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                                                                    EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
July 30, 2004, among Wave Systems Corp., a Delaware corporation (the "COMPANY"),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "PURCHASER" and collectively the "PURCHASERS"); and

         WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company in
the aggregate, up to $3,000,000 of shares of Common Stock, Warrants and certain
Additional Investment Rights on the Closing Date pursuant to an effective
Registration Statement on Form S-3, file no. 333-114476.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agrees
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1.    DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

                 "ACTION" shall have the meaning ascribed to such term in
         Section 3.1(j).

                 "ADDITIONAL INVESTMENT RIGHTS" means the Additional Investment
         Rights as described in Section 2.2(a)(v).

                 "ADDITIONAL INVESTMENT RIGHT SHARES" means the shares of Common
         Stock issuable upon exercise of the Additional Investment Rights.

                 "AFFILIATE" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person as such terms are used in and
         construed under Rule 144. With respect to a Purchaser, any investment
         fund or managed account that is managed on a discretionary basis by the
         same investment manager as such Purchaser will be deemed to be an
         Affiliate of such Purchaser.

                 "CLOSING" means the closing of the purchase and sale of the
         Common Stock, the Warrants and the Additional Investment Rights
         pursuant to Section 2.1.

                 "CLOSING DATE" means the Trading Day when all of the
         Transaction Documents have been executed and delivered by the
         applicable parties thereto, and all conditions precedent to (i) the
         Purchasers' obligations to pay the Subscription Amount and (ii) the
         Company's obligations to deliver the Securities have been satisfied or
         waived.

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                 "COMMISSION" means the Securities and Exchange Commission.

                 "COMMON STOCK" means the Class A common stock of the Company,
         par value $0.01 per share, and any securities into which such common
         stock may hereafter be reclassified.

                 "COMMON STOCK EQUIVALENTS" means any securities of the Company
         or the Subsidiaries which would entitle the holder thereof to acquire
         at any time Common Stock, including without limitation, any debt,
         preferred stock, rights, options, warrants or other instrument that is
         at any time convertible into or exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                 "COMPANY COUNSEL" means Bingham McCutchen LLP.

                 "EFFECTIVE DATE" means the date that the Registration Statement
         was first declared effective by the Commission.

                 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                 "EXEMPT ISSUANCE" means the issuance of (a) shares of Common
         Stock or options to employees, officers or directors of the Company
         pursuant to any stock or option plan duly adopted by a majority of the
         non-employee members of the Board of Directors of the Company or a
         majority of the members of a committee of non-employee directors
         established for such purpose, (b) securities upon the exercise of or
         conversion of any securities issued hereunder, convertible securities,
         options or warrants issued and outstanding on the date of this
         Agreement, provided that such securities have not been amended since
         the date of this Agreement to increase the number of such securities;
         and (c) securities issued pursuant to acquisitions or strategic
         transactions, including such a transaction involving Wavexpress, Inc.,
         provided any such issuance shall only be to a Person which is, itself
         or through its subsidiaries, an operating company in a business
         synergistic with the business of the Company and in which the Company
         receives benefits in addition to the investment of funds, but shall not
         include a transaction in which the Company is issuing securities
         primarily for the purpose of raising capital or to an entity whose
         primary business is investing in securities.

                 "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
         to such term in Section 3.1(o).

                 "LIENS" means a lien, charge, security interest, encumbrance,
         right of first refusal, preemptive right or other restriction.

                 "MARKET PRICE" means the average of the VWAPs for the three (3)
         Trading Days immediately prior to the Closing Date.

                 "MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to
         such term in Section 3.1(b).

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                 "MATERIAL PERMITS" shall have the meaning ascribed to such term
         in Section 3.1(m).

                 "PER SHARE PURCHASE PRICE" equals 85% of Market 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 this Agreement.

                 "PERSON" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company, government (or an
         agency or subdivision thereof) or other entity of any kind.

                 "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.

                 "REGISTRATION STATEMENT" means the registration statement of
         the Company, Commission File No. 333-114476 covering the sale to the
         Purchasers of the Shares, the Warrants, the Warrant Shares, the
         Additional Investment Rights and the Additional Investment Right
         Shares.

                 "REQUIRED APPROVALS" shall have the meaning ascribed to such
         term in Section 3.1(e).

                 "RULE 144" means Rule 144 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 effect as such Rule.

                 "SEC REPORTS" shall have the meaning ascribed to such term in
         Section 3.1(h).

                 "SECURITIES" means the Shares, the Warrants, the Warrant
         Shares, the Additional Investment Rights and the Additional Investment
         Right Shares.

                 "SECURITIES ACT" means the Securities Act of 1933, as amended.

                 "SHARES" means the shares of Common Stock issued or issuable to
         each Purchaser pursuant to this Agreement.

                 "SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts
         set forth below such Purchaser's signature block on the signature page
         hereto, in United States dollars and in immediately available funds.

                 "SUBSIDIARY" shall mean the subsidiaries of the Company, if
         any, set forth IN THE COMPANY'S SEC REPORTS.

                 "TRADING DAY" means a day on which the Common Stock is traded
         on a Trading Market.

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                 "TRADING MARKET" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the Nasdaq SmallCap Market, the American Stock Exchange, the
         New York Stock Exchange, or the Nasdaq National Market

                 "TRANSACTION DOCUMENTS" means this Agreement, the Warrants, the
         Additional Investment Rights and any other documents or agreements
         executed in connection with the transactions contemplated hereunder.

                 "VWAP" means, for any date, the price determined by the first
         of the following clauses that applies: (a) if the Common Stock is then
         listed or quoted on a Trading Market, the daily volume weighted average
         price of the Common Stock for such date (or the nearest preceding date)
         on the primary Trading Market on which the Common Stock is then listed
         or quoted as reported by Bloomberg Financial L.P. (based on a Trading
         Day from 9:30 a.m. ET to 4:02 p.m. Eastern Time) using the VAP
         function; (b) if the Common Stock is not then listed or quoted on an
         Trading Market and if prices for the Common Stock are then quoted on
         the OTC Bulletin Board, the volume weighted average price of the Common
         Stock for such date (or the nearest preceding date) on the OTC Bulletin
         Board; (c) if the Common Stock is not then listed or quoted on the OTC
         Bulletin Board and if prices for the Common Stock are then reported in
         the "Pink Sheets" published by the National Quotation Bureau
         Incorporated (or a similar organization or agency succeeding to its
         functions of reporting prices), the most recent bid price per share of
         the Common Stock so reported; or (d) in all other cases, the fair
         market value of a share of Common Stock as determined by a nationally
         recognized-independent appraiser selected in good faith by Purchasers
         holding a majority of Shares then outstanding.

                 "WARRANTS" means the Series A and Series B Common Stock
         Purchase Warrants as described in Section 2.2(a)(iii) and (iv).

                 "WARRANT SHARES" means the shares of Common Stock issuable upon
         exercise of the Warrants.

