REGISTRATION RIGHTS AGREEMENT


     REGISTRATION  RIGHTS  AGREEMENT,  dated as of  December  21,  2005,  by and
between  Datawave Systems Inc., a Delaware  corporation  (the "Company"),  Sigma
Opportunity   Fund,   LLC,   a   Delaware   limited   liability   company   (the
"Rightsholder"),  and, solely for purposes of Section 3 and the last sentence of
Section 4(a)(i) hereof, Integrated Technologies & Systems Ltd., a British Virgin
Islands company ("IT&S").

     WHEREAS,  this  Agreement  has been  entered  into in  connection  with the
purchase by the  Rightsholder  from Integrated  Technologies & Systems Ltd. of a
Promissory Note (the "Note"), dated February 1, 2005, in the aggregate principal
amount of  $600,000,  which  Note is  convertible  into  7,500,000  shares  (the
"Shares") of common stock (the "Common Stock") of the Company;

     WHEREAS,  the  Company  has  consented  to  the  transfer  of the  Note  to
Rightsholder; and

     WHEREAS,  in  consideration  of the  Rightsholder  purchasing  the Note and
becoming  involved with the Company,  the Company has agreed to provide  certain
registration rights under the Securities Act of 1933, as amended,  and the rules
and regulations thereunder, or any similar successor statute (collectively,  the
"Securities Act"), and applicable state securities laws.

     NOW, THEREFORE, it is agreed as follows:

     1. Registerable Securities.  The term "Registerable  Securities" shall mean
        -----------------------
(i) the  Shares,  and (ii) any  Common  Stock  issued as (or  issuable  upon the
conversion  or exercise of any warrant,  right or other  security that is issued
as) a dividend or other  distribution with respect to, or in exchange for, or in
replacement of, the Shares. For the purposes of this Agreement,  securities will
cease to be Registerable  Securities when (A) such  Registerable  Securities are
distributed  to the public  pursuant  to the  Securities  Act, or pursuant to an
exemption from the registration  requirements of the Securities Act,  including,
but not limited to, Rules 144 and 144A promulgated under the Securities Act, (B)
such Registerable  Securities are eligible for immediate resale pursuant to Rule
144(k) promulgated under the Securities Act, or (C) such Registerable Securities
have been otherwise  transferred and the Company,  in accordance with applicable
laws and  regulations,  has delivered  new  certificates  or other  evidences of
ownership for such  securities  which are not subject to any stop transfer order
or other  restriction  on  transfer  and  such  Registerable  Securities  may be
publicly  resold  (without  volume  or  method  of  sale  restrictions)  without
registration under the Securities Act.

     2. Registration Rights.
        -------------------

        (a) The Company  shall file a  registration  statement  to register  the
Registerable  Securities,  or the resale thereof,  within 60 days after the date
hereof,  and will use its best  commercially  reasonable  efforts  to cause such
registration statement to become effective as soon as practicable thereafter.

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        (b) If, at any time commencing  after the date hereof and on or prior to
two years from the date  hereof,  the Company  proposes  to file a  registration
statement (a "Registration  Statement") under the Securities Act with respect to
an  offering by the  Company or any  selling  stockholders  of any of its equity
securities (other than a registration  statement on Form S-4 or Form S-8, or any
successor form or a registration  statement  filed solely in connection  with an
exchange offer, a business combination  transaction or an offering of securities
solely to the  existing  stockholders  or employees  of the  Company),  then the
Company shall in each case give written  notice (the  "Notice") of such proposed
filing to the  Rightsholder  at least  twenty (20) days  before the  anticipated
filing  date of such  Registration  Statement,  which  Notice  shall  offer  the
Rightsholder  the  opportunity  to include in such  Registration  Statement such
amount of Registerable  Securities  that are not then registered  pursuant to an
effective  registration  statement as they may request.  The Rightsholder  shall
advise the Company of such  election  in writing  within ten (10) days after the
date of receipt of the Notice,  specifying the amount of Registerable Securities
for which registration is requested (the "Election").  The Company shall include
in any such Registration  Statement all Registerable  Securities so requested to
be included.  Notwithstanding  the foregoing,  if the underwriter(s) of any such
offering of the Company shall be of the good faith opinion that the total amount
or kind of securities held by the Rightsholder and any other persons or entities
entitled to be included in such offering would  adversely  affect the success of
such  offering,  then the amount of securities to be offered for the accounts of
Rightsholder and the other selling securityholders  included in the Registration
Statement shall be reduced pro rata to the extent  necessary to reduce the total
amount of securities  to be included in such offering to the amount  recommended
by the underwriter(s) thereof,  whereupon the Company shall only be obligated to
register such limited portion (which may be none) of the Registerable Securities
with respect to which such Rightsholder  have provided an Election.  In no event
shall the Company be required pursuant to this Section 2(b) to reduce the amount
of securities proposed to be registered by it for its own account.

