EXHIBIT 10.2

Data Systems & Software Inc.

PLACEMENT AGENT AGREEMENT

June 12, 2006

First Montauk Securities Corp.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, New Jersey 07701

Ladies and Gentlemen:
 
Data Systems & Software Inc., a Delaware corporation (the “Company” or “DSSI”),
proposes to offer for sale (the "Offering") in a private offering pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and/or
Regulation D promulgated thereunder, shares of its Common Stock, par value $.01
per share (“Shares”) and (ii) warrants for purchase of Shares (“Warrants”). The
Shares and Warrants to be offered and sold are sometimes referred to herein as
the “Securities”. The Offering is being conducted on a “best efforts” basis
(with no minimum gross proceeds) for up to $3,000,000 of gross proceeds (the
“Maximum Offering”). Offers and sales of the Securities shall be made solely to
Accredited Investors (as defined in Regulation D). This letter agreement shall
confirm our agreement concerning First Montauk Securities Corp. acting as our
placement agent (the “Placement Agent” or “First Montauk”) in connection with
the sale of the Securities.

l. Appointment of Placement Agent.

On the basis of the representations and warranties contained herein, and subject
to the terms and conditions set forth herein, the Company hereby appoints First
Montauk as its Placement Agent and grants to First Montauk the exclusive right
to offer, as its agent, the Securities through the period of the Offering, as
such period may be extended in accordance with Section 2(c) below (the
“Exclusive Period”). The Company expressly acknowledges and agrees that First
Montauk's obligations hereunder are not on a firm commitment basis and that the
execution of this Agreement does not constitute a commitment by First Montauk to
purchase the Securities and does not ensure the successful placement of the
Securities or any portion thereof. Further, First Montauk's obligation to use
its best efforts to assist the Company in the Offering is subject to the
completion of a due diligence review of the Company, the industry and the market
for such securities generally, as well as general market conditions. On the
basis of such representations and warranties, and subject to such conditions,
First Montauk hereby accepts such appointment and agrees to use its reasonable
commercial efforts to secure subscriptions for the purchase of Securities up to
the Maximum Offering.

2. Terms of the Offering.

(a) The Company has prepared and delivered to the Placement Agent copies of a
Confidential Private Placement Memorandum (as may be amended from time to time,
and including the exhibits thereto, the “Memorandum”), relating to, among other
things, the business of the Company, its financial condition, the Securities and
the terms of Offering.

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(b)   Pursuant to the Offering as further described in the Memorandum the
Company intends to offer Shares with an aggregate purchase price of $3,000,000.
The purchase price per Share in the Offering shall be $2.65 (the “Purchase
Price”). In addition, each purchaser in the Offering will receive Warrants equal
to 25% of the number of Shares purchased (“Investor Warrants”). The Investor
Warrants will have a term of five (5) years and will be exercisable at an
exercise price of $2.78 per Share. The investors shall be entitled to such
“registration rights”, anti-dilution protection, future participation rights and
other rights as are described in the Offering Documents (as defined below).

(c)  The Offering shall commence on the date hereof and shall expire at 3:00
p.m., New York time, on July 12, 2006 and may be extended at the discretion of
the Placement Agent and the Company up to August 11, 2006, or any date prior
thereto. Such period, as the same may be so extended, shall hereinafter be
referred to as the “Offering Period.”

(d)  Each prospective investor (“Prospective Investor”) who desires to purchase
Securities shall deliver to the Placement Agent a fully executed Subscription
Agreement, Investor Questionnaire ), and such other agreements as are required
to be signed in connection with the Offering (together with the Memorandum,
Subscription Agreement, Investor Questionnaire, and other exhibits thereto, the
“Offering Documents”) along with payment in the form of immediately available
funds in the amount necessary to purchase the number of Securities such
Prospective Investor desires to purchase. Upon receipt of the executed Offering
Documents, the Placement Agent shall forward such documents to the Company for
review, keeping a copy of such documents for its records. The Placement Agent
shall not have any obligation to independently verify the accuracy or
completeness of any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by any Prospective
Investor in payment for Securities.

(e)  The Placement Agent shall deliver all subscription funds received from a
Prospective Investor to Signature Bank for deposit in a segregated escrow
account pursuant to an escrow deposit agreement among the Company, Placement
Agent and Signature Bank, as escrow agent, and shall deliver the executed copies
of the Subscription Agreement received from such Prospective Investor to the
Company. All funds shall be held in the segregated non-interest-bearing account
pending acceptance of the subscription and no funds shall be released without
execution of a written notice by the Company and the Placement Agent. The
Company shall notify the Placement Agent promptly of the acceptance or rejection
or any subscription.

(f)  Subject to the approval of the Company and the conditions set forth herein,
which approval shall not be unreasonably withheld, First Montauk may engage
other persons selected by First Montauk to assist First Montauk in the Offering
(each such broker/dealers being hereinafter referred to as a “Selling Group
Member”) and First Montauk may allow such Selling Group Member such part of the
compensation and payment of expenses payable to First Montauk under Section 5
hereof as First Montauk shall determine. Any such Selling Group Member shall be
a member firm in good standing as a broker-dealer under the rules of the NASD.
The Company hereby agrees to make such representations and warranties to, and
covenants and agreements with, any Selling Group Member (including an agreement
to indemnify such Selling Group Member on terms substantially similar to Section
12 hereof) as provided herein.

3. Closings: Release of Funds.

(a)  The date that the parties determine to hold an initial closing for
acceptance of subscriptions by the Company and funds are released from the
escrow account shall be deemed the “Initial Closing”. There is no minimum amount
of securities which are required to be sold prior to the Initial Closing. At
least one (1) day prior to the release of funds, the Company and the Placement
Agent shall send written notice to each other, which notice shall state the
amount of funds to be released, the name and address of each subscriber whose
subscription has been accepted by the Company, and the amount of each
subscription.

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(b) At any time prior to the expiration of the Offering Period following the
Initial Closing and after acceptance by the Company of subscriptions for the
sale of additional Securities up to the Maximum Offering, one or more closings
(each an "Interim Closing") shall take place in the manner herein set forth with
respect to the Initial Closing. The final Interim Closing to be held in
accordance herewith shall be deemed the “Final Closing” and the date thereof
shall be the ”Final Closing Date”. References herein to a "Closing" shall mean
the Initial Closing, any Interim Closing or the Final Closing, as the context
requires, and the date thereof shall be referred to as a ”Closing Date”. Prior
to each Closing, Placement Agent will furnish to the Company appropriate records
indicating the name and address of each person subscribing in the Offering and a
copy of the executed Subscription Agreement for each subscriber. The Company
shall have discretion as to whether or not to accept any Subscription Agreement;
provided, however any rejection of a subscription shall be in good faith on the
basis of a reasonable business purpose

4. Representations and Warranties of the Placement Agent.

The Placement Agent represents, warrants to and agrees with the Company as
follows:

(a) The Placement Agent is duly incorporated and validly existing and in good
standing under the laws of the State of New York.

(b) The Placement Agent is, and at the time of each Closing will be, duly
registered as a broker/dealer pursuant to the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) and a member in good standing of the NASD, and
each of the Placement Agent's representatives is, and at the time of each
Closing will be, registered as an agent or salesman of the Placement Agent and
in good standing with the NASD.

(c) Sales of Securities by the Placement Agent will only be made in such
jurisdictions in which the Placement Agent is a registered broker-dealer or
where an applicable exemption from such registration exists.

(d) Offers and sales of Securities by the Placement Agent will be made only in
accordance with this Agreement and in compliance with the provisions of Rule 506
of Regulation D (it being understood and agreed that the Placement Agent shall
be entitled to rely upon the information and statements provided by the
Prospective Investors in the Subscription Agreement and Investor
Questionnaires), and the Placement Agent will furnish to each Prospective
Investor a copy of the Offering Documents prior to the receipt thereby of any
Subscription Agreement from such Prospective Investor.

(e) During the course of the Offering, the Placement Agent and its
representatives will not make any untrue statement of a material fact or omit to
state a material fact required to be stated, or necessary to make any statement
made, by the Placement Agent or its representatives, not misleading concerning
the Offering or any matters set forth in or contemplated by the Offering
Documents (it being understood that the statements made in the Offering
Documents are deemed to be made by the Company and not the Placement Agent,
except for information set forth therein based upon written information provided
by, or on behalf of, the Placement Agent or any of its representatives for
inclusion therein).

(f) Neither the Placement Agent nor any of its representatives or affiliates,
has engaged or will engage, directly or indirectly, in any act or activity that
may jeopardize the status of the Offering and sale of the Securities as an
exempt transaction under the Act or under all applicable federal and/or state
securities or blue sky laws of any jurisdiction in which the Securities may be
offered or sold.

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5. Placement Agent Compensation; Future Financing.

(a) The Placement Agent shall be entitled, on each Closing Date, as compensation
for its services as Placement Agent under this Agreement, to (i) selling
commissions equal to 7% of the gross proceeds received by the Company from the
sale of the Shares and (ii) a management fee of 3% of the gross proceeds
received by the Company from the sale of the Shares. In addition, the Placement
Agent will receive an advisory fee equal to 1% of the gross proceeds of the
Offering. All payments hereunder shall be effected at each Closing in
immediately available funds.

(b)  In addition to the forgoing cash compensation, the Placement Agent will be
entitled to receive Warrants to purchase a number of shares equal to 10% of the
Shares sold by it in the Offering (the “Agent Warrants”). The Agent Warrants
shall be on the same terms as the Investor Warrants.

(c)  For a period of 18 months following the end of the Exclusive Period, the
Company agrees to pay to Placement Agent at each closing of any other equity
financing, convertible debt financing or any instrument convertible into Shares
from any Source contacted by Placement Agent on the Company’s behalf and
disclosed to the Company in writing or from any investor who purchases shares in
the Offering (i) a cash transaction fee in the amount of 10% of the amount of
the gross proceeds received by the Company from any such financing, (ii) a
non-accountable expense allowance of 1% of the amount of gross proceeds received
by the Company from any such financing and (iii) Agent Warrants. As used in this
Agreement, the term “Source” shall be broadly interpreted to include, without
limitation, any corporation, company, institution, partnership, individual and
all of the Source’s affiliates that are directly or indirectly contacted by
Placement Agent for the purpose of investing in the Offering. Placement Agent
will periodically provide the Company with a written list of all Sources
contacted by Placement Agent.

(d)  The Placement Agent shall also be entitled to receive, during the term of
the Warrants, a warrant solicitation fee (“Solicitation Fee”) equal to five
percent (5%) of the exercise price of the Warrants, which fee shall be payable
within five business days of receipt by the Company of the exercise price from a
holder of the Warrants. The Solicitation Fee shall be payable in accordance with
the applicable rules of the NASD and the form of warrants issuable to investors
shall disclose shall include appropriate disclosure regarding the payment of the
Solicitation Fee upon terms acceptable to the Placement Agent. The Company shall
not hire any other broker dealer firm other than the Placement Agent to assist
it in connection with the solicitation of the exercise of the Warrants. 

(e) In the event that the Company enters into a merger, acquisition, or sale
transaction with a Source, Placement Agent shall be entitled to receive a fee in
accordance with industry standard terms to be agreed upon in good faith between
the Company and Montauk.

 
6. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Placement Agent that as of the date hereof and
as of each Closing Date (except as disclosed in the Disclosure Statement or
contemplated therein):

(a)  Assuming the accuracy of the representations and warranties of the
Prospective Investors set forth in the Subscription Agreement and Investor
Questionnaire and the representations and warranties of the Placement Agent set
forth herein, the Offering Documents (including, without limitation, the Company
Documents as defined clause (c) below) (i) contain at all times during the
period from the date hereof to and including each Closing Date, all information
required to be contained therein, if any, pursuant to a private offering to all
“accredited investors“ under Rule 506 of Regulation D and all applicable federal
and/or state securities and blue sky laws, and (ii) do not, and during such
period will 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 the light of the circumstances in which they were made, not misleading. Each
contract, agreement, instrument, lease, license, or other document required to
be described in the Offering Documents shall be, and have been, accurately
described therein in all material respects.

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(b)  The information provided by the Company to Prospective Investors pursuant
to Section 7(f) hereof (it being understood that neither the Company nor any of
its officers or directors or employees shall provide any information to any
Prospective Investor which is not contained or referred to in the Offering
Documents) taken as a whole shall not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements made
therein, in the light of the circumstances in which they were made, not
misleading. Contracts to which the Company or any of its Controlled Subsidiaries
(as defined below) is a party provided by the Company to Prospective Investors
shall not be deemed to contain any untrue statement of a material fact or to
omit to state any material fact if the contract so provided is a true, correct
and complete copy of such contract, as amended or modified through the date it
is so provided.

(c)  The authorized capital stock of the Company consists of 20,000,000 Shares .
As of the date hereof, 8,162,024 Shares are issued and outstanding, and all such
Shares are, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. In addition, there are (i) warrants
outstanding to acquire an aggregate of approximately 190,000 Shares of common
Stock, and (ii) options outstanding to acquire an aggregate of approximately
1,988,665 Shares of Common Stock. The Shares, including Shares issuable upon
exercise of the Warrants, when issued in accordance with the terms of the
Offering, will be validly issued, fully paid and nonassessable and not subject
to preemptive or any other similar rights and no personal liability will attach
to the ownership thereof. The outstanding options, warrants and other
convertible securities of the Company are as set forth in the Memorandum and the
Company’s filings with the SEC under the Exchange Act (collectively, the
“Company Documents). Neither the Company nor any Subsidiary is a party to an
agreement, instrument or understanding which calls for, and no securities of the
Company or any Subsidiary contain provisions relating to, the resetting or
repricing of any debt or equity security instrument of the Company or any
Subsidiary. The issuance of the Securities or the consummation of the Placement
will not trigger any resetting or repricing of any debt or equity security
instrument of the Company or any Subsidiary and will not result in any
preemptive rights to acquire securities of the Company in favor of any third
party.

(d) Each statute, regulation, legal and governmental proceeding, contract,
agreement, instrument, lease, license, or other document required to be
described in the Offering Documents has been accurately described therein in all
material respects.

(e) All prior offerings of the Company’s securities complied in all respects
with the Act and the rules and regulations promulgated thereunder and all
applicable blue sky laws.

(f) The Company and its Controlled Subsidiaries, are (a) corporations duly
organized, validly existing and in good standing under the laws of the
respective state of their incorporation, each have full power and authority to
own or lease all of the assets owned or leased by each of them and to conduct
their respective business as described in the Offering Documents and (b) are
duly qualified to do business and in good standing as a foreign corporation in
all jurisdictions in which the nature of the activities conducted or the
character of the assets owned or leased makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the Company's presently conducted business (taken as a whole with the
business of the Controlled Subsidiaries). Complete and correct copies of the
certificate of incorporation and of the by-laws of the Company and its
Controlled Subsidiaries as in effect on the date hereof have been delivered to
First Montauk, and no changes therein will be made on or subsequent to the date
hereof and prior to the Final Closing Date except as may be disclosed in the
Offering Documents or required pursuant to this Agreement. The term “Controlled
Subsidiaries” means any corporation or other organization in which the Company
owns, directly or indirectly, an equity or other ownership interest equal to or
greater than 50 percent.

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(g)  Since the dates as of which information is given in the Offering Documents,
other than as set forth or contemplated therein, (A) there has not been any
material adverse change in the business, prospects, properties, management,
financial condition or results of operations of the Company or its Controlled
Subsidiaries, (B) the Company has not and will not have paid or declared any
dividends or other distributions on its capital stock and (C) there has not been
any change in the capital stock of the Company or any material change in the
short-term or long-term debt of the Company or its Controlled Subsidiaries.

(h) The consolidated financial statements, together with related notes and
schedules of the Company and its Controlled Subsidiaries, included as part of
the Offering Documents (including the financial statements contained in the
company Documents), present fairly the financial position of the Company and its
Controlled Subsidiaries in all material respects as of the respective dates and
for the periods indicated therein. Audited financial statements, and related
notes and schedules, have been prepared in conformity with United States
generally accepted accounting principles applied on a consistent basis and the
rules of the SEC through the entire period involved. Except as stated in the
Offering Documents, the unaudited statements contained in the Offering Documents
are consistent with, and have been prepared from the books and records kept by
the Company in a manner consistent with past practice.

(i) Except as described in the Offering Documents, there is no action, suit,
investigation or proceeding pending or, to the Company's knowledge, threatened
before or by any Federal or state court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, or
arbitrator to which the Company or its Controlled Subsidiaries is or may become
a party or of which any property of the Company or its Controlled Subsidiaries
is subject or affected that (i) might affect the consummation of the
transactions contemplated under this Agreement, including the issuance or
validity of the Shares offered hereby or (ii) would have a material adverse
effect on the financial condition, properties, results of operations or
businesses of the Company and its Controlled Subsidiaries, taken as a whole
(“Material Adverse Effect”).

(j) The Company and its Controlled Subsidiaries have all approvals, licenses,
franchises, authorizations and permits (collectively, “permits”) necessary under
all applicable statutes, codes, rules, regulations, orders and decrees of
governments or governmental bodies (collectively, “laws”), which are material to
the ownership, lease or use of their respective properties or the conduct of
their respective businesses as described in the Offering Documents. Neither the
Company nor its Controlled Subsidiaries has received notice of any proceedings
relating to the revocation or modification of any such permits which, singly or
in the aggregate, would have a Material Adverse Effect, and each of the Company
and its Controlled Subsidiaries is in all material respects in compliance with
such permits and laws.

(k) The Company and its Controlled Subsidiaries own or are licensed to use all
patents, patent applications, inventions, trademarks, trade names, applications
for registration of trademarks, copyrights, know-how, trade secrets, licenses
and rights in any thereof (“Proprietary Rights”) which are material to the
business of the Company and its Controlled Subsidiaries taken as a whole as now
conducted and as proposed to be conducted, in each case as described in the
Offering Documents. Except as described in the Offering Documents:

(i) the Company and its Controlled Subsidiaries do not have any knowledge of,
and the Company and its Controlled Subsidiaries have not given or received any
notice of any pending conflict with or infringement of, the rights of others
with respect to any Proprietary Rights or with respect to any license of
Proprietary Rights;

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(ii) no action, suit, arbitration, or legal, administrative or other proceeding,
or domestic or foreign governmental investigation is pending or, to the best of
the Company's knowledge, threatened, which involves any Proprietary Rights and
would have a Material Adverse Effect;

(iii) neither the Company nor its Controlled Subsidiaries is subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, which
restricts or impairs the use of any such Proprietary Rights in a manner which
would have a Material Adverse Effect on the use of any of the Proprietary
Rights;

(iv) no Proprietary Rights used by the Company or its Controlled Subsidiaries
and no services or products sold by the Company or its Controlled Subsidiaries,
conflict with or infringe upon, to the knowledge of the Company and its
Controlled Subsidiaries, any proprietary rights available to any third party;

(v) neither the Company nor its Controlled Subsidiaries has entered into any
consent, indemnification, forbearance to sue or settlement agreement with
respect to Proprietary Rights other than in the ordinary course of business;

(vi) to the best knowledge of the Company, no claims have been asserted by any
person with respect to the validity of or the Company's or its Controlled
Subsidiaries' ownership of or right to use the Proprietary Rights and, to the
best knowledge of the Company, there is no reasonable basis for any such claim;

(vii) to the best knowledge of the Company, the Proprietary Rights are valid and
enforceable and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings which would have a Material Adverse Effect, and any applications
therefore are pending and are in good standing;

(viii) the Company and its Controlled Subsidiaries have complied, in all
material respects, with their respective contractual obligations relating to the
protection of the Proprietary Rights used pursuant to licenses; and

(ix) to the best knowledge of the Company, no person is infringing on or
violating the Proprietary Rights owned or used by the Company or its Controlled
Subsidiaries.

(l)  Except as described in the Offering Documents, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities being registered pursuant to any registration statement filed by the
Company under the Act.

(m) All offers and sales of securities of the Company issued during the three
year period prior to the date hereof were at all relevant times duly registered
or exempt from the registration requirements of the Act and the rules and
regulations thereunder and were duly registered or the subject of an available
exemption from the registration requirements of the applicable state securities
or Blue Sky laws. The Company has not, directly or indirectly, solicited any
offer to buy or offered to sell any securities during the twelve-month period
ending on the date hereof which, to the knowledge of the Company, would be
integrated with the Offering.

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(n) Neither the Company nor its Controlled Subsidiaries are (i) in violation of
its certificate of incorporation or by-laws, (ii) to the best knowledge of the
Company, in violation of any statute, law, rule, code, administrative
regulation, ordinance, judgment, order or decree of any government, governmental
instrumentality, court, domestic or foreign, or arbitration panel or other body
applicable to it where such violation would have a Material Adverse Effect or
(iii) to the best knowledge of the Company, in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, voting agreement, voting trust agreement,
loan agreement, bond, debenture, note or other evidence of indebtedness, lease,
sublease, license agreement, contract or other agreement or instrument to which
it is a party or by which it or any of its respective properties are bound or
affected (“Contracts”), where such defaults, singly or in the aggregate, would
have a Material Adverse Effect. To the knowledge of the Company, no other party
under any Contract is in default in any material respect thereunder which
affects the Company.

(o) The Company has all requisite power and authority to execute, deliver and
perform its obligations under this Agreement and the Subscription Agreement.
This Agreement and the Subscription Agreement have been duly and validly
authorized, executed and delivered by the Company, and each such agreement
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its respective terms, except as rights to
indemnity and contribution hereunder and thereunder may be limited by the
securities laws and public policy of the United States and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws or equitable principles affecting the enforcement of creditors'
rights generally;

(p) The issuance of the Securities and the execution, delivery and performance
of this Agreement and the Subscription Agreement, and the consummation of the
transactions contemplated hereby and thereby, do not and will not conflict with
or result in a material breach or violation of any of the terms or provisions
of, or constitute a material default under, or give rise to rights of
termination under, or result in the acceleration of any obligation under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
material property or assets of the Company or any of its Controlled Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, voting
agreement, voting trust agreement, loan agreement, bond, debenture, note or
other evidence of indebtedness or result in a material breach or violation of
any of the terms or provisions of, or constitute a material default under any
lease, sublease, contract or other agreement or instrument to which the Company
or any of its Controlled Subsidiaries are a party, or by which the Company, its
Controlled Subsidiaries, or any of the Company’s or its Controlled
Subsidiaries’respective properties or assets are bound or affected, nor will
such action result in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or its Controlled Subsidiaries or a
material violation of any applicable statute, law, rule, code, administrative
regulation, ordinance, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, or arbitration panel or other
body, having jurisdiction over the Company, its Controlled Subsidiaries, or any
of the Company’s or its Controlled Subsidiaries’ respective properties or
obligations.

(q) No consent, approval, authorization, license or order of or from, or
registration, qualification, declaration or filing with, federal, state, local,
foreign or other governmental authority or any person or court, administrative
agency, or other body is required for the consummation of the transactions
contemplated in this Agreement, or the Offering Documents, except as may have
been made, are required to be made prior to the Initial Closing, or may be
required to be obtained under any state securities or blue sky laws or pursuant
to Regulation D.

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(r) The Company is in compliance in all material respects with all applicable
federal, state and local environmental laws and regulations (collectively, the
“Environmental Laws”), except for any material noncompliance as may be described
in the Offering Documents, and to the best of the Company's knowledge, there are
no circumstances that would prevent, interfere with, or materially increase the
cost of such compliance in the future. Except as set forth in the Offering
Documents, there is no claim under any Environmental Law, including common law
(“Environmental Claim”), pending or, to the knowledge of the Company, threatened
against or affecting the Company or its Controlled Subsidiaries and, to the best
of the Company's knowledge, there are no past or present actions, activities,
circumstances, events or incidents, including, without limitation, releases of
any material into the environment, that could form the basis of any
Environmental Claim against or affecting the Company or its Controlled
Subsidiaries.

(s) Each of the Company and its Controlled Subsidiaries has good and marketable
title to all property owned by it, in each case free and clear of all liens,
charges, encumbrances or restrictions except as described in the Offering
Documents or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company. Except as described in the Offering Documents, all material Contracts
to which the Company or its Controlled Subsidiaries is a party or by which the
Company or its Controlled Subsidiaries or any of their respective properties or
assets are bound are valid, subsisting and enforceable and are in full force and
effect.

(t) The Company and its Controlled Subsidiaries (A) has paid all federal, state,
local and foreign taxes for which it is liable and has furnished all information
returns it is required to furnish pursuant to the Internal Revenue Code of 1986,
as amended, (B) has established adequate reserves for such taxes which are not
due and payable and (C) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.

(u) The Company and its Controlled Subsidiaries maintain insurance of the types
and in amounts which it deems adequate for its business taken as a whole, all of
which are in full force and effect.

(v) Other than as set forth herein or in the Offering Documents, there are no
claims, payments, issuances, arrangements or understandings, whether oral or
written, for services in the nature of a finder's or origination fee with
respect to the sale of the Securities.

(w) Neither the Company nor its Controlled Subsidiaries, nor to the best of the
Company’s knowledge any of the Company’s officers, employees, agents or any
other person acting on behalf of, at the direction of or for the benefit of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (b) if not given in the past, might have had a
Material Adverse Effect or (c) if not continued in the future, might result in a
Material Adverse Effect. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.

(x) To the best knowledge of the Company, during the past five years, none of
the current officers or directors of the Company have been:

(i) The subject of a petition under the federal bankruptcy laws or any state
insolvency law filed by or against them, or by a receiver, fiscal agent or
similar officer appointed by a court for their business or property, or any
partnership in which any or them was a general partner at or within two years
before the time of such filing, or any corporation or business association of
which any of them was an executive officer at or within two years before the
time of such filing;

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(ii) Convicted in a criminal proceeding or a named subject of a pending criminal
proceeding (excluding traffic violations and other minor offenses);

(iii) The subject of any order, judgment, or decree not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any of them from, or otherwise limiting, any of the
following activities:

(iv) acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct or
practice in connection with any such activity;

(v)  engaging in any type of business practice; or

(vi) engaging in any activity in connection with the purchase or sale of any
security or commodity or in connection with any violation of federal or state
securities law or federal commodity laws.

(vii) the subject of any order, judgment or decree, not subsequently reversed,
suspended or vacated of any federal or state authority barring, suspending or
otherwise limiting for more than sixty (60) days their right to engage in any
activity described in paragraph (c)(i) above, or be associated with persons
engaged in any such activity;

(viii) found by any court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended or vacated; or

(ix) found by a court of competent jurisdiction in a civil action or by the
Commodity Futures Trading Commission to have violated any federal commodities
law, and the judgment in such civil action or finding by the Commodity Futures
Trading Commission has not been subsequently reversed, suspended or vacated.

(x) found by a court or an administrative agency to have or is alleged to have
violated any foreign securities laws.

(y) Neither the Company nor, to the knowledge of the Company, any of its
affiliates has, directly or through any agent, sold, offered for sale or
solicited offers to buy any security of the Company, nor will any of the
foregoing directly buy any security of the Company.

(z) Neither the Company nor any of its officers, directors, or affiliates, has
engaged or will engage, directly or indirectly, in any act or activity that may
jeopardize the status of the Offering and sale of the Securities as an exempt
transaction under the Act or under all applicable federal and/or state
securities or blue sky laws of any jurisdiction in which the Securities may be
offered or sold.

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(aa)  The Company and the Subsidiaries maintain a system of internal accounting
and other controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of reliable financial statements in conformity with United States
generally accepted accounting principles and to maintain accountability for
assets, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accounting for assets
is compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any material differences.

(bb)  Neither the Company nor any of its Subsidiaries has violated or is
currently in violation of any provisions of: (a) any federal or state
environmental law, (b) Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
(“ERISA”), (c) the Bank Secrecy Act, as amended, (d) the Money Laundering
Control Act of 1986, as amended, (e) the Foreign Corrupt Practices Act, or (f)
the Uniting and Strengthening of America by Providing Appropriate Tools Required
to Intercept and Obstruct Terrorism (“USA Patriot Act”) Act of 2001, and the
rules and regulations promulgated under any such law, or any successor law,
except for such violations which, singly or in the aggregate, would not have a
Material Adverse Effect.

(cc)  So long as the Common Stock and the Warrants (including the Common Stock
receivable upon the exercise thereof) are “restricted securities” within the
meaning of Rule 144(a)(3) under the Securities Act, the Company, during any
period in which it is not subject to and in compliance with Section 13 or 15(d)
of the Exchange Act, or is not exempt from such reporting requirements pursuant
to and in compliance with Rule 12g3-2b under the Exchange Act, provide to each
holder of Common Stock and to each prospective purchaser (as designated by such
holder) of Common Stock upon the request of such holder or prospective holder,
any information required to be provided by Rule 144A(d)(4) under the Securities
Act.
 
(dd)   The Company is not and, at all times up to and including consummation of
the transactions contemplated by this Agreement, and after giving effect to
application of the net proceeds of the Placement, will not be, subject to
registration as an “investment company” under the Investment Company Act of
1940, as amended (the “1940 Act”), and is not and will not be an entity
“controlled” by an “investment company” within the meaning of the 1940 Act. The
Company will: (i) utilize the proceeds of the Placement in accordance with the
“Use of Proceeds” section of the Memorandum and (ii) initially utilize the
proceeds of the Placement and all other funds of the Company in such a manner so
as to cause the Company not to be subject to the 1940 Act, and will thereafter
use its best efforts to avoid the Company’s becoming subject to the 1940 Act.
 
(ee)  The Company is in compliance with applicable requirements of the
Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by
the Commission thereunder in effect as of the date of this Agreement, except
where such noncompliance could not be reasonably expected to have, individually
or in the aggregate, a material adverse effect upon the Company.
 
7. Covenants of the Company.

The Company covenants that it will:

(a) Notify First Montauk immediately, and confirm such notice in writing, (i)
when any event shall have occurred during the period commencing on the date
hereof and ending on the Final Closing Date, as a result of which the Offering
Documents would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading, and (ii) of the
receipt of any notification with respect to the modification, rescission,
withdrawal, or suspension of the qualification or registration of the
Securities, or of an exemption from such registration or qualification, in any
jurisdiction. The Company will use its reasonable best efforts to prevent the
issuance of any such modification, rescission, withdrawal, or suspension, and at
Placement Agent's request, to use reasonable best efforts to obtain the lifting
thereof as promptly as possible.

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(b) Not make any supplement or amendment to the Offering Documents unless such
supplement or amendment complies with the requirements of the Act and Regulation
D and the applicable federal and/or state securities and blue sky laws and
unless the Placement Agent shall have approved of such supplement or amendment.
If, at any time during the period commencing on the date hereof and ending on
the Final Closing Date, any event shall have occurred as a result of which the
Offering Documents contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made therein, in the
light of the circumstances in which they were made, not misleading, or if, in
the reasonable opinion of counsel to the Company or counsel to the Placement
Agent, it is necessary at any time to supplement or amend the Offering Documents
to comply with the Act, Regulation D, or any applicable securities or blue sky
laws, the Company will promptly prepare an appropriate supplement or amendment
(in form and substance satisfactory to the Placement Agent) which will correct
such statement or omission or which will effect such compliance.

(c) Deliver without charge to the Placement Agent such number of copies of the
Offering Documents and any supplement or amendment thereto as may reasonably be
requested by the Placement Agent.

(d) Not, directly or indirectly, solicit any offer to buy from, or offer to sell
to any person any Securities, or any other securities (whether debt or equity)
of the Company except through the Placement Agent.

(e) Use its best efforts to establish an exemption from qualification and
registration under the securities or blue sky laws of the jurisdictions as may
be required by the Placement Agent in connection with the offer and sale of the
Securities and retain counsel in making any required filings; provided, however,
that the Company will not be obligated to qualify to do business or register as
a dealer in securities, or otherwise subject itself to general service of
process, in any jurisdiction in which it is not so qualified. The Company shall
make a Form 99 and State Notice filing with the State of New York prior to the
commencement of the Offering and timely file a Form D and such other required
notice with all state blue sky authorities and the SEC.

(f) At all times during the period commencing on the date hereof and ending on
the Final Closing Date, provide to each Prospective Investor or his Purchaser
Representative (as defined in Regulation D), if any, on request, such
information (in addition to that contained in the Offering Documents) concerning
the Offering, the Company and any other relevant matters, as it possesses or can
acquire without unreasonable effort or expense, and to extend to each
Prospective Investor or his Purchaser Representative, if any, the opportunity to
ask questions of, and receive answers from, the President or other executive
officers of the Company concerning the terms and conditions of the Offering and
the business of the Company and to obtain any other additional information, to
the extent it possesses the same or can acquire it with reasonable effort or
expense, and in conformity with existing laws and regulations of federal and
state and other regulatory bodies and agencies as such Prospective Investor or
Purchaser Representative may consider necessary in making an informed investment
decision or in order to verify the accuracy of the information furnished to such
Prospective Investor or Purchaser Representative, as the case may be.
Notwithstanding, anything in this Section 7(f) to the contrary, the Prospective
Investor and/or his Purchaser Representative, as the case may be, shall only
rely on such information in making an investment decision, to the extent it has
been provided to them in the Offering Documents or otherwise provided by the
Company in writing.

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(g) So long as the Shares and the Warrants (including the Shares receivable upon
the exercise thereof) are “restricted securities” within the meaning of Rule
144(a)(3) under the Securities Act, the Company, during any period in which it
is not subject to and in compliance with Section 13 or 15(d) of the Exchange
Act, or is not exempt from such reporting requirements pursuant to and in
compliance with Rule 12g3-2b under the Exchange Act, provide to each holder of
Shares and to each prospective purchaser (as designated by such holder) of
Shares upon the request of such holder or prospective holder, any information
required to be provided by Rule 144A(d)(4) under the Securities Act.

(h) Not, directly or indirectly, engage in any act or activity which may
jeopardize the status of the offering and sale of the Securities as exempt
transactions under the Act or under the securities or blue sky laws of any
jurisdiction in which the Offering maybe made. Without limiting the generality
of the foregoing, and notwithstanding anything contained herein to the contrary,
the Company shall not, directly or indirectly, engage in any offering of
securities which, if integrated with the Offering in the manner prescribed by
Rule 502(a) of Regulation D and applicable releases of the Commission, may
jeopardize the status of the offering and sale of the Securities as exempt
transactions under Regulation D.

(i) Apply the net proceeds from the sale of the Securities in a manner
consistent with, in all material respects, the description as set forth in the
Offering Documents.

(j) Not, during the period commencing on the date hereof and ending on the Final
Closing Date, issue any press release or other communication, or hold any press
conference with respect to the Company, its financial condition, results of
operations, business, properties, assets, or liabilities, or the Offering,
without First Montauk prior written consent, not to be unreasonably withheld,
except as required by applicable securities laws and except as may be related to
the marketing and sale of its products in the normal course of business. The
foregoing shall not prohibit the Company from holding informational meetings
with accredited investors who have a pre-existing relationship with the Company
during which the materials and information disseminated will be limited to the
information contained in the Offering Documents or from making disclosures
required by law.

8. Payment of Expenses. The Company hereby agrees to pay all fees, charges, and
expenses incident to the performance by the Company of its obligations
hereunder, including, without limitation, all fees, charges, and expenses in
connection with: (i) the preparation, printing, copying and mailing of the
Offering Documents; (ii) the purchase, sale, and delivery of the Securities, and
any supplements or amendments thereto; (iii) the issuance, sale, transfer, and
delivery of the Securities, including any transfer or other taxes payable
thereon and the fees of any transfer agent or registrar; (iv) the filing fees
for the offer and sale under the securities laws of such states and other
jurisdictions as Placement Agent may designate (including without limitation,
all disbursements of Company counsel incurred in connection with such filings);
(v) Placement Agent's documented counsel fees for services rendered in
connection with the Offering, up to an amount of $25,000, of which $10,000 has
previously been paid; and (vi) the expense of the escrow account which expenses
shall equal $2,500 and be payable to the escrow agent in advance. To the extent
that Placement Agent wishes to incur any such costs or fees on the Company’s
behalf, with the exception of NASD Rule 2710, blue sky filing fees, and counsel
fees as provided for in the preceding sentence, all such expenses must be
approved by Company prior to their incurrence.
 

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9. Conditions of Placement Agent's Obligations.

The obligations of the Placement Agent pursuant to this Agreement shall be
subject, in its discretion, to the continuing accuracy in all material respects
of the representations and warranties of the Company contained herein and in
each certificate and document contemplated under this Agreement to be delivered
to the Placement Agent, as of the date hereof and as of each Closing Date, with
respect to the performance in all material respects by the Company of its
obligations hereunder, and to the following conditions:

(a) At the First Closing and the Final Closing, the Placement Agent shall have
received the favorable opinion of Eilenberg & Krause LLP, counsel for the
Company, dated each Closing Date, addressed to the Placement Agent, and in form
and scope reasonably satisfactory to counsel for the Placement Agent,
substantially to the effect that:

(i) the Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, with the requisite corporate
power to own and operate its properties and assets, and to carry on its business
as described in the Offering Documents and is duly qualified to do business and
is in good standing as a foreign corporation in those jurisdictions where the
failure to so qualify would have a Material Adverse Effect on the business of
the Company;

(ii) the Company has, as of the date hereof, an authorized, and, to such
counsel's knowledge based on the records of the Company, outstanding,
capitalization as set forth in the Disclosure Statement. To such counsel's
knowledge, each of the issued and outstanding Shares is validly issued, fully
paid, and nonassessable. Except as set forth in the Disclosure Statement, to
such counsel's knowledge, there are no preemptive rights, options or warrants or
other conversion privileges or rights presently outstanding to purchase any of
the authorized but unissued stock of the Company;

(iii) to such counsel's knowledge there is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending
or threatened with respect to the Company or any of its operations, businesses,
properties, or assets except as described in the Offering Documents or such as
individually or in the aggregate have, or could reasonably be expected to have a
material adverse effect upon the operations, business, properties, or assets of
the Company or which could materially adversely affect the transactions or other
acts contemplated by this Agreement or the validity or enforceability of this
Agreement;

(iv) the Company has all requisite corporate power and authority to execute,
deliver, and perform this Agreement, and to consummate the transactions
contemplated hereby. All necessary corporate proceedings of the Company have
been taken to authorize the execution, delivery, and performance by the Company
of this Agreement, and the consummation of the transactions contemplated hereby.
This Agreement has been duly authorized, executed, and delivered by the Company,
is the legal, valid, and binding obligation of the Company, and is enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application now or hereafter in effect relating to or
affecting the enforcement of creditors' right generally and the application of
general equitable principles in any action, legal or equitable and then except,
as to those provisions relating to indemnity or contribution, such opinion shall
be limited as effected by any Federal or state securities laws regarding
indemnity and/or contribution;

(v) upon receipt of payment therefore in accordance with the Offering Documents,
the Securities shall be validly authorized, validly issued, fully paid, and
nonassessable;

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(vi) assuming that (i) the Offering was made in the manner and by the means
contemplated by the Offering Documents, (ii) a proper Form D is filed in
accordance with Rule 503 of Regulation D, (iii) that the offer and sale of the
Securities by the Placement Agent was made in accordance with Regulation D and
the Offering Documents including, but not limited to, only accredited investors
in compliance with Rule 506 of Regulation D without any advertising and/or
general solicitation, (iv) the Placement Agent's representations, warranties and
covenants set forth herein are true and correct, (v) the Company's
representations, warranties and covenants set forth herein are true and correct,
and (vi) the representations of the Prospective Investors in the Subscription
Agreements and Investors Questionnaire signed by them are true and correct
(which facts will not be independently verified by such counsel), the sale of
Securities in the Offering is exempt from registration under the Act.

(vii) the execution and delivery of this Agreement, the consummation of the
transactions contemplated hereunder and the issuance of the Securities will not
result in any material violation of, or material conflict with, or constitute a
material default under (i) the certificate of incorporation or by-laws of the
Company, (ii) to such counsel's knowledge, any material contract, instrument,
agreement or document to which the Company is a party, or by which the assets or
properties of the Company are bound; or (iii) to such counsel's knowledge, any
statute, rule or regulation of Delaware or New York corporate law, or any
judgment or order to which the Company is a party.

In rendering such opinion, counsel for the Company may (A) base such opinions on
such assumptions, qualifications, limitations and conditions as required by the
opinion committee of such counsel, (B) rely as to matters of fact, on
certificates of responsible officers of the Company; (C) to the extent they deem
proper, upon written statements or certificates of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company, provided that copies of any such
statements or certificates shall be delivered to counsel for the Placement
Agent; and (D) rely upon such other opinions of other counsel to the Company as
it deems necessary.

(b) On or prior to the Initial Closing Date the Placement Agent shall have been
furnished such information, documents, certificates, and opinions as it may
reasonably require for the purpose of enabling it to review the matters referred
to in Section 8(a), and in order to evidence the accuracy, completeness, or
satisfaction of any of the representations, warranties, covenants, agreements,
or conditions herein contained, or as it may otherwise reasonably request.

(c) At the First Closing and at each additional Closing, the Placement Agent
shall have received one or more certificates of the chief executive officer and
of the chief financial officer of the Company, dated the applicable Closing Date
to the effect that, as of the date of this Agreement and as of the applicable
Closing Date the representations and warranties of the Company contained herein
were and are accurate, and that as of the Closing Date the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed. In addition, the parties shall deliver such other certificates or
closing documents as are customarily used by the Placement Agent in offerings of
this nature.

(d) All proceedings taken in connection with the issuance, sale, and delivery of
the Securities shall be satisfactory in form and substance to First Montauk and
First Montauk’s counsel.

(e) Any certificate or other document signed by any officer of the Company and
delivered to First Montauk or to First Montauk counsel at a Closing shall be
deemed a representation and warranty by the Company hereunder as to the
statements made therein. If any condition to First Montauk obligations hereunder
has not been fulfilled as and when required to be so fulfilled, First Montauk
may terminate this Agreement or, if First Montauk so elects, in writing waive
any such conditions which have not been fulfilled or extend the time for their
fulfillment. In the event that First Montauk elects to terminate this Agreement,
First Montauk shall notify the Company of such election in writing. Upon such
termination, neither party shall have any further liability or obligation to the
other except as provided in Section 11 hereof.

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10. Conditions of Company's Obligations.

The obligations of the Company pursuant to this Agreement shall be subject, in
its discretion in good faith, to the performance by the Placement Agent in all
material respects of its obligations hereunder.

11. Termination.

If subscriptions for the Offering are not received into escrow during the
Offering Period, or Placement Agent has committed a material breach of this
Agreement, the Company may terminate the Agreement and the agency relationship
created hereby upon prior written notice to First Montauk. First Montauk may
terminate this Agreement and the agency created hereby for any reason upon
written notice to the Company. In either case, neither party shall have any
liability or continuing obligation to the other except that, regardless of which
party elects to terminate, (i) the Company agrees to reimburse First Montauk
for, or otherwise pay and bear, the expenses and fees to be paid and borne by
the Company as provided for in Section 8 above and, subject to the Company's
pre-approval for any expenses in excess of $350 individually, to reimburse First
Montauk for the full amount of its actual out-of-pocket expenses (which shall
include, without limitation, the fees and disbursements of First Montauk's
counsel (up to the limits set forth in Section 8), travel and lodging expenses,
mailing, printing and reproduction expenses, less amounts previously paid to
First Montauk in reimbursement for such expenses, and (ii) the provisions of
paragraph 8 and the Indemnification Provisions in Section 12 shall remain in
full force and effect. Upon any such termination, the Company agrees to cease to
use any Offering materials that represent First Montauk as placement agent. In
the event that any Securities are sold, Sections 5, 8, 12, 13 and 14 shall
survive the termination of this Agreement. Furthermore, notwithstanding anything
to the contrary in this Agreement, in the event that the Company refuses to
accept subscriptions during the Offering Period without a reasonable basis
related to the subscriber or to the Offering generally, or otherwise refuses to
complete the Offering without any failure of the condition set forth in Section
10, then First Montauk shall be entitled to a fee of $200,000 which shall be
deemed liquidated damages.

12. Indemnification and Contribution.

(a) The Company agrees to indemnify and hold harmless the Placement Agent, its
officers, directors, partners, employees, agents, and counsel, and each person,
if any, who controls the Placement Agent within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act , against any and all loss, liability,
claim, damage, and expense whatsoever (which shall include, for all purposes of
this Section 12, but not be limited to, reasonable attorneys' fees and any and
all reasonable expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with (i) any untrue statement or alleged untrue statement of a material fact
contained in the Offering Documents or in any document delivered or written
statement made pursuant to Section 7(f), or in any application or other document
or communication (it being understood that neither the Company nor any officer,
director or employee shall provide any information to any Prospective Investor
which is not contained or referred to in the Offering Documents) (in this
Section 12 collectively called an "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to register or qualify the Securities
under the blue sky or securities laws thereof or in order to secure an exemption
from such registration or qualification or filed with the Commission; or any
omission or alleged omission to state a material fact necessary to make the
statements made therein, in the light of the circumstances in which they were
made, not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company as
stated in Section 12(b) with respect to the Placement Agent expressly for
inclusion in the Offering Documents or in any application, as the case may be;
and (ii) any breach of any representation, warranty, covenant, or agreement of
the Company contained in this Agreement. The foregoing agreement to indemnify
shall be in addition to any liability the Company may otherwise have, including
liabilities arising under this Agreement.

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If any action is brought against the Placement Agent or any of its officers,
directors, partners, employees, agent, or counsel, or any controlling persons of
the Placement Agent (an "indemnified party"), in respect of which indemnify may
be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company (the
"indemnifying party") in writing of the institution of such action (but the
failure so to notify shall not relieve the indemnifying party from any liability
it may have unless the indemnifying party is prejudiced by such failure) and the
indemnifying party shall promptly assume the defense of such action, including
the employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party shall have the right to
employ its own counsel in any such case, but the fees and expense of such
counsel shall be at the expense of such indemnified party unless the employment
of such counsel shall have been authorized in writing by the indemnifying party
in connection with the defense of such action, in which event such fees and
expenses shall be borne by the indemnifying party. Anything in this paragraph to
the contrary notwithstanding, the indemnifying party shall not be liable for any
settlement of any such claim or action effected without its written consent. The
Company agrees promptly to notify the Placement Agent of the commencement of any
litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of the Securities, the Offering Documents,
or any application.

(b) The Placement Agent agrees to indemnify and hold harmless the Company, its
officers, directors, employees, agents, and counsel, and each other person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the Placement Agent in Section 12(a), with respect to any
and all loss, liability, claim, damage, and expense whatsoever (which shall
include, for all purposes of this Section 12, but not be limited to, attorneys'
fees and any and all expense whatsoever incurred in investigating, preparing, or
defending against any litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation) as and when incurred arising out of, based upon, or in connection
with (i) statements or omissions, if any, made in the Offering Documents in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of Placement Agent expressly for inclusion in the
Offering Documents; (ii) the failure of the Placement Agent or its
representatives to comply with the provisions of Section 4(c) hereof or with the
federal, blue sky or securities laws of the jurisdictions in which the Placement
Agent solicits offers to buy or offers to sell any Securities; or (iii) any
breach of any representation, warranty, covenant or agreement of the Placement
Agent contained in this Agreement. If any action shall be brought against the
Company or any other person indemnified under this Section 12(b) in respect of
which indemnity may be sought against the Placement Agent pursuant to this
Section 12, the Placement Agent shall have the rights and duties given to the
indemnifying party, and the Company and each other person so indemnified shall
have the rights and duties given to the indemnified parties, by the provisions
of Section 12(a) hereof.

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(c) To provide for just and equitable contribution, if (i) an indemnified party
makes a claim for indemnification pursuant to Section 12(a) or 12(b) hereof but
it is found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the Exchange
Act, or otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent, or counsel of
the Company, or any controlling person of the Company), on the one hand, and the
Placement Agent (including for this purpose any contribution by or on behalf of
an indemnified party), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, in such proportions as are appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Placement Agent, on
the other hand; provided, however, that if applicable law does not permit such
allocation, then other relevant equitable considerations such as the relative
fault of the Company and the Placement Agent in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall also
be considered. The relative benefits received by the Company, on the one hand,
and the Placement Agent, on the other hand, shall be deemed to be in the same
proportion as (x) the total proceeds from the Offering (net of compensation
payable to the Placement Agent pursuant to Section 5 hereof but before deducting
expenses) received by the Company, and (y) the compensation received by the
Placement Agent pursuant to Section 5 (a) hereof.

The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company or by the Placement Agent, and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Placement Agent agree that it would be unjust and
inequitable if the respective obligations of the Company and the Placement Agent
for contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages, and expenses or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 12(c). In no case shall the Placement Agent be responsible
for a portion of the contribution obligation in excess of the compensation
received by it pursuant to Section 5 hereof. No person guilty of a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 12(c),
each person, if any, who controls the Placement Agent within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partners, employee, agent, and counsel of the Placement Agent, shall
have the same rights to contribution as the Placement Agent, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of the Company, shall have the same rights to contribution as
the Company, subject in each case to the provisions of this Section 12(c).
Anything in this Section 12(c) to the contrary notwithstanding, no party shall
be liable for contribution with respect to the settlement of any claim or action
effected without its written consent. This Section 12(c) is intended to
supersede any right to contribution under the Act, the Exchange Act, or
otherwise.

13. Solicitation Prohibition.

The Company agrees that, for a period of 18 months from end of the Exclusive
Period, it shall not, directly or indirectly, (A) solicit offers to buy or sell
any securities of the Company or any other entity from or to any person first
introduced to the Company by First Montauk who purchases Securities in
connection with the Offering, or (B) provide the name of any such person to any
other securities broker or dealer or selling agent, without paying to First
Montauk an amount equal to 10% of the aggregate purchase price of the securities
so purchased or consideration received by such person.

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14. Representations and Agreements to Survive Delivery.

All representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and, such representations, warranties, covenants,
and agreements, including the indemnification and contribution agreements
contained in Section 12, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Placement Agent or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 12(b), and shall
survive termination of this Agreement or the issuance, sale, and delivery of the
Securities. In addition, notwithstanding any election hereunder or any
termination of this Agreement, and whether or not the terms of this Agreement
are otherwise carried out, the provisions of Sections 5, 8, 11, 12, 13 and 14
shall survive termination of this Agreement and shall not be affected in any way
by such election or termination or failure to carry out the terms of this
Agreement or any part thereof.

15. Notices.

All communications hereunder, except as may be otherwise specifically provided
herein, shall be in writing and, if sent to the Placement Agent, shall be mailed
by certified mail, hand delivered, or sent by overnight courier service, to
First Montauk Securities Corp., Parkway 109 Office Center, 328 Newman Springs
Road, Red Bank, New Jersey 07701 Attention: Ernest Pellegrino, with a copy to
Ellenoff Grossman & Schole LLP, 370 Lexington Avenue, 19th Floor, New York, New
York 10017, Attention: Brian C. Daughney, Esq.; or if sent to the Company to
Data Systems & Software Inc., 200 Route 17, Mahwah, NJ 07430, Attention: John A.
Moore, Chief Executive Officer, with a copy to Eilenberg & Krause LLP, 17 East
44th Street, New York, NY 10017, Attention: Sheldon Krause, Esq. All notices
hereunder shall be effective upon delivery to the party to which it is
addressed.

16. Parties.

This Agreement shall inure solely to the benefit of, and shall be binding upon,
the Placement Agent and the Company and the persons and entities referred to in
Section 12 who are entitled to indemnification or contribution, and their
respective successors, legal representatives, and assigns (which shall not
include any purchaser, as such, of Securities), and no other person shall have
or be construed to have any legal or equitable right remedy, or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The engagement dated as of May 2, 2006 between First Montauk and the Company
(the “Engagement Letter”) shall remain in effect, except as superseded by this
Agreement. In the event of a conflict between the terms of this Agreement and
those of the Engagement Letter, the terms of this Agreement will control.

17. Governing Law. Submission to Jurisdiction.

The validity and interpretation of this Agreement shall be governed by the laws
of the State of New York applicable to agreements made and to be fully performed
therein. Each of First Montauk and the Company (a) agrees that any legal suit,
action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (b)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of the foregoing named courts in any such suit, action or
procedure. Each of the Company and First Montauk further agrees to accept and
acknowledge service of any and all process which may be served in any suit,
action or proceeding in the foregoing courts, and agrees that service of process
upon the Company or First Montauk mailed by certified mail to the address set
forth in Section 16 hereof shall be deemed in every respect effective service of
process upon the Company in any such suit, action or proceeding. In the event of
litigation between the parties arising hereunder, the prevailing party shall be
entitled to costs and reasonable attorney's fees.

18. Counterparts.

This Agreement may be executed in counterparts, each of which shall constitute
an original and all of which, when taken together, shall constitute one
agreement. The parties hereto agree to accept a facsimile transmission copy of
their respective actual signatures as evidence of their actual signatures to
this Agreement

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If the foregoing correctly sets forth the understanding between us, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among us.

Very truly yours,

DATA SYSTEMS & SOFTWARE INC.

By: ________________________________
Name: John A. Moore
Title: Chief Executive Officer
Accepted as of the date
first above written:

FIRST MONTAUK SECURITIES CORP.

By: _______________________________
Name:
Title: