EXHIBIT 10.3

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made and entered into
as of November     , 2003, among Wave Systems Corp., a Delaware corporation (the
“Company”), and the purchasers’ signatory hereto (each such purchaser is a
“Purchaser” and all such purchasers are, collectively, the “Purchasers”).

 

This Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the date hereof among the Company and the Purchasers (the “Purchase
Agreement”).

 

The Company and the Purchasers hereby agree as follows:

 

1.                                       Definitions

 

Capitalized terms used and not otherwise defined herein that are defined in the
Purchase Agreement shall have the meanings given such terms in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:

 

“Effectiveness Date” means, with respect to the Registration Statement
registering for resale the Registrable Securities, the 90th calendar day
following the Closing Date; provided, however, in the event that the Company is
notified by the Commission that the above Registration Statement will not be
reviewed or is no longer subject to further review and comments, the
Effectiveness Date as to the Registration Statement shall be the fifth Trading
Day following the date on which the Company is so notified if such date precedes
the dates required above.

 

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 

“Filing Date” means, with respect to the Registration Statement registering for
resale the Registrable Securities, the 30th day following the Closing Date.

 

“Holder” or “Holders” means the holder or holders, as the case may be, from time
to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously

 

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omitted from a prospectus filed as part of an effective registration statement
in reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Registrable Securities” means all of the Shares, the Warrant Shares, shares of
Common Stock issuable upon exercise of the warrants issued to J.P. Carey or its
designees in connection with the transactions contemplated by the Purchase
Agreement together with any shares of Common Stock issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.

 

“Registration Statement” means the registration statements required to be filed
hereunder, including (in each case) the Prospectus, amendments and supplements
to the Registration Statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in the registration statement.

 

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.

 

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same purpose and effect as such Rule.

 

“Warrants” shall mean the Common Stock purchase warrants issued to the
Purchasers pursuant to the Purchase Agreement.

 

2.                                       Registration

 

(a)                                  On or prior to the Filing Date, the Company
shall prepare and file with the Commission the Registration Statement covering
the resale of all of the Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (unless the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by the Holders and except to the extent the Company
determines that modifications thereto are required under applicable law)
substantially the “Plan of Distribution” attached hereto as Annex A.  Subject to
the terms of this Agreement, the Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing

 

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thereof, but in any event prior to the Effectiveness Date, and shall use its
best efforts to keep the Registration Statement continuously effective under the
Securities Act until the date which is two years after the date that the
Registration Statement is declared effective by the Commission or such earlier
date when all Registrable Securities covered by the Registration Statement have
been sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company’s transfer agent and the
affected Holders (the “Effectiveness Period”). The Company shall notify the
Holders via facsimile within one (1) Trading Day of the effectiveness of the
Registration Statement on the same day that the Company receives notification of
the effectiveness from the Commission.

 

(b)                                 If: (i) the Registration Statement is not
filed on or prior to its Filing Date (if the Company files the Registration
Statement without affording the Holders the opportunity to review and comment on
the same as required by Section 3(a), the Company shall not be deemed to have
satisfied clause (i)), or (ii) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 461 promulgated under the
Securities Act, within five Trading Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that the
Registration Statement will not be “reviewed,” or not subject to further review,
or (iii) prior to the Effectiveness Date, the Company fails to file a
pre-effective amendment and otherwise respond in writing to comments made by the
Commission in respect of the Registration Statement within 10 Trading Days after
the receipt of comments by or notice from the Commission that such amendment is
required in order for the Registration Statement to be declared effective, or
(iv) the Registration Statement filed or required to be filed hereunder is not
declared effective by the Commission by the Effectiveness Date, or (v) after the
Effectiveness Date, the Registration Statement ceases for any reason to remain
continuously effective as to all Registrable Securities for which it is required
to be effective, or the Holders are not permitted to utilize the Prospectus
therein to resell such Registrable Securities for 10 consecutive Trading Days or
in any individual case an aggregate of 15 Trading Days during any 12 month
period (which need not be consecutive Trading Days) (any such failure or breach
being referred to as an “Event”, and for purposes of clause (i) or (iv) the date
on which such Event occurs, or for purposes of clause (ii) the date on which
such five Trading Day period is exceeded, or for purposes of clause (iii) the
date which such 10 Trading Day period is exceeded, or for purposes of clause (v)
the date on which such 10 or 15 Trading Day period, as applicable, is exceeded
being referred to as “Event Date”), then, on each such Event Date and every
monthly anniversary thereof until the applicable Event is cured, the Company
shall pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 2.0% per month of (i) the Subscription Amount paid by such
Holder pursuant to the Purchase Agreement for Registrable Securities then held
by such Holder and covered (or to be covered) by the Registration Statement, and
(ii) if the Warrants are “in the money” and then held by the Holder, the value
of any outstanding Warrants (valued at the difference between the average
Closing Price during the applicable month and the Exercise Price multiplied by
the number of shares of Common Stock the Warrants are exercisable into).

