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EXHIBIT 10.3
SERIES A COMMON STOCK PURCHASE WARRANT
TO PURCHASE 3,529,412 SHARES OF CLASS A COMMON STOCK OF
Wave Systems Corp.
THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") certifies that, for
value received, Capital Ventures international (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 which is six months from
the date hereof (the "INITIAL EXERCISE DATE") and on or prior to the close of
business on the first anniversary of the Initial Exercise Date (the "TERMINATION
DATE") but not thereafter, to subscribe for and purchase from Wave Systems
Corp., a Delaware corporation (the "COMPANY"), up to 3,529,412 shares (the
"WARRANT SHARES") of Class A Common Stock, par value $0.01 per share, of the
Company (the "COMMON STOCK").
Section 1. DEFINITIONS. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the "Purchase Agreement"), dated July 30, 2004, among the
Company and the purchasers signatory thereto.
Section 2. EXERCISE.
(a) EXERCISE OF WARRANT. 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 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 5 Trading Days of the date
said Notice of Exercise is delivered to the Company, 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.
(b) EXERCISE PRICE. The Exercise Price ("EXERCISE PRICE") of
each share of Common Stock under this Warrant shall be $1.15 (115% of
Market Price), subject to adjustment hereunder.
(c) CASHLESS EXERCISE. If at any time after six months from
the date of issuance of this Warrant there is no effective Registration
Statement registering the sale of the Warrant Shares to the Holder by
the Company, 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 VWAP on the Trading Day immediately preceding the
date of such election;
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(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.
(d) EXERCISE LIMITATIONS.
(i) HOLDER'S RESTRICTIONS. The Holder shall not have
the right to exercise any portion of this Warrant, pursuant to
Section 2(c) or otherwise, and the Company shall not be
permitted to exercise its rights under Section 5 below to Call
this Warrant, to the extent that after giving effect to any
such issuance that would otherwise occur after such exercise,
the Holder (together with the Holder's affiliates), as set
forth on the applicable Notice of Exercise, would beneficially
own in excess of 9.99% 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) exercise or conversion of the
unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other
Additional Investment Rights or 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 2(d), beneficial
ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act, it being acknowledged by Holder that the
Company is not representing to Holder that such calculation is
in compliance with Section 13(d) of the Exchange Act and Holder
is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation
contained in this Section 2(d) 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 2(d), 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
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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.
(ii) TRADING MARKET RESTRICTIONS. If the Company has
not obtained Shareholder Approval (as defined below), if
required, then the Company may not issue upon exercise of this
Warrant in the aggregate, in excess of 19.999% of the number of
shares of Common Stock outstanding on the Trading Day
immediately preceding the Closing Date, less any shares of
Common Stock issued upon conversion of or as payment of
interest on the Debentures or upon prior exercise of this or
any other Warrant issued pursuant to the Purchase Agreement
(such number of shares, the "ISSUABLE MAXIMUM"). If on any
attempted exercise of this Warrant, the issuance of Warrant
Shares would exceed the Issuable Maximum and the Company shall
not have previously obtained the vote of shareholders (the
"SHAREHOLDER APPROVAL"), if any, as may be required by the
applicable rules and regulations of the Principal Market (or
any successor entity) to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum pursuant to the
terms hereof, then the Company shall issue to the Holder
requesting a Warrant exercise such number of Warrant Shares as
may be issued below the Issuable Maximum and, with respect to
the remainder of the aggregate number of Warrant Shares, this
Warrant shall not be exercisable until and unless Shareholder
Approval has been obtained.
(e) 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). 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 (or to authorize an uncertificated issuance to the
Holder via the DTC DWAC system) 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
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requirements of the Trading Market upon which the Common Stock
may be listed.
(ii) DELIVERY OF CERTIFICATES UPON EXERCISE.
Certificates (or DWAC transfers) for shares purchased hereunder
shall be delivered to the Holder within 3 Trading Days from the
receipt by the Company of the Notice of Exercise Form,
surrender of this Warrant 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, pursuant to Section 2(e)(vii) prior to
the issuance of such shares, have been paid.
(iii) DELIVERY OF NEW WARRANTS UPON PARTIAL EXERCISE.
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.
(iv) RESCISSION RIGHTS. If the Company fails to
deliver to the Holder a certificate or certificates (or DWAC
transfer) representing the Warrant Shares pursuant to this
Section 2(e)(iv) by the Warrant Share Delivery Date, then the
Holder will have the right to rescind such exercise.