        3. Registration Expenses.
           ---------------------

        IT&S shall pay all of the out-of-pocket expenses of the Company incurred
in connection with preparation and filing of the registration statement required
to be filed  pursuant  to Section 2 hereof  and any  amendments  or  supplements
thereto  (including  compliance with its obligations  under Section 4(a) below),
and IT&S is included as a party to this  Agreement  expressly and solely for the
purposes  of this  Section 3 and the last  sentence in Section  4(a)(i)  hereof.
Rightsholder  shall  be  responsible  for and pay its own  costs  and  expenses,
including  without  limitation the costs of its legal counsel in connection with
the Registration  Statement,  and any expenses or commissions in connection with
the sale of its Registrable Securities.

        4. Registration Obligations
           ------------------------

          (a)  Obligations of the Company.  The Company will, in connection with
               --------------------------
any  registration  pursuant  to Section 2 hereof:

          (i) Prepare and file with the Securities and Exchange Commission (the
"Commission") a Registration Statement with respect to the Registerable
Securities in accordance with the method or methods of distribution thereof as
specified by the Rightsholder

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<PAGE>

(except if otherwise directed by the Rightsholder); provided, however, that not
less than three business days prior to the filing of such Registration Statement
or any related prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company shall (A)
furnish to the Rightsholder and its legal counsel, copies of all such documents
proposed to be filed, and (B) at the request of the Rightsholder 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
counsel to the Rightsholder, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall prepare and file with the
Commission such post-effective amendments and supplements to the Registration
Statement as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registerable Securities until (A) such the
securities cease to be Registerable Securities or (B) two (2) years after the
effective date of the Registration Statement, whichever is earlier. Rightsholder
will reimburse the Company for any reasonable out of pocket expenses that the
Company may incur for preparing and filing with the Commission such
post-effective amendments and supplements, other than ordinary filing and
administrative expenses associated with preparing and filing such post-effective
amendments and supplements, if IT&S fails to compensate the Company for such
expenses, as provided in Section 3 of this Agreement, within 45 days after a
request for compensation is made to IT&S by the Company. Upon Rightsholder
providing such compensation, Rightsholder will succeed the Company in the
Company's right to collect such expenses from IT&S.

          (ii) Notify the Rightsholder and its legal counsel as promptly as
possible (A) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (B) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registerable Securities or the initiation
of any action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened (each, a "Proceeding") for that purpose; (C) 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 Registerable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (D) of the occurrence of any event that makes
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 the light of the
circumstances under which they were made, not misleading.

          (iii) Furnish to the Rightsholder and its legal counsel, without
charge, at least one conformed copy of the Registration Statement and each
amendment thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

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<PAGE>

          (iv) Prior to any public offering of the Registerable Securities, use
reasonable efforts to register or qualify or cooperate with the Rightsholder and
its legal counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registerable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions within the United States as the Rightsholder requests in writing,
to keep each such registration or qualification (or exemption therefrom)
effective during the period when the Registration Statement is effective and to
do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registerable Securities covered by the
Registration Statement; provided, however, that the Company shall not be
                        --------  -------
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.

          (v) Cooperate with the Rightsholder to facilitate the timely
preparation and delivery of certificates representing Registerable Securities
that Rightsholder confirms to have been sold pursuant to the Registration
Statement, which certificates shall be free of all restrictive legends, and to
enable such Registerable Securities to be in such denominations and registered
in such names as the Rightsholder may request.


          (vi) Use its reasonable efforts to cause all Registerable Securities
relating to the Registration Statement to be listed on any securities exchange,
quotation system or market (including Nasdaq), if any, on which similar
securities issued by the Company are then listed.


          (vii) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.