 

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If the Company fails to pay any liquidated damages pursuant to this Section in
full within seven days after the date payable, the Company will pay interest
thereon at a rate of 15% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms hereof
shall apply on a pro-rata basis for any portion of a month prior to the cure of
an Event.

 

3.                                       Registration Procedures

 

In connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a)                                  Not less than five Trading Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall, (i) furnish to each Holder copies of all such documents proposed to be
filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Holders, and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities shall
reasonably and in good faith object, provided, the Company is notified of such
objection in writing no later than 3 Trading Days after the Holders have been so
furnished copies of such documents.

 

(b)                                 (i) Prepare and file with the Commission
such amendments, including post-effective amendments, to the Registration
Statement and the Prospectus used in connection therewith as may be necessary to
cause the Registration Statement to become effective and to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement (subject to the
terms of this Agreement), and as so supplemented or amended to be filed pursuant
to Rule 424; (iii) respond as promptly as reasonably possible, and in any event
within 10 Trading Days, to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto and as promptly
as reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance (subject to the terms of this Agreement) with
the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

 

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(c)                                  Notify the Holders of Registrable
Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi)
hereof, shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made) as promptly as reasonably
possible and (if requested by any such Person) confirm such notice in writing no
later than two Trading Days following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a “review” of the Registration Statement and whenever the
Commission comments in writing on the Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; (v) of the occurrence of any
event or passage of time that makes the financial statements included in the
Registration Statement ineligible for inclusion therein or any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and  (vi) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability or the Registration
Statement or Prospectus; provided that the Company shall not disclose the nature
of such information to the Holder.

 

(d)                                 Promptly deliver to each Holder, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as reasonably requested.
Subject to the terms of this Agreement, the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.

 

(e)                                  Use commercially reasonable efforts to
register or qualify the resale of such Registrable Securities as required under
applicable securities or Blue Sky laws of each State within the United States as
any Holder requests in writing, to keep each the Registration or qualification
(or exemption therefrom) effective during the

 

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Effectiveness Period; provided, that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.

 

(f)                                    Cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to the Registration
Statement, which certificates shall be free, to the extent permitted by the
Purchase Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
Holders may request.

 

(g)                                 Upon the occurrence of any event
contemplated by this Section 3, as promptly as reasonably possible under the
circumstances prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Company
notifies the Holders in accordance with clauses (ii) through (vi) of
Section 3(c) above to suspend the use of the use of any Prospectus until the
requisite changes to such Prospectus have been made, or the Company otherwise
notifies the Holders of its election to suspend the availability of the
Registration Statement and Prospectus pursuant to clause (vi) of Section 3(c),
then the Holders shall suspend use of such Prospectus.  The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed as promptly
as is practicable, except that in the case of suspension of the availability of
the Registration Statement and Prospectus pursuant to clause (vi) of
Section 3(c), the Company shall not be required to take such action until such
time as it shall determine that the continued availability of the Registration
Statement and Prospectus is no longer not in the best interests of the Company. 
The Company shall be entitled to exercise its right under this Section 3(g) to
suspend the availability of the Registration Statement and Prospectus, subject
to the payment of liquidated damages pursuant to Section 2(b), for a period not
to exceed 60 consecutive days or for multiple periods not to exceed 90 days in
any 12 month period.

 

(h)                                 Comply with all applicable rules and
regulations of the Commission.

 

(i)                                     Use its best efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(j)                                     The Company may require, at any time
prior to the third Trading Day prior to the Filing Date, each Holder to furnish
to the Company a statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if requested

 

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by the Commission, the controlling person thereof, within three Trading Days of
the Company’s request.  During any periods that the Company is unable to meet
its obligations hereunder with respect to the registration of the Registrable
Securities solely because any Holder fails to furnish such information within
three Trading Days of the Company’s request, any liquidated damages that are
accruing at such time shall be tolled, until such information is delivered to
the Company.