(v) BUY-IN COMPENSATION. 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 (or a DWAC transfer) pursuant to an exercise on
or before the Warrant Share Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an
open market 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
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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.
(vi) 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.
(vii) 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.
(viii) 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.
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
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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 before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
after such event. 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) SUBSEQUENT EQUITY SALES. If the Company or any Subsidiary
thereof, as applicable, at any time while this Warrant is outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant
any right to reprice its securities, or otherwise dispose of or issue
(or announce any offer, sale, grant or any option to purchase or other
disposition) any Common Stock or Common Stock Equivalents entitling any
Person to acquire shares of Common Stock, at an effective price per
share less than the then Exercise Price (such lower price, the "BASE
SHARE PRICE" and such issuances collectively, a "DILUTIVE ISSUANCE"),
as adjusted hereunder (if the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options
or rights per share which is issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per
share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price), then, the
Exercise Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares issued and outstanding immediately
prior to such Dilutive Issuance plus the aggregate number of shares of
Common Stock which could be purchased in such Dilutive Issuance if such
Dilutive Issuance were done at the Exercise Price and the denominator
of which shall be the number of shares of Common Stock deemed
outstanding immediately after such Dilutive Issuance. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents
are issued. The Company shall notify the Holder in writing, no later
than the business day following the issuance of any Common Stock or
Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms.
(c) PRO RATA DISTRIBUTIONS. If the Company, at any time prior
to the Termination Date, shall distribute to all holders of Common
Stock (and not to Holders of the Warrants) evidences of its
indebtedness or assets or rights or warrants to subscribe for or
purchase any security other than the Common Stock (which shall be
subject to Section 3(b)), then in each such case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Common Stock
as determined by
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the Board of Directors in good faith. In either case the adjustments
shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned
above.
(d) 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 outstanding as of a given date shall be the sum of the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding.
(e) NOTICE TO HOLDERS.
(i) ADJUSTMENT TO EXERCISE PRICE. 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.
If the Company issues a future priced security (as defined by
the rules of the Nasdaq Stock Market), the Company shall be
deemed to have issued Common Stock or Common Stock Equivalents
at the lowest possible conversion or exercise price at which
such securities may be converted or exercised in the case of a
future priced security.
(ii) NOTICE TO ALLOW EXERCISE BY HOLDER. If (A) the
Company shall declare a dividend (or any other distribution) on
the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common
Stock; (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of
the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company; then, in each
case, the Company shall cause to be mailed to the Holder at its
last addresses as it shall appear upon the Warrant Register of
the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and
the date as of which it is expected that holders of the Common
Stock of record shall
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be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or
share exchange; provided, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be
specified in such notice. The Holder is entitled to exercise
this Warrant during the 20-day period commencing the date of
such notice to the effective date of the event triggering such
notice
(f) FUNDAMENTAL TRANSACTION. If, at any time while this
Warrant is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the
Company effects any sale of all or substantially all of its assets in
one or a series of related transactions, (C) any tender offer or
exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or
exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (in any such case, a "FUNDAMENTAL TRANSACTION"), then, upon
any subsequent conversion of this Warrant, the Holder shall have the
right to receive, for each Warrant Share that would have been issuable
upon such exercise absent such Fundamental Transaction, 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 Alternate
Consideration 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 (the "ALTERNATE CONSIDERATION").
For purposes of any such exercise, the determination of the Exercise
Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable
in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the
Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the
Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms insuring that
this Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.
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(g) EXEMPT ISSUANCE. Notwithstanding the foregoing, no
adjustments, Alternate Consideration nor notices shall be made, paid or
issued under this Section 3 in respect of an Exempt Issuance.
Section 4. TRANSFER OF WARRANT.
(a) TRANSFERABILITY. Subject to compliance with any
applicable securities laws and the conditions set forth in Section 6(a)
hereof, 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, if exercised in accordance with
the terms of the Warrant.
(b) DIVISION OR COMBINATION OF 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.
(c) WARRANT REGISTER. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose
(the "WARRANT REGISTER"), in the name of the record Holder hereof from
time to time. The Company may deem and treat the registered Holder of
this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution or notice to the Holder, and for
all other purposes, absent actual notice to the contrary.