                                   ARTICLE II.
                                PURCHASE AND SALE

         2.1.    CLOSING. On the Closing Date, each Purchaser shall purchase
from the Company, severally and not jointly with the other Purchasers, and the
Company shall issue and sell to each Purchaser, (a) a number of Shares equal to
such Purchaser's Subscription Amount divided by the Per Share Purchase Price,
(b) the Warrants as determined pursuant to Section 2.2(a)(iii) and (iv) and (c)
the Additional Investment Rights as determined pursuant to Section 2.2(a)(v).
The aggregate Subscription Amounts for Shares sold hereunder shall be up to
$3,000,000. Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of Heights Capital Management, Inc. or such
other location as the parties shall mutually agree.

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         2.2.    Deliveries

                 (a)   On the Closing Date, the Company shall deliver or cause
                 to be delivered to each Purchaser the following:

                       (i)     this Agreement duly executed by the Company;

                       (ii)    the receipt by each Purchaser, via the DTC DWAC
                 system, of the number of Shares equal to such Purchaser's
                 Subscription Amount divided by the Per Share Purchase Price,
                 registered in the name of such Purchaser;

                       (iii)   a Series A Warrant, registered in the name of
                 such Purchaser, exercisable starting six (6) months after the
                 Closing Date for a term of one year from the Closing Date,
                 pursuant to which such Purchaser shall have the right to
                 acquire up to the number of shares of Common Stock equal to
                 100% of the Shares to be issued to such Purchaser at an
                 exercise price of 115% of Market Price, subject to adjustment
                 therein, and subject to redemption as set forth therein, which
                 Warrant shall otherwise in the form of EXHIBIT B-1 attached
                 hereto;

                       (iv)    a Series B Warrant, registered in the name of
                 such Purchaser, exercisable starting one year after the Closing
                 Date for a term of 18 months from the Closing Date, pursuant to
                 which such Purchaser shall have the right to acquire up to the
                 number of shares of Common Stock equal to 25% of the Shares to
                 be issued to such Purchaser at an exercise price of 130% of
                 Market Price, subject to adjustment therein, which Warrant
                 shall otherwise in the form of EXHIBIT B-2 attached hereto;

                       (v)     an Additional Investment Right, registered in the
                 name of such Purchaser, pursuant to which such Purchaser shall
                 have the right to purchase up to 100% of the number of Shares
                 purchased and which shall be exercisable at the 90 day
                 anniversary of the Closing Date (upon the terms and conditions
                 of the Additional Investment Right as provided therein), at an
                 exercise price equal to 100% of the Market Price, (the
                 "ADDITIONAL INVESTMENT RIGHT EXERCISE PRICE"), which Additional
                 Investment Right shall otherwise in the form of EXHIBIT D
                 attached hereto;

                       (vi)    a officer's certificate of the Company's Chief
                 Executive Officer or Chief Financial Officer, in form
                 reasonably acceptable to the Purchasers, certifying the
                 continuing accuracy of the Company's representations and
                 warranties made in this Agreement and the Company's performance
                 of the covenants to be performed by it pursuant to this
                 Agreement at or prior to Closing; and

                       (vii)   a legal opinion of Company Counsel, in the form
                 of EXHIBIT C attached hereto.

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                 (b)   On the Closing Date, each Purchaser shall deliver or
         cause to be delivered to the Company the following:

                       (i)     this Agreement duly executed by such Purchaser;
                 and

                       (ii)    such Purchaser's Subscription Amount by wire
                 transfer to the account as specified in writing by the Company.

         2.3.    CLOSING CONDITIONS.

                 (a)   The obligations of the Company hereunder in connection
         with the Closing are subject to the following conditions being met:

                       (i)     the accuracy in all material respects when made
                 and on the Closing Date of the representations and warranties
                 of the Purchasers contained herein;

                       (ii)    all obligations, covenants and agreements of the
                 Purchasers required to be performed at or prior to the Closing
                 Date shall have been performed; and

                       (iii)   the delivery by the Purchasers of the items set
                 forth in Section 2.2(b) of this Agreement.

                 (b)   The respective obligations of the Purchasers hereunder in
         connection with the Closing are subject to the following conditions
         being met:

                       (i)     the accuracy in all material respects on the
                 Closing Date of the representations and warranties of the
                 Company contained herein;

                       (ii)    all obligations, covenants and agreements of the
                 Company required to be performed at or prior to the Closing
                 Date shall have been performed;

                       (iii)   the delivery by the Company of the items set
                 forth in Section 2.2(a) of this Agreement; and

                       (iv)    there shall have been no Material Adverse Effect
                 with respect to the Company since the date hereof, which shall
                 not have been reasonably cured by the Company.

                       (v)     Not used

                       (vi)    From the date hereof to the Closing Date, trading
                 in the Common Stock shall not have been suspended by the
                 Commission (except for any suspension of trading of limited
                 duration agreed to by the Company, which suspension shall be
                 terminated prior to the Closing), and, at any time prior to the
                 Closing Date, trading in securities generally as reported by
                 Bloomberg Financial Markets shall not have been suspended or
                 limited, or minimum prices shall not

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                 have been established on securities whose trades are reported
                 by such service, or on any Trading Market, nor shall a banking
                 moratorium have been declared either by the United States or
                 New York State authorities nor shall there have occurred any
                 material outbreak or escalation of hostilities or other
                 national or international calamity of such magnitude in its
                 effect on, or any material adverse change in, any financial
                 market which, in each case, in the reasonable judgment of each
                 Purchaser, makes it impracticable or inadvisable to purchase
                 the Shares at the Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1.    Representations and Warranties of the Company.

         Except as set forth in the Company's SEC Reports, the Company hereby
makes the representations and warranties set forth below to each Purchaser:

                 (a)   SUBSIDIARIES. All of the direct and indirect subsidiaries
         of the Company are set forth IN IT'S SEC REPORTS AS FILED WITH THE
         COMMISSION. The Company owns, directly or indirectly, all of the
         capital stock or other equity interests of each Subsidiary free and
         clear of any Liens, and all the issued and outstanding shares of
         capital stock of each Subsidiary are validly issued and are fully paid,
         non-assessable and free of preemptive and similar rights to subscribe
         for or purchase securities. If the Company has no subsidiaries, then
         references in the Transaction Documents to the Subsidiaries will be
         disregarded.

                 (b)   ORGANIZATION AND QUALIFICATION. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation or default of any of the
         provisions of its respective certificate or articles of incorporation,
         bylaws or other organizational or charter documents. Each of the
         Company and the Subsidiaries is duly qualified to conduct business and
         is in good standing as a foreign corporation or other entity in each
         jurisdiction in which the nature of the business conducted or property
         owned by it makes such qualification necessary, except where the
         failure to be so qualified or in good standing, as the case may be,
         could not have or reasonably be expected to result in (i) a material
         adverse effect on the legality, validity or enforceability of any
         Transaction Document, (ii) a material adverse effect on the results of
         operations, assets, business, prospects or financial condition of the
         Company and the Subsidiaries, taken as a whole, or (iii) a material
         adverse effect on the Company's ability to perform in any material
         respect on a timely basis its obligations under any Transaction
         Document (any of (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT") and
         no Proceeding has been instituted in any such jurisdiction revoking,
         limiting or curtailing or seeking to revoke, limit or curtail such
         power and authority or qualification.