 

4.                                       Registration Expenses. All fees and
expenses incident to the performance of or compliance with this Agreement by the
Company shall be borne by the Company whether or not any Registrable Securities
are sold pursuant to the Registration Statement. The fees and expenses referred
to in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the Trading Market on which
the Common Stock is then listed for trading, and (B) in compliance with
applicable state securities or Blue Sky laws reasonably agreed to by the Company
in writing (including, without limitation, fees and disbursements of counsel for
the Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as requested by
the Holders)), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
requested by the Holders), (iii) messenger, telephone and delivery expenses,
(iv) fees and disbursements of counsel for the Company, and (v) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.  In addition,
the Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions or, except to the extent provided for in the Transaction
Documents, any legal fees or other costs of the Holders.

 

5.                                       Indemnification

 

(a)                                  Indemnification by the Company.  The
Company shall, notwithstanding any termination of this Agreement, indemnify and
hold harmless each Holder, the officers, directors, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result of a
pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred,
arising out of or relating to any untrue or alleged untrue statement

 

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of a material fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions or alleged untrue statements or omissions are
based solely upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, or to the extent that such
information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section 6(e). The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding arising from
or in connection with the transactions contemplated by this Agreement of which
the Company is aware.

 

(b)                                 Indemnification by Holders. Each Holder
shall, severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from and
against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising out of or based upon any
untrue statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon: (i) such Holder’s
failure to comply with the prospectus delivery requirements of the Securities
Act or (ii) any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading to the extent, but only
to the extent, such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus or to the extent that (1) such
untrue statements or omissions are based upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein, or
to the extent such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (2) in the case of an occurrence of an event of the type
specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or
defective Prospectus after the Company has notified such Holder in writing that
the Prospectus is outdated or defective and prior to the receipt by such Holder
of the Advice contemplated in Section 6(e). In no event shall the liability of
any selling Holder

 

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hereunder be greater in amount than the dollar amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.

 

(c)                                  Conduct of Indemnification Proceedings.  If
any Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall
promptly notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that
such failure shall have prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a material conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the expense of one such counsel for each Holder shall be at the
expense of the Indemnifying Party). The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.

 

Subject to the terms of this Agreement, all fees and expenses of the Indemnified
Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a manner
not inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten Trading Days of written notice thereof to the Indemnifying
Party (regardless of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is

 

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finally judicially determined that such Indemnified Party is not entitled to
indemnification hereunder).

 

(d)                                 Contribution. If a claim for indemnification
under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations. 
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6.                                       Miscellaneous

 

(a)                                  Amendments and Waivers.  The provisions of
this Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the same shall be in writing and
signed by the Company and all of the Holders of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of all of the Registrable Securities to
which

 

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such waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.

 

(b)                                 No Inconsistent Agreements . Neither the
Company nor any of its subsidiaries has entered, as of the date hereof, nor
shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities, that would
have the effect of impairing the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof.  Except as set forth on
Schedule 6(b), neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person that have not been satisfied in full.

 

(c)                                  No Piggyback on Registrations.  Except as
and to the extent specified in Schedule 6(c) hereto, neither the Company nor any
of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to any of its security
holders.

 

(d)                                 Compliance.  Each Holder covenants and
agrees that it will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to the Registration Statement.

 

(e)                                  Discontinued Disposition.  Each Holder
agrees by its acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind described in
Sections 3(c)(ii), (iii) or (vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder’s receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(g), or until it is
advised in writing (the “Advice”) by the Company that the use of the applicable
Prospectus may be resumed, and, in either case, has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement. The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph. The Company agrees and acknowledges that any periods during which the
Holder is required to discontinue the disposition of the Registrable Securities
hereunder shall be subject to the provisions of Section 2(b).

 

(f)                                    Piggy-Back Registrations.  If at any time
during the Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine to
prepare and file with the Commission the Registration Statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or

 

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business or equity securities issuable in connection with stock option or other
employee benefit plans, then the Company shall send to each Holder written
notice of such determination and, if within fifteen days after receipt of such
notice, any such Holder shall so request in writing, the Company shall include
in the Registration statement all or any part of such Registrable Securities
such holder requests to be registered; provided, that, the Company shall not be
required to register any Registrable Securities pursuant to this Section 6(f)
that are eligible for resale pursuant to Rule 144(k) promulgated under the
Securities Act or that are the subject of a then effective Registration
Statement..