Section 5. CALL PROVISION. Subject to the provisions of this
Section 5, commencing on the Initial Exercise Date, and provided at such time
the Registration Statement then remains effective, if the closing bid price for
the Common Stock on the Trading Market for each of any 15 consecutive Trading
Days (the "MEASUREMENT PERIOD", which period shall not have commenced until
after the Initial Exercise Date) exceeds $1.80 (180% of the Market Price) (the
"THRESHOLD PRICE"), subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of the Purchase Agreement, then the Company may,
within two Trading Days of such period, call for redemption at a price of $0.001
per Warrant) of all or any portion of this Warrant for which a Notice of
Exercise has not yet been delivered (such right, a "CALL"). To exercise this
right, the Company must deliver to the Holder an irrevocable written notice (a
"CALL NOTICE"),
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indicating therein the portion of unexercised portion of this Warrant to which
such notice applies. If the conditions set forth below for such Call are
satisfied from the period from the date of the Call Notice through and including
the Call Date (as defined below), then any portion of this Warrant subject to
such Call Notice for which a Notice of Exercise shall not have been received
from and after the date of the Call Notice will be purchased by the Company and
cancelled at 6:30 p.m. (New York City time) on the 10th Trading Day after the
date of the Call Notice (such date, the "CALL DATE"). Any unexercised portion of
this Warrant to which the Call Notice does not pertain will be unaffected by
such Call Notice. In furtherance thereof, the Company covenants and agrees that
it will honor all Notices of Exercise with respect to Warrant Shares subject to
a Call Notice that are tendered from the time of delivery of the Call Notice
through 6:30 p.m. (New York City time) on the Call Date. The parties agree that
any Notice of Exercise delivered following a Call Notice shall first reduce to
zero the number of Warrant Shares subject to such Call Notice prior to reducing
the remaining Warrant Shares available for purchase under this Warrant. For
example, if (x) this Warrant then permits the Holder to acquire 100 Warrant
Shares, (y) a Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30
p.m. (New York City time) on the Call Date the Holder tenders a Notice of
Exercise in respect of 50 Warrant Shares, then (1) on the Call Date the right
under this Warrant to acquire 25 Warrant Shares will be automatically cancelled,
(2) the Company, in the time and manner required under this Warrant, will have
issued and delivered to the Holder 50 Warrant Shares in respect of the exercises
following receipt of the Call Notice, and (3) the Holder may, until the
Termination Date, exercise this Warrant for 25 Warrant Shares (subject to
adjustment as herein provided and subject to subsequent Call Notices). Subject
again to the provisions of this Section 5, the Company may deliver subsequent
Call Notices for any portion of this Warrant for which the Holder shall not have
delivered a Notice of Exercise. Notwithstanding anything to the contrary set
forth in this Warrant, the Company may not deliver a Call Notice or require the
cancellation of this Warrant (and any Call Notice will be void), unless, from
the beginning of the Threshold Period through the Call Date, (i) the Company
shall have honored in accordance with the terms of this Warrant all Notices of
Exercise delivered by 6:30 p.m. (New York City time) on the Call Date, (ii) the
Registration Statement shall be effective as to all Warrant Shares and (iii) the
Common Stock shall be listed or quoted for trading on the Trading Market. In
addition, the Company's right to call the Warrant shall be limited as to Holder
by the limitation on exercise set forth in Section 2(d), such that no Call shall
be valid to the extent, but only to the extent, that the Holder's exercise of
that portion of this Warrant sought to be called, would violate the condition
set forth in Section 2(d) as to such Holder. The Company's right to Call the
Warrant shall be exercised ratably among the Purchasers based on each
Purchaser's initial purchase of Common Stock pursuant to the Purchase Agreement.
Section 6. 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.
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(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 (or to authorize an uncertificated issuance to the
Holder via the DTC DWAC system) 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
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(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 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.
(f) JURISDICTION. All questions concerning the construction,
validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.
(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) 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 that 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 reasonable
costs and expenses including, but not limited to, 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.
(i) 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.
(j) 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.
(k) 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
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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.
(l) 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.
(m) AMENDMENT. This Warrant may be modified or amended or the
provisions hereof waived with the written consent of the Company and
the Holder.
(n) 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.
(o) HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: July 30, 2004
WAVE SYSTEMS CORP.
By:/s/ Gerard T. Feeney
--------------------
Name: Gerard T. Feeney
Title: Chief Financial Officer
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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):
/ / in lawful money of the United States; or
/ / 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:
_______________________________
_______________________________
_______________________________
[PURCHASER]
By:
--------------------------
Name:
Title:
Dated:
--------------------
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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.