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                 (c)   AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been
         duly authorized by all necessary action on the part of the Company and
         no further action is required by the Company in connection therewith
         other than in connection with the Required Approvals. Each Transaction
         Document has been (or upon delivery will have been) duly executed by
         the Company and, when delivered in accordance with the terms hereof,
         will constitute the valid and binding obligation of the Company
         enforceable against the Company in accordance with its terms except (i)
         as limited by applicable bankruptcy, insolvency, reorganization,
         moratorium and other laws of general application affecting enforcement
         of creditors' rights generally and (ii) as limited by laws relating to
         the availability of specific performance, injunctive relief or other
         equitable remedies.

                 (d)   NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company, the issuance and sale of the
         Shares and the consummation by the Company of the other transactions
         contemplated thereby do not and will not (i) conflict with or violate
         any provision of the Company's or any Subsidiary's certificate or
         articles of incorporation, bylaws or other organizational or charter
         documents, or (ii) conflict with, or constitute a default (or an event
         that with notice or lapse of time or both would become a default)
         under, result in the creation of any Lien upon any of the properties or
         assets of the Company or any Subsidiary, or give to others any rights
         of termination, amendment, acceleration or cancellation (with or
         without notice, lapse of time or both) of, any agreement, credit
         facility, debt or other instrument (evidencing a Company or Subsidiary
         debt or otherwise) or other understanding to which the Company or any
         Subsidiary is a party or by which any property or asset of the Company
         or any Subsidiary is bound or affected, or (iii) subject to the
         Required Approvals, conflict with or result in a violation of any law,
         rule, regulation, order, judgment, injunction, decree or other
         restriction of any court or governmental authority to which the Company
         or a Subsidiary is subject (including federal and state securities laws
         and regulations), or by which any property or asset of the Company or a
         Subsidiary is bound or affected, or (iv) conflict with or violate the
         terms of any agreement by which the Company or any Subsidiary is bound
         or to which any property or asset of the Company or any Subsidiary is
         bound or affected; except in the case of each of clauses (ii) and
         (iii), such as could not have or reasonably be expected to result in a
         Material Adverse Effect.

                 (e)   FILINGS, CONSENTS AND APPROVALS. The Company is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or registration with, any court or
         other federal, state, local or other governmental authority or other
         Person in connection with the execution, delivery and performance by
         the Company of the Transaction Documents, other than (i) filings
         required pursuant to Section 4.3 of this Agreement, and (ii) such
         filings as are required to be made under applicable state securities
         laws (collectively, the "REQUIRED APPROVALS").

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                 (f)   ISSUANCE OF THE SECURITIES. The Shares, Warrants and
         Additional Investment Rights are duly authorized and, when issued and
         paid for in accordance with the Transaction Documents, will be duly and
         validly issued, fully paid and nonassessable, free and clear of all
         Liens imposed by the Company other than restrictions on transfer
         provided for in the Transaction Documents. The Warrant Shares and
         Additional Investment Right Shares, when issued in accordance with the
         terms of the Transaction Documents, will be validly issued, fully paid
         and nonassessable, free and clear of all Liens imposed by the Company.
         The Company has reserved from its duly authorized capital stock the
         maximum number of shares of Common Stock issuable pursuant to this
         Agreement, the Warrants and the Additional Investment Rights.

                 (g)   CAPITALIZATION. The capitalization of the Company is as
         described in the Company's most recent periodic report filed with the
         Commission. The Company has not issued any capital stock since such
         filing other than pursuant to the exercise of employee stock options
         under the Company's stock option plans, the issuance of shares of
         Common Stock to employees pursuant to the Company's employee stock
         purchase plan and pursuant to the conversion or exercise of outstanding
         Common Stock Equivalents. No Person has any right of first refusal,
         preemptive right, right of participation, or any similar right to
         participate in the transactions contemplated by the Transaction
         Documents. Except as a result of the purchase and sale of the
         Securities, or otherwise disclosed to purchaser in Schedule 3.1(g)
         hereto there are no outstanding options, warrants, script rights to
         subscribe to, calls or commitments of any character whatsoever relating
         to, or securities, rights or obligations convertible into or
         exchangeable for, or giving any Person any right to subscribe for or
         acquire, any shares of Common Stock, or contracts, commitments,
         understandings or arrangements by which the Company or any Subsidiary
         is or may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issue and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities. All of the outstanding
         shares of capital stock of the Company are validly issued, fully paid
         and nonassessable, have been issued in compliance with all federal and
         state securities laws, and none of such outstanding shares was issued
         in violation of any preemptive rights or similar rights to subscribe
         for or purchase securities. No further approval or authorization of any
         stockholder, the Board of Directors of the Company or others is
         required for the issuance and sale of the Shares. Except as disclosed
         in the SEC Reports, there are no stockholders agreements, voting
         agreements or other similar agreements with respect to the Company's
         capital stock to which the Company is a party or, to the knowledge of
         the Company, between or among any of the Company's stockholders.

                 (h)    SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials, including the exhibits thereto, being collectively referred
         to herein as

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         the "SEC REPORTS") on a timely basis or has received a valid extension
         of such time of filing and has filed any such SEC Reports prior to the
         expiration of any such extension. As of their respective dates, the SEC
         Reports complied in all material respects with the requirements of the
         Securities Act and the Exchange Act and the rules and regulations of
         the Commission promulgated thereunder, and none of the SEC Reports,
         when filed, contained any untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary in order to make the statements therein, in light of the
         circumstances under which they were made, not misleading. The financial
         statements of the Company included in the SEC Reports comply in all
         material respects with applicable accounting requirements and the rules
         and regulations of the Commission with respect thereto as in effect at
         the time of filing. Such financial statements have been prepared in
         accordance with United States generally accepted accounting principles
         applied on a consistent basis during the periods involved ("GAAP"),
         except as may be otherwise specified in such financial statements or
         the notes thereto and except that unaudited financial statements may
         not contain all footnotes required by GAAP, and fairly present in all
         material respects the financial position of the Company and its
         consolidated subsidiaries as of and for the dates thereof and the
         results of operations and cash flows for the periods then ended,
         subject, in the case of unaudited statements, to normal, immaterial,
         year-end audit adjustments.

                 (i)   MATERIAL CHANGES. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         specifically disclosed in the SEC Reports, (i) there has been no event,
         occurrence or development that has had or that could reasonably be
         expected to result in a Material Adverse Effect, except as has been
         reasonably cured by the Company (ii) the Company has not incurred any
         liabilities (contingent or otherwise) other than (A) trade payables and
         accrued expenses incurred in the ordinary course of business consistent
         with past practice and (B) liabilities not required to be reflected in
         the Company's financial statements pursuant to GAAP or required to be
         disclosed in filings made with the Commission, (iii) the Company has
         not altered its method of accounting, (iv) the Company has not declared
         or made any dividend or distribution of cash or other property to its
         stockholders or purchased, redeemed or made any agreements to purchase
         or redeem any shares of its capital stock and (v) the Company has not
         issued any equity securities to any officer, director or Affiliate,
         except pursuant to existing Company stock option plans. The Company
         does not have pending before the Commission any request for
         confidential treatment of information.

                 (j)   LITIGATION. There is no action, suit, inquiry, notice of
         violation, proceeding or investigation pending or, to the knowledge of
         the Company, threatened against or affecting the Company, any
         Subsidiary or any of their respective properties before or by any
         court, arbitrator, governmental or administrative agency or regulatory
         authority (federal, state, county, local or foreign) (collectively, an
         "ACTION") which (i) adversely affects or challenges the legality,
         validity or enforceability of any of the Transaction Documents or the
         Securities or (ii) could, if there were an unfavorable decision, have
         or reasonably be expected to result in a Material Adverse Effect.
         Neither the Company nor any Subsidiary, nor any director or officer
         thereof, is or has been the subject of any Action involving a claim of
         violation of or liability under federal or state securities laws

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         or a claim of breach of fiduciary duty. There has not been, and to the
         knowledge of the Company, there is not pending or contemplated, any
         investigation by the Commission involving the Company or any current or
         former director or officer of the Company. The Commission has not
         issued any stop order or other order suspending the effectiveness of
         any registration statement filed by the Company or any Subsidiary under
         the Exchange Act or the Securities Act.

                 (k)   LABOR RELATIONS. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company which could reasonably be expected to result
         in a Material Adverse Effect.

                 (l)   COMPLIANCE. Neither the Company nor any Subsidiary (i) is
         in default under or in violation of (and no event has occurred that has
         not been waived that, with notice or lapse of time or both, would
         result in a default by the Company or any Subsidiary under), nor has
         the Company or any Subsidiary received notice of a claim that it is in
         default under or that it is in violation of, any indenture, loan or
         credit agreement or any other agreement or instrument to which it is a
         party or by which it or any of its properties is bound (whether or not
         such default or violation has been waived), (ii) is in violation of any
         order of any court, arbitrator or governmental body, or (iii) is or has
         been in violation of any statute, rule or regulation of any
         governmental authority, including without limitation all foreign,
         federal, state and local laws applicable to its business except in each
         case as could not have a Material Adverse Effect.

                 (m)   REGULATORY PERMITS. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state, local or foreign regulatory authorities
         necessary to conduct their respective businesses as described in the
         SEC Reports, except where the failure to possess such permits could not
         have or reasonably be expected to result in a Material Adverse Effect
         ("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
         received any notice of proceedings relating to the revocation or
         modification of any Material Permit.

                 (n)   TITLE TO ASSETS. The Company and the Subsidiaries have
         good and marketable title in fee simple to all real property owned by
         them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do not
         materially interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries and Liens for the payment
         of federal, state or other taxes, the payment of which is neither
         delinquent nor subject to penalties. Any real property and facilities
         held under lease by the Company and the Subsidiaries are held by them
         under valid, subsisting and enforceable leases of which the Company and
         the Subsidiaries are in compliance.

                 (o)   PATENTS AND TRADEMARKS. The Company and the Subsidiaries
         have, or have rights to use, all patents, patent applications,
         trademarks, trademark applications, service marks, trade names,
         copyrights, licenses and other similar rights necessary or material for

                                       11
<Page>

         use in connection with their respective businesses as described in the
         SEC Reports and which the failure to so have could have a Material
         Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
         Neither the Company nor any Subsidiary has received a written notice
         that the Intellectual Property Rights used by the Company or any
         Subsidiary violates or infringes upon the rights of any Person. To the
         knowledge of the Company, all such Intellectual Property Rights are
         enforceable and there is no existing infringement by another Person of
         any of the Intellectual Property Rights of others.

                 (p)   INSURANCE. The Company and the Subsidiaries are insured
         by insurers of recognized financial responsibility against such losses
         and risks and in such amounts as are prudent and customary in the
         businesses in which the Company and the Subsidiaries are engaged. To
         the best of Company's knowledge, such insurance contracts and policies
         are accurate and complete. Neither the Company nor any Subsidiary has
         any reason to believe that it will not be able to renew its existing
         insurance coverage as and when such coverage expires or to obtain
         similar coverage from similar insurers as may be necessary to continue
         its business without a significant increase in cost.

                 (q)   TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
         forth in the SEC Reports, none of the officers or directors of the
         Company and, to the knowledge of the Company, none of the employees of
         the Company is presently a party to any transaction with the Company or
         any Subsidiary (other than for services as employees, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner, in each case in excess of $60,000 other
         than (i) for payment of salary or consulting fees for services
         rendered, (ii) reimbursement for expenses incurred on behalf of the
         Company and (iii) for other employee benefits, including stock option
         agreements under any stock option plan of the Company.

                 (r)   SARBANES-OXLEY; INTERNAL ACCOUNTING CONTROLS. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are applicable to it as of the Closing Date. The Company
         has established disclosure controls and procedures (as defined in
         Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
         designed such disclosure controls and procedures to ensure that
         material information relating to the Company, including its
         subsidiaries, is made known to the certifying officers by others within
         those entities, particularly during the period in which the Company's
         most recently filed periodic report under the Exchange Act, as the case
         may be, is being prepared. The Company's certifying officers have
         evaluated the effectiveness of the Company's controls and procedures as
         of the date prior to the filing date of the most recently filed
         periodic report under the Exchange Act (such date, the "EVALUATION
         DATE"). The Company presented in its most recently filed periodic
         report under the Exchange Act the conclusions of the certifying
         officers about the effectiveness of the disclosure controls and
         procedures based on their evaluations as of the Evaluation Date. Since
         the Evaluation Date, there have been no significant changes in the

                                       12
<Page>

         Company's internal controls (as such term is defined in Item 307(b) of
         Regulation S-K under the Exchange Act) or, to the Company's knowledge,
         in other factors that could significantly affect the Company's internal
         controls.

                 (s)   CERTAIN FEES. No brokerage or finder's fees or
         commissions are or will be payable by the Company to any broker,
         financial advisor or consultant, finder, placement agent, investment
         banker, bank or other Person with respect to the transactions
         contemplated by this Agreement, other than a fee to Corpfin Inc. in
         connection with the sale of the Shares at Closing, and upon any
         exercise of the Additional Investment Right, or either series of the
         Warrants. The Purchasers shall have no obligation with respect to any
         fees or with respect to any claims made by or on behalf of other
         Persons for fees of a type contemplated in this Section that may be due
         in connection with the transactions contemplated by this Agreement.

                 (t)   LISTING AND MAINTENANCE REQUIREMENTS. The Company's
         Common Stock is registered pursuant to Section 12(g) of the Exchange
         Act, and the Company has taken no action designed to, or which to its
         knowledge is likely to have the effect of, terminating the registration
         of the Common Stock under the Exchange Act nor has the Company received
         any notification that the Commission is contemplating terminating such
         registration. The Company has not, in the 12 months preceding the date
         hereof, received notice from any Trading Market on which the Common
         Stock is or has been listed or quoted to the effect that the Company is
         not in compliance with the listing or maintenance requirements of such
         Trading Market. The Company is in compliance with all such listing and
         maintenance requirements.

                 (u)   APPLICATION OF TAKEOVER PROTECTIONS. The Company and its
         Board of Directors have taken all necessary action, if any, in order to
         render inapplicable any control share acquisition, business
         combination, poison pill (including any distribution under a rights
         agreement) or other similar anti-takeover provision under the Company's
         Certificate of Incorporation (or similar charter documents) or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers as a result of the Purchasers and the Company fulfilling
         their obligations or exercising their rights under the Transaction
         Documents, including without limitation the Company's issuance of the
         Securities and the Purchasers' ownership of the Securities.

                 (v)   DISCLOSURE. The Company confirms that, neither the
         Company nor any other Person acting on its behalf has provided any of
         the Purchasers or their agents or counsel with any information that
         constitutes or might constitute material, non-public information. The
         Company understands and confirms that the Purchasers will rely on the
         foregoing representations and covenants in effecting transactions in
         securities of the Company. All disclosure provided to the Purchasers
         regarding the Company, its business and the transactions contemplated
         hereby furnished by or on behalf of the Company with respect to the
         representations and warranties made herein are true and correct with
         respect to such representations and warranties and do not contain any
         untrue statement of a material fact or omit to state any material fact
         necessary in order to make the statements made therein, in light of the
         circumstances under which they were made, not misleading.

                                       13
<Page>

         The Company acknowledges and agrees that no Purchaser makes or has made
         any representations or warranties with respect to the transactions
         contemplated hereby other than those specifically set forth in Section
         3.2 hereof.

                 (w)   NO INTEGRATED OFFERING. Assuming the accuracy of the
         Purchasers' representations and warranties set forth in Section 3.2,
         neither the Company, nor any of its affiliates, nor any Person acting
         on its or their behalf has, directly or indirectly, made any offers or
         sales of any security or solicited any offers to buy any security,
         under circumstances that would, to the best of the Company's knowledge,
         cause this offering of the Securities to be integrated with prior
         offerings by the Company for purposes of any applicable shareholder
         approval provisions, including, without limitation, under the rules and
         regulations of any exchange or automated quotation system on which any
         of the securities of the Company are listed or designated.

                 (x)   EFFECTIVE REGISTRATION STATEMENT. The Registration
         Statement has been declared effective by the Commission and the Company
         knows of no reason why the Registration Statement will not continue to
         remain effective through the expiration date of the Series B Warrants.

                 (y)   TAXES. Except for matters that would not, , individually
         or in the aggregate, have or reasonably be expected to result in a
         Material Adverse Effect, the Company and each Subsidiary has filed all
         necessary federal, state and foreign income and franchise tax returns
         and has paid or accrued all taxes shown as due thereon, and the Company
         has no knowledge of a tax deficiency which has been asserted or
         threatened against the Company or any Subsidiary.

                 (z)   FOREIGN CORRUPT PRACTICES. Neither the Company, nor to
         the knowledge of the Company, any agent or other person acting on
         behalf of the Company, has (i) directly or indirectly, used any corrupt
         funds for unlawful contributions, gifts, entertainment or other
         unlawful expenses related to foreign or domestic political activity,
         (ii) made any unlawful payment to foreign or domestic government
         officials or employees or to any foreign or domestic political parties
         or campaigns from corporate funds, (iii) failed to disclose fully any
         contribution made by the Company (or made by any person acting on its
         behalf of which the Company is aware) which is in violation of law, or
         (iv) violated in any material respect any provision of the Foreign
         Corrupt Practices Act of 1977, as amended.

                 (aa)  ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF SHARES.
         The Company acknowledges and agrees that each of the Purchasers is
         acting solely in the capacity of an arm's length purchaser with respect
         to the Transaction Documents and the transactions contemplated hereby.
         The Company further acknowledges that no Purchaser is acting as a
         financial advisor or fiduciary of the Company (or in any similar
         capacity) with respect to this Agreement and the transactions
         contemplated hereby and any advice given by any Purchaser or any of
         their respective representatives or agents in connection with this
         Agreement and the transactions contemplated hereby is merely incidental
         to the Purchasers' purchase of the Shares. The Company further
         represents to each Purchaser

                                       14
<Page>

         that the Company's decision to enter into this Agreement has been based
         solely on the independent evaluation of the transactions contemplated
         hereby by the Company and its representatives.

                 (bb)  APPROVALS. The issuance and listing on the Nasdaq
         National Market of the Shares, Warrant Shares and Additional Investment
         Right Shares requires no further approvals, including but not limited
         to, the approval of shareholders.

         3.2.    REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as follows:

                 (a)   ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its organization with full right, corporate or
         partnership power and authority to enter into and to consummate the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its obligations thereunder. The execution, delivery and
         performance by such Purchaser of the transactions contemplated by this
         Agreement have been duly authorized by all necessary corporate or
         similar action on the part of such Purchaser. Each Transaction Document
         to which it is a party has been duly executed by such Purchaser, and
         when delivered by such Purchaser in accordance with the terms hereof,
         will constitute the valid and legally binding obligation of such
         Purchaser, enforceable against it in accordance with its terms, except
         (i) as limited by general equitable principles and applicable
         bankruptcy, insolvency, reorganization, moratorium and other laws of
         general application affecting enforcement of creditors' rights
         generally, (ii) as limited by laws relating to the availability of
         specific performance, injunctive relief or other equitable remedies and
         (iii) insofar as indemnification and contribution provisions may be
         limited by applicable law.

                 (b)   PURCHASER REPRESENTATION. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities. Such Purchaser is not required to
         be registered as a broker-dealer under Section 15 of the Exchange Act.

                 (c)   EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either
         alone or together with its representatives, has such knowledge,
         sophistication and experience in business and financial matters so as
         to be capable of evaluating the merits and risks of the prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an investment in the Securities and, at the present time, is able to
         afford a complete loss of such investment.

                 (d)   SHORT SALES. Each Purchaser represents that from the date
         that it was approached (on or about July 13, 2004) to participate in
         the transaction contemplated by this Agreement through the Closing
         Date, neither it nor any of its Affiliates over which Purchaser
         exercises investment discretion have made any net short sales of, or
         granted

                                       15
<Page>

         any option for the purchase of or entered into any hedging or similar
         transaction with the same economic effect as a net short sale, in the
         Common Stock.

         The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1.    No Transfer Restrictions.

                 (a)   Certificates evidencing the Shares, Warrants, Warrant
         Shares, Additional Investment Rights and Additional Investment Right
         Shares shall not contain any legend restricting their transferability
         by the Purchaser. The Company shall cause its counsel to issue a legal
         opinion to the Company's transfer agent if required by the Company's
         transfer agent to effect a transfer of any of the Securities.

                 (b)   In addition to such Purchaser's other available remedies,
         the Company shall pay to a Purchaser, in cash, as partial liquidated
         damages and not as a penalty, for each $1,000 of Shares, Warrant Shares
         or Additional Investment Right Shares (based on the Market Price of the
         Common Stock on the date such Securities are submitted to the Company's
         transfer agent) for transfer, $10 per Trading Day (increasing to $20
         per Trading Day five (5) Trading Days after such damages have begun to
         accrue) for each Trading Day after three (3) Trading Days until such
         Securities are delivered. Nothing herein shall limit such Purchaser's
         right to pursue actual damages for the Company's failure to deliver
         certificates representing any Securities as required by the Transaction
         Documents, and such Purchaser shall have the right to pursue all
         remedies available to it at law or in equity including, without
         limitation, a decree of specific performance and/or injunctive relief.

         4.2.    FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) such information as is required for the Purchasers to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.

         4.3.    SECURITIES LAWS DISCLOSURE; PUBLICITY. The Company shall, by
9:30 a.m. Eastern time on the Trading Day following the date hereof, issue a
press release and within one Trading Day following the date hereof file a
Current Report on Form 8-K which attaches as exhibits all agreements relating to
this transaction, in each case reasonably acceptable to each Purchaser,

                                       16
<Page>

disclosing the material terms of the transactions contemplated hereby.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, except as set forth in
the exhibits to be attached to the Form 8-K contemplated above, without the
prior written consent of such Purchaser (such consent not to be unreasonably
withheld), except (i) as required by federal securities law and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under subclause (i) or (ii).

         4.4.    SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by
the Company or, to the knowledge of the Company, any other Person that any
Purchaser is an "Acquiring Person" under any shareholders rights plan or similar
plan or arrangement in effect or hereafter adopted by the Company, or that any
Purchaser could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents
or under any other agreement between the Company and the Purchasers. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.

         4.5.    NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.6.    REIMBURSEMENT. If any Purchaser becomes involved in any
capacity in any Proceeding by or against any Person who is a stockholder of the
Company (except as a result of sales, pledges, margin sales and similar
transactions by such Purchaser to or with any current stockholder), solely as a
result of such Purchaser's acquisition of the Securities under this Agreement,
the Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.

         4.7.    INDEMNIFICATION OF PURCHASERS. Subject to the provisions of
this Section 4.7, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, partners, employees and agents (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all

                                       17
<Page>

judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representation,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the
position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by an Purchaser
Party effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.

         4.8.    RESERVATION OF COMMON STOCK. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement, Warrant Shares pursuant to any exercise of the Warrants and
Additional Investment Right Shares pursuant to any exercise of the Additional
Investment Rights.

         4.9.    LISTING OF COMMON STOCK. The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Shares, Warrant Shares and Additional Investment Right Shares and will take such
other action as is necessary to cause all of the Shares, Warrant Shares and
Additional Investment Right Shares to be listed on such other Trading Market as
promptly as possible. The Company will take all action reasonably necessary to
continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

                                       18
<Page>

         4.10.   EQUAL TREATMENT OF PURCHASERS. No consideration shall be
offered or paid to any person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
is also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended to treat for the Company the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

         4.11.   SUBSEQUENT EQUITY SALES. From the date hereof until 60 days
after the Closing Date, neither the Company nor any Subsidiary shall issue
shares of Common Stock or Common Stock Equivalents; without the prior written
consent of each Purchaser (such consent not to be unreasonably withheld).
Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of
an Exempt Issuance or in respect of shares of Common Stock and Common Stock
Equivalents which the Company is not permitted to register under the Securities
Act for at least 12 months following the Closing Date.

         4.12.   APPROVAL OF SUBSEQUENT EQUITY SALES. The Company shall not
issue shares of Common Stock or Common Stock Equivalents if such issuance would
require shareholder approval pursuant to Rule 4350 of the NASD Marketplace
Rules, unless and until such shareholder approval is obtained.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1.    FEES AND EXPENSES. The Company shall reimburse Heights Capital
Management, Inc. ("Heights") up to $35,000 for its due diligence and legal fees
and expenses. The Company shall deliver, prior to the Closing, a completed and
executed copy of the Closing Statement, attached hereto as Annex A. Except as
otherwise set forth in this Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Securities.

         5.2.    ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.3.    NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number

                                       19
<Page>

set forth on the signature pages attached hereto on a day that is not a Trading
Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.

         5.4.    AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each Purchaser or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right.

         5.5.    CONSTRUCTION. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

         5.6.    SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser. Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

         5.7.    NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7.

         5.8.    GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents 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
(including with respect to the enforcement of any of the Transaction Documents),
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 or inconvenient
venue for such proceeding. 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 via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for

                                       20
<Page>

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. The parties hereby waive all rights to a trial by jury.
If either party shall commence an action or proceeding to enforce any provisions
of the Transaction Documents, then the prevailing party in such action or
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 action or proceeding.

         5.9.    SURVIVAL. The representations and warranties herein shall
survive the Closing and delivery of the Shares, Warrant Shares and Additional
Investment Right Shares.

         5.10.   EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

         5.11.   SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.12.   RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

         5.13.   REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

         5.14.   REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that

                                       21
<Page>

monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.

         5.15.   PAYMENT SET ASIDE. To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

         5.16.   INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant 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 or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.

         5.17.   LIQUIDATED DAMAGES. The Company's obligations to pay any
partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing obligation of the Company and shall not terminate
until all unpaid partial liquidated damages and other amounts have been paid
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.

                            (SIGNATURE PAGE FOLLOWS)

                                       22
<Page>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

Wave Systems Corp.                                        ADDRESS FOR NOTICE:

By: /s/ Gerard T. Feeney                                  Wave Systems Corp
    --------------------                                  480 Pleasant Street
Name: Gerard T. Feeney                                    Lee, MA 01238
Title: Chief Financial Officer

With a copy to (which shall not constitute notice):

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]

                                       23
<Page>

[PURCHASER SIGNATURE PAGES TO WAVX SECURITIES PURCHASE AGREEMENT]

         IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

                    Name of Investing Entity:

                    Signature of Authorized Signatory of Investing Entity:

                    Name of Authorized Signatory:

                    Title of Authorized Signatory:

                    Email Address of Authorized Entity:

                    Address for Notice of Investing Entity:

Address for Delivery of Securities for Investing Entity (if not same as above):

DWAC Instructions for Common Stock:

Subscription Amount: $3,000,000

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

                                       24
<Page>

                                                                         ANNEX A

                                CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase up to $3,000,000 of Common Stock, Warrants
and Additional Investment Right from Wave Systems Corp., a Delaware corporation
(the "COMPANY"). All funds will be wired into the Company's account. All funds
will be disbursed in accordance with this Closing Statement.

DISBURSEMENT DATE: August 2, 2004

<Table>
<S>                      <C>                                              <C>
I.  PURCHASE PRICE

                         GROSS PROCEEDS TO BE RECEIVED                    $ 3,000,000

II.  DISBURSEMENTS

                         Corpfin Inc.                                     $ 120,000
                                                                          $
                                                                          $
                                                                          $
                                                                          $

TOTAL AMOUNT DISBURSED:                                                   $
</Table>

WIRE INSTRUCTIONS:
SEE ATTACHED

To: ___________________________________

                                       25
<Page>

                             SCHEDULE 3.1(g) TO THE
                          SECURITIES PURCHASE AGREEMENT
                                       FOR
                               WAVE SYSTEMS CORP.

OPTIONS AND WARRANTS OUTSTANDING:

<Table>
<S>                                                           <C>
Options granted pursuant to Employee and Non-employee
Director Stock Option plans                                   10,496,243

Warrants Outstanding                                           1,343,058
</Table>

                                       26<Page>

                                                                    EXHIBIT 10.2

                           ADDITIONAL INVESTMENT RIGHT

                 TO PURCHASE 3,529,412 SHARES OF COMMON STOCK OF

                               WAVE SYSTEMS CORP.

         THIS ADDITIONAL INVESTMENT RIGHT (the "Additional Investment Right")
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 beginning 5
trading days prior to and ending on the 90-day anniversary of the Closing 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 "Additional Investment Right Shares") of Class A Common Stock, par
value $0.01 per share, of the Company (the "Common Stock"). The purchase price
of one share of Common Stock (the "Exercise Price") under this Additional
Investment Right shall be $1.00 (100% of Market Price), subject to adjustment
hereunder.

         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 THE ADDITIONAL INVESTMENT RIGHT. Exercise of
         the purchase rights represented by this Additional Investment Right may
         be made at any time or times beginning 5 trading days prior to and
         ending on 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 after the date said Notice of Exercise is
         delivered to the Company, the Holder shall have surrendered this
         Additional Investment Right 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 LIMITATIONS.

                       (i)     HOLDER'S RESTRICTIONS. The Holder shall not have
                 the right to exercise any portion of this Additional Investment
                 Right, pursuant to Section 2(c) or otherwise, to the extent
                 that after giving effect to such issuance after 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 Additional

<Page>

                 Investment Right 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
                 Additional Investment Right 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 Warrants
                 or Additional Investment Rights) 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(b), 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(b) applies, the determination of
                 whether this Additional Investment Right is exercisable (in
                 relation to other securities owned by the Holder) and of which
                 a portion of this Additional Investment Right 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 Additional Investment
                 Right is exercisable (in relation to other securities owned by
                 such Holder) and of which portion of this Additional Investment
                 Right 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(b), 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 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 Additional Investment Right, 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
                 Additional Investment Right 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 the Closing Date or upon
                 prior exercise of this or any other Additional Investment Right
                 or Warrant issued pursuant to the Purchase Agreement (such
                 number of shares, the "Issuable Maximum"). If on any attempted
                 exercise of this Additional Investment Right, the issuance of
                 Additional

2
<Page>

                 Investment Right 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 an Additional Investment Right
                 exercise such number of Additional Investment Right Shares as
                 may be issued below the Issuable Maximum and, with respect to
                 the remainder of the aggregate number of Additional Investment
                 Right Shares, this Additional Investment Right shall not be
                 exercisable until and unless Shareholder Approval has been
                 obtained.

                 (c)   MECHANICS OF EXERCISE.

                       (i)     AUTHORIZATION OF ADDITIONAL INVESTMENT RIGHT
                 SHARES. The Company covenants that all Additional Investment
                 Right Shares which may be issued upon the exercise of the
                 purchase rights represented by this Additional Investment Right
                 will, upon exercise of the purchase rights represented by this
                 Additional Investment Right, 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 Additional Investment Right is outstanding, it will reserve
                 from its authorized and unissued Common Stock a sufficient
                 number of shares to provide for the issuance of the Additional
                 Investment Right Shares upon the exercise of any purchase
                 rights under this Additional Investment Right. The Company
                 further covenants that its issuance of this Additional
                 Investment Right 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 Additional Investment Right Shares
                 upon the exercise of the purchase rights under this Additional
                 Investment Right. The Company will take all such reasonable
                 action as may be necessary to assure that such Additional
                 Investment Right 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.

                       (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 Additional Investment Right and payment of
                 the aggregate Exercise Price as set forth above ("Additional
                 Investment Right Share Delivery Date"). This Additional
                 Investment Right shall be deemed to have been exercised on the
                 date the Exercise Price is received by the Company. The
                 Additional Investment Right 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

3
<Page>

                 holder of record of such shares for all purposes, as of the
                 date the Additional Investment Right 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(c)(vii) prior to the issuance of such shares, have been paid.

                       (iii)   DELIVERY OF RESIDUAL ADDITIONAL INVESTMENT RIGHTS
                 UPON PARTIAL EXERCISE. If this Additional Investment Right
                 shall have been exercised in part, the Company shall, at the
                 time of delivery of the certificate or certificates
                 representing Additional Investment Right Shares, deliver to
                 Holder a new Additional Investment Right evidencing the rights
                 of Holder to purchase the unpurchased Additional Investment
                 Right Shares called for by this Additional Investment Right,
                 which new Additional Investment Right shall in all other
                 respects be identical with this Additional Investment Right.

                       (iv)    RESCISSION RIGHTS. If the Company fails to
                 deliver to the Holder a certificate or certificates (or DWAC
                 transfer) representing the Additional Investment Right Shares
                 pursuant to this Section 2(c)(iv) by the Additional Investment
                 Right 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 (or DWAC transfer)
                 representing the Additional Investment Right Shares pursuant to
                 an exercise on or before the Additional Investment Right 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 Additional Investment Right 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 Additional Investment Right
                 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 Additional Investment Right and
                 equivalent number of Additional Investment Right 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
                 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

4
<Page>

                 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 Additional Investment Right 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 Additional Investment Right. 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 Additional Investment Right 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 Additional Investment Right Shares are to be issued in a
                 name other than the name of the Holder, this Additional
                 Investment Right 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 Additional Investment Right, pursuant
                 to the terms hereof.

         Section 3.    Certain Adjustments.

                 (a)   STOCK DIVIDENDS AND SPLITS. If the Company, at any time
         while this Additional Investment Right 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 Additional Investment Right), (B) subdivides outstanding shares
         of Common Stock into a larger number of shares, (C) combines (including
         by way of reverse stock split) outstanding shares of Common Stock into
         a smaller number of shares, or (D) issues by reclassification of shares
         of the Common Stock any shares of capital stock of the Company, then in
         each case the Exercise Price shall be multiplied by a fraction of which
         the numerator shall be the number of shares of Common Stock (excluding
         treasury shares, if any) outstanding 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

5
<Page>

         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)   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.

                 (c)   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.

                       (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 Additional
                 Investment Right 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 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 Additional
                 Investment Right during

6
<Page>

                 the 20-day period commencing the date of such notice to the
                 effective date of the event triggering such notice

         Section 4.    TRANSFER OF THIS ADDITIONAL INVESTMENT RIGHT.

                 (a)   TRANSFERABILITY. Subject to compliance with any
         applicable securities laws and the conditions set forth in Section 5(a)
         hereof, this Additional Investment Right and all rights hereunder are
         transferable, in whole or in part, upon surrender of this Additional
         Investment Right at the principal office of the Company, together with
         a written assignment of this Additional Investment Right 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 Additional
         Investment Right or Additional Investment Rights 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 Additional Investment Right evidencing the portion of
         this Additional Investment Right not so assigned, and this Additional
         Investment Right shall promptly be cancelled. An Additional Investment
         Right, if properly assigned, may be exercised by a new holder for the
         purchase of Additional Investment Right Shares without having a new
         Additional Investment Right issued, if exercised in accordance with the
         Additional Investment Right.

                 (b)   COMBINATION OR DIVISION OF ADDITIONAL INVESTMENT RIGHTS.
         This Additional Investment Right may be divided or combined with other
         Additional Investment Rights upon presentation hereof at the aforesaid
         office of the Company, together with a written notice specifying the
         names and denominations in which new Additional Investment Rights 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 Additional Investment Right or Additional Investment Rights in
         exchange for the Additional Investment Right or Additional Investment
         Rights to be divided or combined in accordance with such notice.

                 (c)   ADDITIONAL INVESTMENT RIGHT REGISTER. The Company shall
         register this Additional Investment Right, upon records to be
         maintained by the Company for that purpose (the "Additional Investment
         Right Register"), in the name of the record Holder hereof from time to
         time. The Company may deem and treat the registered Holder of this
         Additional Investment Right 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.    Miscellaneous.

                 (a)   TITLE TO THE ADDITIONAL INVESTMENT RIGHT. Prior to the
         Termination Date and subject to compliance with applicable laws and
         Section 4 of this Additional Investment Right, this Additional
         Investment Right and all rights hereunder are transferable, in whole or
         in part, at the office or agency of the Company by the Holder in

7
<Page>

         person or by duly authorized attorney, upon surrender of this
         Additional Investment Right together with the Assignment Form annexed
         hereto properly endorsed.

                 (b)   NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Additional
         Investment Right 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 Additional Investment Right and the
         payment of the aggregate Exercise Price, the Additional Investment
         Right 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 ADDITIONAL
         INVESTMENT RIGHT. The Company covenants that upon receipt by the
         Company of evidence reasonably satisfactory to it of the loss, theft,
         destruction or mutilation of this Additional Investment Right or any
         stock certificate relating to the Additional Investment Right Shares,
         and in case of loss, theft or destruction, of indemnity or security
         reasonably satisfactory to it (which, in the case of the Additional
         Investment Right, shall not include the posting of any bond), and upon
         surrender and cancellation of such Additional Investment Right or stock
         certificate, if mutilated, the Company will make and deliver a new
         Additional Investment Right or stock certificate of like tenor and
         dated as of such cancellation, in lieu of such Additional Investment
         Right 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 Additional
                 Investment Right is outstanding, it will reserve from its
                 authorized and unissued Common Stock a sufficient number of
                 shares to provide for the issuance of the Additional Investment
                 Right Shares upon the exercise of any purchase rights under
                 this Additional Investment Right. The Company further covenants
                 that its issuance of this Additional Investment Right 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 authorize an uncertificated
                 issuance to the Holder via the DTC DWAC system) for the
                 Additional Investment Right Shares upon the exercise of the
                 purchase rights under this Additional Investment Right. The
                 Company will take all such reasonable action as may be
                 necessary to assure that such Additional Investment Right
                 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,

8
<Page>

                 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 Additional Investment
                 Right, 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 Additional Investment
                 Right against impairment. Without limiting the generality of
                 the foregoing, the Company will (a) not increase the par value
                 of any Additional Investment Right 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 Additional
                 Investment Right Shares upon the exercise of this Additional
                 Investment Right, 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 Additional Investment Right.

                 Before taking any action which would result in an adjustment in
                 the number of Additional Investment Right Shares for which this
                 Additional Investment Right 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 Additional Investment
         Right shall be determined in accordance with the provisions of the
         Purchase Agreement.

                 (g)   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 Additional
         Investment Right, 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.

                 (h)   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.

                 (i)   LIMITATION OF LIABILITY. No provision hereof, in the
         absence of any affirmative action by Holder to exercise this Additional
         Investment Right or purchase Additional Investment Right 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

9
<Page>

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

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

                 (k)   SUCCESSORS AND ASSIGNS. Subject to applicable securities
         laws, this Additional Investment Right 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 Additional Investment Right are intended
         to be for the benefit of all Holders from time to time of this
         Additional Investment Right and shall be enforceable by any such Holder
         or holder of Additional Investment Right Shares.

                 (l)   AMENDMENT. This Additional Investment Right may be
         modified or amended or the provisions hereof waived with the written
         consent of the Company and the Holder.

                 (m)   SEVERABILITY. Wherever possible, each provision of this
         Additional Investment Right shall be interpreted in such manner as to
         be effective and valid under applicable law, but if any provision of
         this Additional Investment Right 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 Additional
         Investment Right.

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

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

10
<Page>

         IN WITNESS WHEREOF, the Company has caused this Additional Investment
Right 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

<Page>

                               NOTICE OF EXERCISE

TO:      WAVE SYSTEMS CORP.

         Section 6.    The undersigned hereby elects to purchase ________
Additional Investment Right Shares of the Company pursuant to the terms of the
attached Additional Investment Right (only if exercised in full), and tenders
herewith payment of the exercise price in full, together with all applicable
transfer taxes, if any.

         Section 7.    Please issue a certificate or certificates representing
said Additional Investment Right Shares in the name of the undersigned or in
such other name as is specified below:

                         _______________________________

The Additional Investment Right Shares shall be delivered to the following:

                         _______________________________

                         _______________________________

                         _______________________________

                                                     [PURCHASER]

                                                     By:
                                                        ------------------------
                                                        Name:
                                                        Title:

                                                     Dated:
                                                           ---------------------

<Page>

                                 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 Additional Investment Right 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 Additional Investment Right, 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 Additional Investment Right.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00069-of-00352.parquet"}]]