 

(g)                                 Notices.  Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be delivered as set forth in the Purchase Agreement.

 

(h)                                 Successors and Assigns.  This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of each Holder.
The Company may not assign its rights or obligations hereunder without the prior
written consent of all of the Holders of the then-outstanding Registrable
Securities. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.

 

(i)                                     Counterparts.  This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and, all of which taken together shall constitute one
and the same Agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation
of the party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the original
thereof.

 

(j)                                     Governing Law.  All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.  Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce

 

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any provisions of this Agreement, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.

 

(k)                                  Cumulative Remedies.  The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.

 

(l)                                     Severability.  If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

(m)                               Headings.  The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

(n)                                 Remedies.  In the event of a breach by the
Company or by a Holder, of any of their obligations under this Agreement, each
Holder or the Company, as the case may be, in addition to being entitled to
exercise all rights granted by law and under this Agreement, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder agree that monetary damages would not
provide adequate compensation for any losses incurred by reason of a breach by
it of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.

 

(o)                                 Independent Nature of Purchasers’
Obligations and Rights.  The obligations of each Purchaser hereunder is several
and not joint with the obligations of any other Purchaser hereunder, and no
Purchaser shall be responsible in any way for the performance of the obligations
of any other Purchaser hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any
Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert with respect to such obligations or the transactions contemplated by
this Agreement. Each Purchaser shall be entitled to protect and enforce its
rights, including without limitation the rights arising out of this Agreement,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.

 

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

 

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IN WITNESS WHEREOF, the parties have executed this Registration

 

Rights Agreement as of the date first written above.

 

 

 

WAVE SYSTEMS CORP.

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

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[SIGNATURE PAGE OF HOLDERS TO RRA -WAVX]

 

 

 

[PURCHASER]

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

 

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[SIGNATURE PAGE OF HOLDERS TO RRA- WAVX]

 

 

 

[PURCHASER]

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

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Plan of Distribution

 

The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions.  These sales may be at fixed or
negotiated prices.  The selling stockholders may use any one or more of the
following methods when selling shares:

 

•                                          ordinary brokerage transactions and
transactions in which the broker dealer solicits purchasers;

 

•                                          block trades in which the broker
dealer will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;

 

•                                          purchases by a broker dealer as
principal and resale by the broker dealer for its account;

 

•                                          an exchange distribution in
accordance with the rules of the applicable exchange;

 

•                                          privately negotiated transactions;

 

•                                          settlement of short sales crated
after the date of this Prospectus;

 

•                                          broker dealers may agree with the
selling stockholders to sell a specified number of such shares at a stipulated
price per share;

 

•                                          a combination of any such methods of
sale; and

 

•                                          any other method permitted pursuant
to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.  Broker dealers
engaged by the selling stockholders may arrange for other brokers dealers to
participate in sales.  Broker dealers may receive commissions or discounts from
the selling stockholders (or, if any broker dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated.  The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.

 

The selling stockholder may from time to time pledge or grant a security
interest in some or all of the Shares or common stock or Warrant owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable

 

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provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.

 

The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any commissions
received by such broker dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  The selling stockholders have informed the
Company that none of them have any agreement or understanding, directly or
indirectly, with any person to distribute the common stock.

 

The Company is required to pay all fees and expenses incurred by the Company
incident to the registration of the shares.  The Company has agreed to indemnify
the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

 

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SCHEDULE 6(c)

 

The holders of the Company’s Series H Convertible Preferred Stock may include
the shares of the Company’s Common Stock issuable upon conversion or exercise of
their Series H Convertible Preferred Stock and related Warrants if at any time
there is not an effective registration statement covering such Common Stock.  An
effective registration statement currently covers such Common Stock.

 

Sandra West holds multiple warrants exercisable for an aggregate of 44,365
shares of Common Stock which were granted to her as payment for services
performed for the Company.  Each warrant grants her the right to be included on
the Registration Statement.  He shares of Common Stock issuable upon exercise of
her warrants will be included in the Registration Statement.

 

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