          (b) Obligations of  Rightsholder.  In connection with any registration
              ----------------------------
of  Registerable  Securities  of  the Rightsholder pursuant to Section 2 hereof:

          (i) It  shall  be a  condition  precedent  to the  obligations  of the
Company to file the  registration  statement  pursuant  to this  Agreement  that
Rightsholder furnish to the Company such information  regarding the distribution
of such  Registerable  Securities and Rightsholder and of the intended method of
disposition  of such  securities as shall be  reasonably  required to effect the
registration of the Registerable Securities, all as the Company may from time to
time reasonably request;

          (ii)  Rightsholder  shall  notify the Company in writing two  business
days in advance of selling any Shares pursuant to the Registration Statement.

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<PAGE>


          (iii)  Rightsholder,  upon  receipt of notice  from the Company of the
occurrence  of any event  that  makes  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 the light of the circumstances under which they
were  made,  not  misleading,   shall  forthwith   discontinue   disposition  of
Registerable  Securities  pursuant to the Registration  Statement  covering such
Registerable  Securities until Rightsholder is advised in writing by the Company
that the use of the  applicable  prospectus  may be resumed or until the Company
delivers copies of supplemented or amended prospectuses.

          5.  Regulation  M;   Participation   in   Underwritten   Registration.
              -------------    ------------------------------------------------
Rightsholder  is familiar with the provisions and  restrictions  of Regulation M
under  the  Securities  Exchange  Act of 1934,  and the  rules  and  regulations
thereunder, or any similar successor statute (collectively, the "Exchange Act"),
and understands  that the  anti-manipulation  rules of Regulation M may apply to
sales of Shares in the market and to the activities of the  Rightsholder and its
affiliates.  Rightsholder  shall comply with Regulation M in connection with any
sales of its Registerable  Securities.  Rightsholder  further agrees that it may
not  participate  in  any  underwritten   registration   hereunder  unless  such
Rightsholder  (i)  agrees to sell such  Rightsholder's  securities  on the basis
provided in any  underwriting  arrangements  and (ii) completes and executes all
customary  questionnaires,  appropriate  and limited powers of attorney,  escrow
agreements,  indemnities,   underwriting  agreements,  lock-up  agreements  with
respect  to  securities  not  being  sold and  such  other  customary  documents
reasonably required under the terms of such underwriting arrangement.

         6.   Indemnification.
              ---------------

          (a)  Indemnification  by the Company.  The Company agrees to indemnify
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and hold harmless,  to the full extent  permitted by law,  Rightsholder  and its
respective officers, directors, and members and each Person who controls (within
the meaning of the  Securities  Act or the  Exchange  Act) such Persons from and
against  any and  all  losses,  claims,  damages,  liabilities  (or  actions  or
proceedings in respect thereof, whether or not such indemnified party is a party
thereto) and expenses  (including  reasonable costs of  investigation  and legal
expenses), joint or several (each, a "Loss" and collectively "Losses"),  arising
out of or based upon (i) any untrue or alleged  untrue  statement  of a material
fact contained in any Registration Statement under which Registerable Securities
were  registered  under the Securities Act (including any final,  preliminary or


<PAGE>


summary  prospectus  contained  therein or any  amendment  thereof or supplement
thereto or any documents incorporated by reference therein) or (ii) any omission
or alleged  omission  to state  therein a material  fact  required  to be stated
therein or necessary to make the statements therein (in the case of a prospectus
or preliminary  prospectus,  in light of the circumstances under which they were
made) not misleading; provided, however, that the Company shall not be liable to
any  indemnified  party in any such case to the extent that any such Loss arises
out of or is based upon an untrue  statement  or  alleged  untrue  statement  or
omission or alleged omission made in any such Registration  Statement (including
any final,  preliminary or summary prospectus contained therein or any amendment
thereof  or  supplement  thereto  or any  documents  incorporated  by  reference
therein) in reliance upon and in conformity with written  information  furnished
to the  Company  by  Rightsholder  expressly  for use in  connection  with  such
registration;  This indemnity  shall be in addition to any liability the Company
may  otherwise  have.  Such  indemnity  shall  remain in full  force and  effect
regardless  of any  investigation  made by or on behalf of  Rightsholder  or any
indemnified  party  and  shall  survive  the  transfer  of  such  securities  by
Rightsholder.

          (b)  Indemnification  by  the  Rightsholder.  Rightsholder  agrees  to
               --------------------------------------
indemnify and hold harmless,  to the full extent  permitted by law, the Company,
its directors and officers and each Person who controls the Company  (within the
meaning of the  Securities Act and the Exchange Act) from and against any Losses
arising  out of or based upon any  untrue  statement  of a material  fact or any
omission of a material fact required to be stated in the Registration  Statement
under which such  Registerable  Securities were registered  under the Securities
Act (including any final, preliminary or summary prospectus contained therein or
any amendment  thereof or supplement  thereto or any documents  incorporated  by
reference therein),  or necessary to make the statements therein (in the case of
a prospectus or  preliminary  prospectus,  in light of the  circumstances  under
which they were made) not  misleading,  to the  extent,  but only to the extent,
that such untrue  statement  or omission has been  contained in any  information
furnished in writing by Rightsholder to the Company  specifically  for inclusion
in such  Registration  Statement.  This  indemnity  shall be in  addition to any
liability such  Rightsholder  may otherwise have. Such indemnity shall remain in
full force and effect  regardless of any  investigation  made by or on behalf of
the  Company  or any  indemnified  party.  In no event  shall the  liability  of
Rightsholder  hereunder be greater in amount than the dollar amount of the gross
proceeds before expenses and commissions to the  Rightsholder  under the sale of
the Registerable Securities giving rise to such indemnification obligation.

          (c) Conduct of  Indemnification  Proceedings.  Any Person  entitled to
              ----------------------------------------
indemnification   hereunder   will  (i)  give  prompt   written  notice  to  the
indemnifying  party of any claim with respect to which it seeks  indemnification
(provided,  that any delay or failure to so notify the indemnifying  party shall
relieve the indemnifying party of its obligations  hereunder only to the extent,
if at all, that it is actually and materially prejudiced by reason of such delay
or failure)  and (ii) permit  such  indemnifying  party to assume the defense of
such  claim with  counsel  reasonably  satisfactory  to the  indemnified  party;
provided,  however, that any Person entitled to indemnification  hereunder shall
have the right to select and employ  separate  counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such Person unless (A) the  indemnifying  party has agreed in writing
to pay such fees or expenses,  (B) the  indemnifying  party shall have failed to
assume the defense of such claim within a reasonable  time after having received
notice of such claim from the Person entitled to  indemnification  hereunder and
to employ counsel reasonably  satisfactory to such Person, (C) in the reasonable
judgment of any such  Person,  based upon advice of its  counsel,  a conflict of
interest exists between such Person and the  indemnifying  party with respect to
such claims or (D) the  indemnified  party has  reasonably  concluded  (based on
advice of counsel)  that there may be legal  defenses  available  to it or other
indemnified parties that are different from or in addition to those available to
the  indemnifying  party (in which case, if the Person notifies the indemnifying
party, the indemnifying  party shall not have the right to assume the defense of
such

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<PAGE>

claim  on  behalf  of  such  Person).  If such  defense  is not  assumed  by the
indemnifying  party, the indemnifying party will not be subject to any liability
for any  settlement  made  without  its  consent,  but such  consent  may not be
unreasonably  withheld;  provided,  that  an  indemnifying  party  shall  not be
required to consent to any  settlement  involving the imposition of any material
obligations  on such  indemnifying  party other than financial  obligations  for
which such indemnified party will be indemnified hereunder.  If the indemnifying
party assumes the defense, the indemnifying party shall have the right to settle
such action without the consent of the  indemnified  party;  provided,  that the
indemnifying party shall be required to obtain such consent (which consent shall
not be  unreasonably  withheld)  if the  settlement  includes  any  admission of
wrongdoing  on the  part of the  indemnified  party  or any  restriction  on the
indemnified  party or its officers or  directors.  No  indemnifying  party shall
consent to entry of any  judgment  or enter into any  settlement  which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to each  indemnified  party of an  unconditional  release from all  liability in
respect to such claim or  litigation.  The  indemnifying  party or parties shall
not,  in  connection  with any  proceeding  or related  proceedings  in the same
jurisdiction, be liable for the reasonable fees, disbursements and other charges
of more than one separate firm at any one time from all such  indemnified  party
or parties.

          7.  Counterparts.  This  Agreement  may be  executed  in  one or  more
              ------------
counterparts,  all of which shall be considered  one and the same  agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and  delivered  to the other  party,  it being  understood  that all
parties need not sign the same counterpart.

          8.  Entire Agreement. This Agreement and the documents and instruments
              ----------------
and other  agreements among the parties hereto as contemplated by or referred to
herein,  constitute the entire  agreement  among the parties with respect to the
subject  matter hereof and supersede all prior  agreements  and  understandings,
both  written and oral,  among the parties  with  respect to the subject  matter
hereof.

          9.  Severability. In the event that any provision of this Agreement or
              ------------
the  application  thereof  becomes  or  is  declared  by a  court  of  competent
jurisdiction  to be  illegal,  void  or  unenforceable,  the  remainder  of this
Agreement  will  continue in full force and effect and the  application  of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such  void or  unenforceable  provision  of  this  Agreement  with a  valid  and
enforceable  provision that will achieve, to the extent possible,  the economic,
business and other purposes of such void or unenforceable provision.

          10. Governing Law. This Agreement  shall be governed by and construed
              -------------
in  accordance  with the laws of the State of New York,  regardless  of the laws
that might  otherwise  govern under  applicable  principles  of conflicts of law
thereof.  Each of the  parties  hereto  irrevocably  consents  to the  exclusive
jurisdiction  of any state or  federal  court  within  the State and City of New
York, in connection  with any matter based upon or arising out of this Agreement
or the matters contemplated herein,  agrees that process may be served upon them
in any manner  authorized  by the laws of the State of New York for such persons
and waives and

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<PAGE>


covenants  not to assert or plead any objection  which they might otherwise have
to such jurisdiction and such process.

         11.  Assignment.   The right to include  Registerable  Securities  in a
              ----------
Registration Statement pursuant to Section 2 may not be assigned.

          12. Amendments and Waivers.  Except as otherwise  provided herein, the
              ----------------------
provisions  of this  Agreement  may not be  amended,  modified  or  supplemented
without  the  written  consent  of  the  Company  and  the   Rightsholder.   The
Rightsholder or the Company may, by written notice to the others,  (i) waive any
of the  conditions  to its  obligations  hereunder  or  extend  the time for the
performance of any of the  obligations  or actions of the other,  (ii) waive any
inaccuracies in the  representations of the other contained in this Agreement or
in any documents  delivered  pursuant to this Agreement,  (iii) waive compliance
with any of the covenants of the other contained in this Agreement or (iv) waive
or modify  performance of any of the  obligations of the other.  No action taken
pursuant to this Agreement,  including, without limitation, any investigation by
or on behalf of any party,  shall be deemed to  constitute a waiver by the party
taking such action or compliance with any representation, warranty, condition or
agreement  contained herein.  Waiver of the breach of any one or more provisions
of this  Agreement  shall  not be deemed  or  construed  to be a waiver of other
breaches or subsequent breaches of the same provisions.

          13. Notices.  All notices,  requests,  demands or other communications
              -------
provided  for herein  shall be in writing and shall be deemed to have been given
when personally  delivered or sent by (i) registered or certified  mail,  return
receipt requested, (ii) nationally recognized overnight courier service or (iii)
facsimile transmission  electronically confirmed addressed if to the Company, to
Datawave  Systems  Inc.,  Wayne  Interchange  Plaza One, 145 Route 46 West,  3rd
Floor, Wayne, NJ 07470, Attn: Joshua Emanuel,  Facsimile:  (973) 774-5047; if to
Rightsholder,  to Sigma  Opportunity  Fund,  LLC,  c/o Sigma  Capital  Advisors,
managing member,  800 Third Avenue,  Suite 1701, New York, NY 10022,  Attn: Thom
Waye,  Facsimile:  (212)  937-3558;  with a copy to Moomjian & Waite,  LLP,  100
Jericho Quadrangle,  Jericho,  NY 11753, Attn: Kevin W. Waite, Esq.,  Facsimile:
(516)  937-5050,  if to IT&S, to Integrated  Technologies & Systems Ltd.,  Akara
Buildings,  24, De Castro Street,  Road Town,  Tortola,  British Virgin Islands,
Facsimile:  011-44-208-871-1836;  or to such  other  person or address as either
party shall  designate  to the other from time to time in writing  forwarded  in
like manner.

          14. Other Remedies.  Except as otherwise  provided herein, any and all
              --------------
remedies herein expressly  conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party,  and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.

          15. Further  Assurances.  Each party hereto  covenants and agrees with
              -------------------
all other parties hereto to promptly execute,  deliver,  file and/or record such
agreements, instruments,  certificates and other documents and to do and perform
such other and further acts and things as any other party hereto may  reasonably
request or as may otherwise be necessary or proper to consummate and perfect the
transactions contemplated hereby.

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<PAGE>


          16. Representations. The parties hereto warrant and agree as follows:
              ---------------

          (a) Available  Information.  Rightsholder  acknowledges to the Company
              ----------------------
that  it is  familiar  with  the  business,  management,  operations,  financial
condition  and  affairs of the  Company and is  therefore  able to evaluate  the
merits  and risks of a  purchase  of the Note.  The  Company  represents  to the
Rightsholder  that, to the best of the Company's  knowledge,  the reports it has
filed with the Commission do not contain any untrue statement of a material fact
or omit to state any material  fact  necessary  in order to make the  statements
therein,  in the light of the  circumstances  under  which  they are  made,  not
misleading.  To the best of the Company's  knowledge,  the Company has filed all
reports required to be filed with the Commission since January 1, 2005.

          (b) Restricted  Securities.  The Company covenants that,  concurrently
              ----------------------
with the execution of this Agreement, it consents to the transfer of the Note to
Rightsholder  and that,  upon  request of  Rightsholder,  it will  reissue a new
promissory  note in exchange for the Note upon the same terms to Rightsholder in
the name of Rightsholder.  Rightsholder  acknowledges that the Company's consent
to the transfer of the Note from IT&S to  Rightsholder is based on the exemption
referred  to as the  "Section  4(1-1/2)"  exemption  and is in  reliance  on the
opinion  provided  by legal  counsel for IT&S,  a copy of which was  provided to
Rightsholder  and its legal counsel,  and is in reliance on the  representations
made by  Rightsholder  in this Section 16.  Rightsholder  understands and agrees
that the Note  (including  any new note  issued in  exchange  therefor)  will be
restricted  within  the  meaning  of the  Securities  Act,  and may not be sold,
transferred or otherwise  disposed of without  registration under the Securities
Act or an exemption  therefrom.  The Company warrants that the Note (and any new
note issued in exchange  therefor) is valid and  enforceable,  cannot be prepaid
and is convertible  into 7,500,000 shares of Common Stock (subject to adjustment
for stock splits, stock dividends, reorganizations and the like).

          (c) Legend.  Rightsholder  understands and acknowledges  that the Note
              ------
and the  certificates  representing the Shares upon conversion of the Note shall
bear a legend substantially as follows until (i) such securities shall have been
registered under the Act; or (ii) in the opinion of counsel for the Company such
securities may be sold without  registration under the Securities Act as well as
any applicable "Blue Sky" or state securities laws:

"THE SECURITIES  REPRESENTED BY THIS  INSTRUMENT HAVE NOT BEEN REGISTERED  UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE
CORPORATION  HAS  RECEIVED AN OPINION OF COUNSEL OR OTHER  EVIDENCE,  REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL,  THAT SUCH  REGISTRATION IS NOT
REQUIRED."

          (d) Investment.  The Note and, until  effectiveness  of a registration
              ----------
statement  registering the Shares for resale by  Rightsholder,  any Shares to be
acquired by  Rightsholder,  will be acquired for  investment  purposes  only for
Rightsholder's own account and not with a view to

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<PAGE>


the distribution thereof.

          (e) Accredited Investor.  Rightsholder is an "Accredited  Investor" as
              -------------------
that  term  is  defined  in Rule  501 of  Regulation  D  promulgated  under  the
Securities  Act.  Rightsholder is able to bear the economic risk of the purchase
of the Note, including a complete loss of Rightsholder's investment in the Note.

          (f) Financial  Experience.  The  Rightsholder  represents and warrants
              ---------------------
thatby reason of Rightsholder's  business or financial experience,  Rightsholder
has the capacity to protect  Rightsholder's own interests in connection with the
transactions contemplated by this Agreement.

          IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement to
be signed by themselves or their duly authorized respective officers,  all as of
the date first written above.


                                        DATAWAVE SYSTEMS INC.

                                        By:      /s/ Joshua Emanuel
                                           ---------------------------------
                                           Name: Joshua Emanuel
                                           Title: CEO


                                        SIGMA OPPORTUNITY FUND, LLC
                                        By: Sigma Capital Advisors, LLC,
                                                 managing member

                                        By:      /s/ Thom Waye
                                           ---------------------------------
                                           Thom Waye
                                           Manager


                                        INTEGRATED TECHNOLOGIES & SYSTEMS LTD.

                                        By:  /s/ John Faraday
                                           ---------------------------------
                                           John Faraday
                                           President



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