company in the absence of a meeting of all members of the Board of
Directors. The Executive Committee brings material matters to the attention of
the Board of Directors and prepares the deliberation process of the Board of
Directors, thus accelerating vital decisions for the Company. However, the Board
of Directors did not delegate its full power to the Executive Committee and
asked that the Executive Committee include all members of the Board of Directors
in major decisions affecting the Company. In 1998, the Executive Committee held
no meetings.

Directors presently receive no cash compensation for serving on the Board of
Directors. Under the Company's Non-Employee Directors Stock Option Plan, each
director who is not an employee of the Company receives an annual grant of
options to purchase 10,000 shares of Class A Common Stock at fair market value.
The options are granted upon re-election after the annual meeting of the
stockholders and vest the day following the grant. Options terminate upon the
earliest to occur of (i) subject to (ii) below, three months after the optionee
ceases to be a director of the Company, (ii) one year after the death or
disability of the optionee, and (iii) ten years after the date of grant. If
there is a change of control of the Company, all outstanding stock options will
become immediately exercisable.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to the compensation
paid or awarded to the Chief Executive Officer and the other executive officers
whose cash compensation exceeded $100,000 (collectively, the "Named Executive
Officers") for services rendered in all capacities during 1998, 1997 and 1996.

LONG-TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION NUMBER OF SHARES
NAME AND PRINCIPAL ------------------- UNDERLYING
POSITION YEAR SALARY BONUS OPTIONS(#)
- ------------------ -------- -------- -------- ----------------

Peter J. Sprague(1)............................... 1998 $182,917 $150,000 895,395
CHAIRMAN AND CHIEF 1997 $160,000 $100,000 10,000
EXECUTIVE OFFICER 1996 $160,000 $ 50,000 -0-

Steven Sprague(2)................................. 1998 $177,500 $150,000 954,505
PRESIDENT AND 1997 $150,000 $117,500 -0-
CHIEF OPERATING OFFICER 1996 $131,666 $ -0- 150,000

Gerard T. Feeney(3)............................... 1998 $ 90,359 $ 65,000 450,000
SENIOR VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND
SECRETARY

- ------------------------

(1) Mr. Peter Sprague received a bonus of $150,000 for 1998; $75,000 was
received in cash and $75,000 was applied to reduce his debt to the Company.

(2) Mr. Steven Sprague was elected President and Chief Operating Officer on
May 23, 1996 and was not previously an executive officer during 1996. Prior
to that, Mr. Steven Sprague was Vice President of Operations from
April 1994 to June 1995 and a Wave employee in the areas of operations and
strategic planning from November 1992 to April 1994.

(3) Mr. Feeney was hired as Senior Vice President, Finance and Administration
and Chief Financial Officer on June 8, 1998 and was elected Secretary on
February 25, 1999.

OPTION GRANTS TABLE

The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1998 to the Named Executive Officers.
The potential realizable values of the options reported in this table were
calculated by assuming 5% and 10% compounded annual rates of appreciation from
the date of grant until expiration, based upon the market price on the date of
grant. These assumed

annual rates of appreciation were used in compliance with the rules of the
Securities and Exchange Commission and are not intended to forecast future price
appreciation of the common stock.

POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SHARES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES PRICE EXPIRATION --------------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ----------- --------- ---------- ---------- ----------

Peter J. Sprague (1)................ 300,000 5.7% $1.15 2/6/08 216,900 548,400
50,005 0.1 1.10 3/11/08 37,854 74,657
545,500 10.4 3.66 5/20/08 1,990,529 4,347,090
Steven Sprague (2).................. 193,200 3.7 1.15 2/6/08 139,684 353,170
250,005 4.8 1.10 3/11/08 189,254 373,257
511,300 9.7 3.66 5/20/08 1,865,734 4,074,550
Gerard T. Feeney.................... 450,000 8.6 3.50 6/8/08 1,265,400 2,941,200

- ------------------------

(1) Includes an aggregate of 300,000 options repriced on February 6, 1998. See
Option Repricing Table below.

(2) Includes an aggregate of 193,200 options repriced on February 6, 1998. See
Option Repricing Table below.

FISCAL YEAR END OPTION VALUE TABLE

The following table sets forth information regarding the aggregate number
and value of options held by the Named Executive Officers as at December 31,
1998, and the aggregate number and value of options exercised by the Named
Executive Officers during 1998. The last reported bid price for the Class A
Common Stock on the OTC Bulletin Board on December 31, 1998 was $3.719 per
share. Value is calculated on the basis of the difference between the respective
option exercise prices and $3.719, multiplied by the number of shares of common
stock underlying the respective options.

NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT DECEMBER 31, 1998(#) AT DECEMBER 31, 1998
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------

Peter J. Sprague................. -0- -0- 31,995 895,505 $67,715 $ 933,848
Steven Sprague................... -0- -0- 1,995 954,505 5,245 1,181,261
Gerard T. Feeney................. -0- -0- -0- 450,000 -0- 98,550

OPTION REPRICING TABLE

The following table sets forth certain information regarding the repricing
during the fiscal year ended December 31, 1998 of options granted to the Named
Executive Officers. Please also refer to the Report of the Compensation
Committee.

LENGTH OF
NUMBER OF MARKET EXERCISE ORIGINAL
SHARES PRICE OF PRICE OF OPTION TERM
UNDERLYING STOCK AT STOCK AT NEW REMAINING
OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
- ---- ------ ---------- --------- --------- -------- -----------------

Peter J. Sprague..................... 2/6/98 300,000 $1.15 $3.50 $1.15 5 years, 8 months
Steven Sprague....................... 2/6/98 150,000 $1.15 $3.09 $1.15 8 years, 3 months
Steven Sprague....................... 2/6/98 43,200 $1.15 $3.50 $1.15 4 years, 4 months

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NOTE RECEIVABLE FROM DIRECTOR/OFFICER

On November 16, 1992, the Company made a personal loan to Mr. Peter J.
Sprague, Chairman and Chief Executive Officer of the Company, as evidenced by a
note for $150,000, which sum was due and payable to the Company on January 16,
1993 and which bore interest at an annual rate of 10%. On the due date, the note
was canceled and the total amount owed was "rolled-over" into a subsequent note,
dated May 12, 1993 for $150,000, plus accrued interest. The note is due on
demand by the Company and accrues interest at an annual rate of 10%. On
April 22, 1993, the Company made an additional loan to Mr. Sprague for $23,175
as evidenced by a promissory note, which is due on demand by the Company and
which bears interest at an annual rate of 10%. All of these loans were made to
Mr. Sprague for personal reasons. As part of Mr. Sprague's $100,000 bonus for
1997, $50,000 was applied against his indebtedness to the Company. As part of
Mr. Sprague's $150,000 bonus for 1998, $75,000 was applied against the
indebtedness. The largest aggregate amount of the indebtedness outstanding at
any time during 1998 was $212,025. As of September 30, 1999, Mr. Sprague's
aggregate indebtedness (including accrued interest) to the Company under the
notes totaled $152,955.25. No demand has been made as of the date hereof. The
notes are secured by a pledge of 67,000 shares of Class B Common Stock.

AMENDED AND RESTATED LICENSE AGREEMENT AND ASSIGNMENT

Pursuant to an Amended and Restated License Agreement, dated February 14,
1994, and related Patent Assignment and Security Agreement, Mr. Peter J. Sprague
assigned his interest in a patent for the metering and usage of serial data
information to the Company in exchange for a non-terminable royalty interest.
The Company has agreed to pay royalties to Mr. Sprague in an amount equal to 2%
of the gross revenues (less actual amounts paid to information, database and
content providers, hardware manufacturers and suppliers, search and retrieval
software suppliers, consolidators of information and network providers) derived
from the Company's technology based on the patent. The royalty payments are
allocated 75% to Mr. Sprague and 25% to one of our former officers, and are
secured by a security interest in the patent.

COMPENSATION TO STEVEN SPRAGUE

Steven Sprague received aggregate compensation of $327,500, $267,500 and
$131,600 for services rendered to the Company in 1998, 1997 and 1996,
respectively. Steven Sprague is the son of Mr. Peter J. Sprague, the Chairman
and Chief Executive Officer of the Company.

COMPENSATION TO MICHAEL SPRAGUE

Michael Sprague received aggregate compensation of $112,500 and $27,500 for
services rendered to the Company in 1998 and 1997, respectively. Michael Sprague
is the son of Mr. Peter J. Sprague, the Chairman and Chief Executive Officer of
the Company.

REPORT OF THE COMPENSATION COMMITTEE

GENERAL

The Compensation Committee of the Board of Directors (the "Committee") is
comprised of non-employee directors. The current members of the Committee are
Messrs. John E. Bagalay, Jr. and John E. McConnaughy, Jr. The Committee reviews
and recommends to the Board of Directors compensation levels for the Company's
executive officers, and administers the Company's stock option plans, including
the awarding of grants thereunder.

COMPENSATION PHILOSOPHY

Executive compensation is heavily tied to corporate performance through the
granting of stock options. As a development stage company, the Company has
sought to contain costs with low cash salaries and bonuses.

The Company has not established a policy with regard to Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") since the Company has
not and does not currently anticipate paying cash compensation in excess of
$1 million per annum to any employee. The Company intends to administer its
stock option plans in accordance with Section 162(m) of the Code.

BASE SALARIES AND BONUSES FOR 1998

Base salaries for 1998 remained substantially lower than levels in the
competitive marketplace for executives with comparable experience, consistent
with the Company's position as a development stage company. As part of the
Company's compensation policy of meeting defined goals and objectives, the
Company awarded the following bonuses to the Named Executive Officers: $150,000
to Mr. Peter J. Sprague, Chairman and Chief Executive Officer; $150,000 to
Mr. Steven Sprague, President and Chief Operating Officer; and $65,000 to
Mr. Gerard T. Feeney, Senior Vice President, Chief Financial Officer and
Secretary.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Compensation of the Chief Executive Officer was determined in accordance
with the criteria set forth above. The Committee believes that CEO compensation
was appropriately based upon the Company's financial position and performance.

REPRICING OF STOCK OPTIONS

In February 1998, the Company carried out a stock option repricing in which
certain stock options held by the Company's executive officers and employees
were exchanged for new stock options having a lower exercise price. Over time
the Company's stock price had stabilized at a level below the exercise price of
many of the stock options held by the Company's employees under the Company's
option plan. Prior to the repricing in February 1998, the exercise price of many
employee stock options was in the $3 to $4 range, whereas the stock's market
price was in the $1.15 range. The Compensation Committee believes that the
usefulness of the Company's stock options as a tool to retain and motivate
employees was restored with this repricing.

Respectfully submitted,
Compensation Committee
John E. Bagalay, Jr.
John E. McConnaughy, Jr.

PERFORMANCE GRAPH

The following line graph compares the Company's cumulative total return to
stockholders with the cumulative total return of the Nasdaq Market Value Index
and the Computer Related Services SIC Code Index from August 31, 1994 (the date
on which the Company's Class A Common Stock was first publicly traded) through
December 31, 1998. These comparisons assume the investment of $100 on
August 31, 1994 and the reinvestment of dividends. The stock performance on the
graph is not necessarily indicative of future stock price performance.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

COMPARISON OF CUMULATIVE TOTAL RETURN OF

COMPANY, PEER GROUP AND BROAD MARKET
DOLLARS
WAVE SYSTEMS CORP. COMPUTER RELATED SERVICES NEC NASDAQ MARKET INDEX
8/31/1994 100.00 100.00 100.00
12/31/1994 60.00 93.67 96.91
12/31/1995 55.00 79.09 120.64
12/31/1996 43.75 122.40 145.85
12/31/1997 22.50 228.60 231.01
12/31/1998 75.62 447.95 269.49
ASSUMES $100 INVESTED ON AUG. 31, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1998

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons owning more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission reports
of ownership and changes in ownership of equity securities of the Company. Such
persons are also required to furnish the Company with copies of all such forms.

Based solely upon a review of the copies of such forms furnished to the
Company and, in certain cases, written representations that no Form 5 filings
were required, the Company believes that, with respect to the 1998 fiscal year,
all required Section 16(a) filings were made, with the exception of: (i) a
Form 3-Initial Statement of Beneficial Ownership of Securities that was filed
late by Mr. Philippe Bertin and (ii) a Form 3-Initial Statement of Beneficial
Ownership of Securities that was not filed by Aladdin Knowledge Systems, Ltd.

OTHER MATTERS

As of the date of this Proxy Statement, the Board of Directors does not know
of any other matters which may come before the Annual Meeting. If any other
matters properly come before the meeting, the accompanying proxy confers
discretionary authority with respect to any such matters, and the persons named
in the accompanying proxy intend to vote in accordance with their best judgment
on such matters.

All expenses in connection with the solicitation of proxies will be borne by
the Company. In addition to this solicitation, officers, directors and regular
employees of the Company, without any additional compensation, may solicit
proxies by mail, telephone or personal contact. Kissel-Blake Inc. has been
retained to assist in the solicitation of proxies for a fee of approximately
$4,000 plus reasonable out-of-pocket expenses. The Company will, upon request,
reimburse brokerage houses and other nominees for their reasonable expenses in
sending proxy materials to their principals.

STOCKHOLDER PROPOSALS

Stockholder proposals for inclusion in the proxy materials for the 2000
Annual Meeting should be addressed to the Company's Secretary, 480 Pleasant
Street, Lee, Massachusetts 01238 and must be received a reasonable time before
the Company begins to print and mail its proxy materials. In addition, the
Company's By-laws currently require that for business to be properly brought
before an annual meeting by a stockholder, regardless of whether included in the
Company's proxy statement, the stockholder must give written notice of his or
her intention to propose such business to the Secretary of the Company, which
notice must be delivered to, or mailed and received at, the Company's principal
executive offices not less than sixty (60) days and not more than ninety
(90) days prior to the scheduled annual meeting (except that if less than
seventy (70) days' notice of the date of the scheduled annual meeting is given,
notice by the stockholder may be delivered or received not later than the tenth
(10th) day following the day on which such notice of the date of the scheduled
annual meeting is given). Such notice must set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and address of the
stockholder proposing such business, (iii) the class and number of shares which
are beneficially owned by the stockholder; and (iv) any material interest of the
stockholder in such proposal. The By-laws further provide that the chairman of
the annual meeting may refuse to permit any business to be brought before an
annual meeting without compliance with the foregoing procedures.

By Order of the Board of Directors,

[SIGNATURE]

Gerard T. Feeney
SECRETARY

Wave Systems Corp.

Lee, Massachusetts

October 29, 1999

THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON SOLICITED HEREBY,
UPON THE WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (WITHOUT EXHIBITS). REQUESTS SHOULD BE MADE
TO WAVE SYSTEMS CORP., ATTENTION: MR. GERARD T. FEENEY, 480 PLEASANT STREET,
LEE, MASSACHUSETTS 01238.

PROXY
WAVE SYSTEMS CORP.

For Annual Meeting of the Stockholders of Wave Systems Corp.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Gerard T. Feeney, with power to act
alone and with full power of substitution, as proxy to vote the shares that the
undersigned is entitled to vote at the Annual Meeting of the Company to be held
at the Grand Hyatt, Park Avenue and Grand Central Station, New York, New York,
on Monday, November 22, 1999, commencing at 4 p.m., and at any adjournments
thereof.

(Continued and to be signed on Reverse Side)

Please date, sign and mail your
proxy card back as soon as possible!

Annual Meeting of Stockholders
WAVE SYSTEMS CORP.

November 22, 1999

Please Detach and mail in the Envelope Provided

The Board of Directors recommends a vote FOR the proposal listed below.
Please mark your vote with an "X", as in this example: [X]

1. Election of Directors:

[ ] FOR all nominees listed: Peter J. Sprague, John E. Bagalay, Jr., Philippe
Bertin, George Gilder, John E. McConnaughy, Jr., Steven Sprague and Nolan
Bushnell, except vote withheld from following nominees listed in space below (if
any):

- -------------------------------------------------------------------------------

[ ]VOTE WITHHELD FOR all nominees

2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1.

Dated: , 1999
------------

----------------------------------
Signature

NOTE: THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREON. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC. SHOULD GIVE FULL TITLE AS SUCH. FOR JOINT
ACCOUNTS, EACH OWNER SHOULD SIGN. IF THE SIGNER IS A CORPORATION, PLEASE SIGN
FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER.