EXHIBIT 10.45
                                  -------------

                          SECURITIES PURCHASE AGREEMENT
                          -----------------------------

      THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"),  dated as of August
___, 2001, by and among VERTICAL COMPUTER SYSTEMS, INC., a Delaware corporation,
with headquarters  located at 6336 Wilshire Boulevard,  Los Angeles,  California
90048 (the  "COMPANY"),  and the  Buyers  listed on  Schedule I attached  hereto
(individually, a "Buyer" or collectively "Buyers").


                                   WITNESSETH:
                                   -----------

      WHEREAS,  the Company and the Buyer(s) are executing and  delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION  D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");

      WHEREAS,  the  parties  desire  that,  upon the terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer(s),
as  provided  herein,  and the  Buyer(s)  shall  purchase  Two Hundred and Fifty
Thousand  Dollars   ($250,000)  of  convertible   debentures  (the  "CONVERTIBLE
DEBENTURES"),  which shall be  convertible  into shares of the Company's  common
stock, (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), for a total
purchase  price of Two  Hundred  and  Fifty  Thousand  Dollars  ($250,000)  (the
"PURCHASE  PRICE") in the  respective  amounts set forth  opposite each Buyer(s)
name on Schedule I ( the "SUBSCRIPTION AMOUNT"); and

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement  substantially in the form attached hereto as Exhibit A (the "INVESTOR
REGISTRATION  RIGHTS  AGREEMENT")  pursuant  to which the  Company has agreed to
provide  certain  registration  rights  under  the  1933 Act and the  rules  and
regulations promulgated there under, and applicable state securities laws; and

      WHEREAS, the aggregate proceeds of the sale of the Convertible  Debentures
contemplated  hereby shall be held in escrow  pursuant to the terms of an escrow
agreement  substantially in the form of the Escrow Agreement  attached hereto as
Exhibit B.

      NOW,  THEREFORE,  in  consideration  of the  mutual  covenants  and  other
agreements  contained in this Agreement the Company and the Buyer(s)hereby agree
as follows:

      1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

         (a) PURCHASE OF CONVERTIBLE DEBENTURES. Subject to the satisfaction (or
waiver)  of the terms and  conditions  of this  Agreement,  each  Buyer  agrees,
severally and not jointly,  to purchase at Closing (as defined herein below) and
the Company  agrees to sell and issue to each Buyer,  severally and not jointly,
at  Closing,   Convertible   Debentures  in  amounts   corresponding   with  the
Subscription  Amount set forth  opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth  opposite  his name on Schedule I in same-day  funds or a check
payable to "First Union  National  Bank,  as Escrow Agent for Vertical  Computer

<PAGE>

Systems,  Inc. / Cornell Capital Partners,  LP", which Subscription Amount shall
be held in escrow pursuant to the terms of the Escrow  Agreement (as hereinafter
defined) and disbursed in accordance therewith. Notwithstanding the foregoing, a
Buyer may withdraw his  Subscription  Amount and terminate  this Agreement as to
such Buyer at any time  after the  execution  hereof  and prior to  Closing  (as
hereinafter defined).

         (b)  CLOSING  DATE.  The  closing  of  the  purchase  and  sale  of the
Convertible  Debentures (the "CLOSING")  shall take place at 10:00 a.m.  Eastern
Standard  Time on the fifth  business day  ("CLOSING  DATE")  following the date
hereof, subject to notification of satisfaction (or waiver) of the conditions to
the  Closing  set  forth in  Sections  6 and 7 below (or such  later  date as is
mutually  agreed to by the Company and the Buyers).  The Closing  shall occur on
the Closing Date at the offices of Butler Gonzalez, LLP, 1000 Stuyvesant Avenue,
Suite 6, Union,  NJ 07083 (or such other  place as is mutually  agreed to by the
Company and the Buyers).

         (c) ESCROW  ARRANGEMENTS;  FORM OF PAYMENT.  Upon  execution  hereof by
Buyer(s)  and  pending  Closing,  the  aggregate  proceeds  of the  sale  of the
Convertible  Debentures to Buyer(s) pursuant hereto,  plus the fees and expenses
of the Yorkville Advisors Management, LLC (the "CONSULTANT"), shall be deposited
in a  non-interest  bearing  escrow  account with First Union  National Bank, as
escrow  agent  ("ESCROW  AGENT"),  pursuant to the terms of an escrow  agreement
between the Company,  the  Consultant  and the Escrow Agent in the form attached
hereto as Exhibit B (the "ESCROW AGREEMENT"). Subject to the satisfaction of the
terms and  conditions of this  Agreement,  on the Closing  Date,  (i) the Escrow
Agent shall  deliver to the Company in  accordance  with the terms of the Escrow
Agreement such aggregate  gross  proceeds for the  Convertible  Debentures to be
issued and sold to such  Buyer(s) at the Closing  minus the fees and expenses of
the  Consultant,  by wire transfer of immediately  available funds in accordance
with the Company's written wire instructions, and (ii) the Company shall deliver
to each Buyer,  Convertible  Debentures  which such  Buyer(s) is  purchasing  in
amounts  indicated  opposite  such Buyer's name on Schedule I, duly  executed on
behalf of the Company.

      2. BUYER'S REPRESENTATIONS AND WARRANTEES.

      Each Buyer represents and warrants, severally and not jointly, that:

         (a)  INVESTMENT  PURPOSE.  Each  Buyer  is  acquiring  the  Convertible
Debentures  and,  upon  conversion  of  Convertible  Debentures,  the Buyer will
acquire the Conversion Shares then issuable,  for its own account for investment
only and not with a view towards,  or for resale in connection  with, the public
sale or distribution  thereof,  except pursuant to sales  registered or exempted
under the 1933  Act;  provided,  however,  that by  making  the  representations
herein, such Buyer reserves the right to dispose of the Conversion Shares at any
time in  accordance  with or pursuant  to an  effective  registration  statement
covering such Conversion Shares or an available exemption under the 1933 Act.

         (b) ACCREDITED INVESTOR STATUS. Each Buyer is an "ACCREDITED  INVESTOR"
as that term is defined in Rule 501(a)(3) of Regulation D.



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<PAGE>

         (c) RELIANCE ON EXEMPTIONS. Each Buyer understands that the Convertible
Debentures  are being offered and sold to it in reliance on specific  exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's  compliance  with,  the  representations,  warranties,  agreements,
acknowledgments  and  understandings  of such Buyer set forth herein in order to
determine the  availability of such exemptions and the eligibility of such Buyer
to acquire such securities.

         (d) INFORMATION. Each Buyer and its advisors (and his or, its counsel),
if any,  have  been  furnished  with all  materials  relating  to the  business,
finances and  operations of the Company and  information  he deemed  material to
making an informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion  Shares,  which have been requested by such Buyer.
Each Buyer and its advisors,  if any, have been afforded the  opportunity to ask
questions  of the Company and its  management.  Neither such  inquiries  nor any
other due diligence  investigations  conducted by such Buyer or its advisors, if
any, or its representatives  shall modify, amend or affect such Buyer's right to
rely on the  Company's  representations  and  warranties  contained in Section 3
below. Each Buyer understands that its investment in the Convertible  Debentures
and the  Conversion  Shares  involves a high degree of risk.  Each Buyer is in a
position   regarding  the  Company,   which,   based  upon  employment,   family
relationship  or economic  bargaining  power,  enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.

         (e) NO  GOVERNMENTAL  REVIEW.  Each  Buyer  understands  that no United
States federal or state agency or any other  government or  governmental  agency
has  passed on or made any  recommendation  or  endorsement  of the  Convertible
Debentures  or the  Conversion  Shares,  or the fairness or  suitability  of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Convertible Debentures or the Conversion Shares.

         (f) TRANSFER OR RESALE.  Each Buyer understands that except as provided
in the Registration  Rights Agreement:  (i) the Convertible  Debentures have not
been and are not being  registered  under  the 1933 Act or any state  securities
laws, and may not be offered for sale, sold,  assigned or transferred unless (A)
subsequently  registered  thereunder,  or (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold,  assigned or transferred may be sold,  assigned
or  transferred  pursuant to an exemption from such  registration  requirements;
(ii) any sale of such securities made in reliance on Rule 144 under the 1933 Act
(or a successor rule thereto)  ("RULE 144") may be made only in accordance  with
the terms of Rule 144 and further, if Rule 144 is not applicable,  any resale of
such securities  under  circumstances in which the seller (or the person through
whom the sale is made)  may be  deemed  to be an  underwriter  (as that  term is
defined in the 1933 Act) may require  compliance with some other exemption under
the 1933 Act or the rules and  regulations  of the SEC  there  under;  and (iii)
neither  the Company nor any other  person is under any  obligation  to register
such  securities  under the 1933 Act or any state  securities  laws or to comply
with the terms and conditions of any exemption there under. The Company reserves
the  right  to  place  stop  transfer   instructions   against  the  shares  and


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<PAGE>

certificates for the Conversion Shares.

         (g) LEGENDS.  Each Buyer  understands  that the  certificates  or other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive  legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):

         THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR
         APPLICABLE  STATE  SECURITIES  LAWS. THE SECURITIES HAVE BEEN
         ACQUIRED  SOLELY FOR INVESTMENT  PURPOSES AND NOT WITH A VIEW
         TOWARD  RESALE  AND  MAY  NOT  BE  OFFERED  FOR  SALE,  SOLD,
         TRANSFERRED  OR  ASSIGNED  IN  THE  ABSENCE  OF AN  EFFECTIVE
         REGISTRATION   STATEMENT   FOR  THE   SECURITIES   UNDER  THE
         SECURITIES  ACT OF 1933,  AS  AMENDED,  OR  APPLICABLE  STATE
         SECURITIES  LAWS,  OR AN OPINION OF  COUNSEL,  IN A GENERALLY
         ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
         ACT OR APPLICABLE STATE SECURITIES LAWS.

The legend  set forth  above  shall be removed  and the  Company  shall  issue a
certificate  without  such  legend to the holder of the  Conversion  Shares upon
which it is stamped, if, unless otherwise required by state securities laws, (i)
in  connection  with a sale  transaction,  provided  the  Conversion  Shares are
registered  under the 1933 Act or (ii) in  connection  with a sale  transaction,
such holder provides the Company with an opinion of counsel,  in form acceptable
to the Company and its counsel, to the effect that a public sale,  assignment or
transfer of the  Conversion  Shares may be made without  registration  under the
1933 Act.

         (h)  AUTHORIZATION,  ENFORCEMENT.  This  Agreement  has  been  duly and
validly  authorized,  executed  and  delivered  on behalf of such Buyer and is a
valid and binding  agreement of such Buyer  enforceable  in accordance  with its
terms,  except as such  enforceability  may be limited by general  principles of
equity  or  applicable  bankruptcy,  insolvency,   reorganization,   moratorium,
liquidation  and other  similar laws  relating to, or affecting  generally,  the
enforcement of applicable creditors' rights and remedies.

         (i)  RECEIPT  OF  DOCUMENTS.  Each  Buyer  and his or its  counsel  has
received and read in their entirety: (i) this Agreement and each representation,
warranty  and  covenant  set forth  herein,  the  Investor  Registration  Rights
Agreement,  and  the  Escrow  Agreement;   (ii)  all  due  diligence  and  other
information   necessary  to  verify  the  accuracy  and   completeness  of  such
representations,  warranties and covenants;  (iii) the Company's Form 10-KSB for
the fiscal year ended December 31, 2000;  (iv) the Company's Form 10-QSB for the
fiscal  quarter ended March 2001 and June 2001; and (v) answers to all questions
the Buyer submitted to the Company  regarding an investment in the Company;  and
the  Buyer has  relied on the  information  contained  therein  and has not been
furnished any other documents, literature, memorandum or prospectus.



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<PAGE>

         (j) DUE FORMATION OF CORPORATE  AND OTHER BUYERS.  If the Buyer(s) is a
corporation,  trust,  partnership  or  other  entity  that is not an  individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible  Debentures and is not prohibited
from doing so.

         (k)  DUE   AUTHORIZATION  OF  FIDUCIARY  BUYERS.  If  the  Buyer(s)  is
purchasing the Convertible Debentures in a fiduciary capacity for another person
or entity, including, without limitation, a corporation,  partnership,  trust or
any other entity, the Buyer(s) has been duly authorized and empowered to execute
this Agreement and such other person fulfills all the  requirements for purchase
of the  Convertible  Debentures  and  agrees  to be  bound  by the  obligations,
representations, warranties, and covenants contained herein. Upon request of the
Company,  the Buyer(s)  will provide  true,  complete and current  copies of all
relevant  documents  creating  the Buyers,  authorizing  its  investment  in the
Company and/or evidencing the satisfaction of the foregoing.

         (l) FURTHER REPRESENTATIONS BY FOREIGN BUYERS. If the Buyer(s) is not a
U.S. Person (as defined below),  such Buyer hereby represents that such Buyer(s)
is satisfied as to full  observance of the laws of such Buyer's  jurisdiction in
connection  with any  invitation to subscribe  for the  securities or any use of
this  Agreement,   including:   (i)  the  legal  requirements  of  such  Buyer's
jurisdiction  for the  purchase of the  securities,  (ii) any  foreign  exchange
restrictions  applicable  to such  purchase,  (iii)  any  governmental  or other
consents  that may need to be  obtained,  and (iv) the  income tax and other tax
consequences,   if  any,  which  may  be  relevant  to  the  purchase,  holding,
redemption,  sale, or transfer of the securities.  Such Buyer's subscription and
payment for, and such Buyer's continued  beneficial ownership of, the securities
will  not  violate  any  applicable  securities  or other  laws of such  Buyer's
jurisdiction. The term "U.S. Person" as used herein shall mean any person who is
a citizen or resident of the United States or Canada, or any state, territory or
possession  thereof,  including,  but not  limited  to,  any  estate of any such
person,  or any  corporation,  partnership,  trust or other  entity  created  or
existing under the laws thereof, or any entity controlled or owned by any of the
foregoing.

         (m) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges,  that it
had the opportunity to review this Agreement and the  transactions  contemplated
by this  Agreement  with his or its own legal  counsel  and  investment  and tax
advisors.  Each Buyer is relying  solely on such counsel and advisors and not on
any statements or representations  of the Company or any of its  representatives
or agents for legal,  tax or investment  advice with respect to this investment,
the  transactions  contemplated  by this Agreement or the securities laws of any
jurisdiction.

      3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company represents and warrants to each of the Buyers that:

         (a)  ORGANIZATION AND  QUALIFICATION.  The Company and its subsidiaries
are corporations  duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated,  and have the requisite
corporate  power to own their  properties  and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction


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<PAGE>

in which the nature of the  business  conducted  by it makes such  qualification
necessary,  except to the extent  that the failure to be so  qualified  or be in
good standing  would not have a material  adverse  effect on the Company and its
subsidiaries taken as a whole.

         (b) AUTHORIZATION,  ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. (i)
The Company has the  requisite  corporate  power and authority to enter into and
perform this  Agreement,  the Investor  Registration  Rights  Agreement  and any
related agreements,  and to issue the Convertible  Debentures and the Conversion
Shares in accordance  with the terms hereof and thereof,  (ii) the execution and
delivery of this Agreement,  the  Registration  Rights Agreement and any related
agreements  by the  Company  and  the  consummation  by it of  the  transactions
contemplated hereby and thereby, including,  without limitation, the issuance of
the  Convertible  Debentures  the  Conversion  Shares  and the  reservation  for
issuance and the issuance of the Conversion  Shares  issuable upon conversion or
exercise thereof,  have been duly authorized by the Company's Board of Directors
and no further consent or authorization is required by the Company, its Board of
Directors  or  its   stockholders,   (iii)  this   Agreement  and  the  Investor
Registration Rights Agreement and any related agreements have been duly executed
and delivered by the Company,  (iv) this  Agreement,  the Investor  Registration
Rights  Agreement and any related  agreements  constitute  the valid and binding
obligations of the Company  enforceable  against the Company in accordance  with
their terms,  except as such enforceability may be limited by general principles
of equity or  applicable  bankruptcy,  insolvency,  reorganization,  moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies.

         (c)  CAPITALIZATION.  The  authorized  capital  stock  of  the  Company
consists  of  1,000,000,000  shares of Common  Stock,  $0.00001  par value,  and
2,050,000 shares of Preferred Stock, $0.001 par value. As of August 1, 2001, the
Company had  579,723,956  shares of Common Stock and 82,200  shares of Preferred
Stock issued and outstanding.  All of such outstanding  shares have been validly
issued  and are fully paid and  nonassessable.  Except as  disclosed  in the SEC
Documents (as defined in Section 3(f)) as amended, no shares of Common Stock are
subject  to  preemptive  rights  or any  other  similar  rights  or any liens or
encumbrances  suffered or permitted  by the Company.  Except as disclosed in the
SEC Documents,  as of the date of this  Agreement,  (i) there are no outstanding
options,  warrants,  scrip,  rights to subscribe to, calls or commitments of any
character  whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments,  understandings  or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company  or  any  of its  subsidiaries,  (ii)  there  are  no  outstanding  debt
securities  and (iii) there are no  agreements or  arrangements  under which the
Company or any of its  subsidiaries  is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to the Registration  Rights
Agreement).  There are no securities or instruments containing  anti-dilution or
similar  provisions  that will be triggered  by the issuance of the  Convertible
Debentures  as described  in this  Agreement.  The Company has  furnished to the
Buyer true and correct copies of the Company's Certificate of Incorporation,  as
amended   and  as  in  effect  on  the  date   hereof   (the   "CERTIFICATE   OF
INCORPORATION"), and the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"),  and the terms of all securities convertible into or exercisable for


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Common Stock and the material  rights of the holders  thereof in respect thereto
other than stock options issued to employees and consultants.

         (d)  ISSUANCE  OF  SECURITIES.  The  Convertible  Debentures  are  duly
authorized and, upon issuance in accordance with the terms hereof, shall be duly
issued, fully paid and nonassessable, are free from all taxes, liens and charges
with  respect  to  the  issue  thereof.  The  Conversion  Shares  issuable  upon
conversion of the Convertible  Debentures have been duly authorized and reserved
for issuance.  Upon  conversion or exercise in accordance  with the  Convertible
Debentures  the  Conversion   Shares  will  be  duly  issued,   fully  paid  and
nonassessable.

         (e) NO CONFLICTS.  Except as disclosed in SEC Documents, the execution,
delivery and  performance of this Agreement by the Company and the  consummation
by the Company of the transactions  contemplated hereby will not (i) result in a
violation of the Certificate of  Incorporation,  any certificate of designations
of any  outstanding  series of preferred  stock of the Company or the By-laws or
(ii)  conflict  with or  constitute  a default (or an event which with notice or
lapse of time or both  would  become a  default)  under,  or give to others  any
rights  of  termination,   amendment,   acceleration  or  cancellation  of,  any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, or result in a violation of any law, rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations  and the rules and regulations of the Nasdaq Stock Market Inc.'s OTC
Bulletin Board on which the Common Stock is quoted) applicable to the Company or
any of its  subsidiaries or by which any property or asset of the Company or any
of its  subsidiaries  is bound  or  affected.  Except  as  disclosed  in the SEC
Documents,  neither the Company nor its subsidiaries is in violation of any term
of or in default  under its  Certificate  of  Incorporation  or By-laws or their
organizational  charter or  by-laws,  respectively,  or any  material  contract,
agreement, mortgage,  indebtedness,  indenture,  instrument, judgment, decree or
order or any  statute,  rule or  regulation  applicable  to the  Company  or its
subsidiaries.  The  business of the Company  and its  subsidiaries  is not being
conducted,  and  shall  not be  conducted  in  violation  of any  material  law,
ordinance,  or regulation of any  governmental  entity.  Except as  specifically
contemplated  by this  Agreement  and as  required  under  the  1933 Act and any
applicable  state  securities  laws,  the Company is not  required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute,  deliver or perform any
of its obligations  under or contemplated by this Agreement or the  Registration
Rights  Agreement  in  accordance  with the terms  hereof or thereof.  Except as
disclosed in the SEC Documents,  all consents,  authorizations,  orders, filings
and  registrations  which the  Company is  required  to obtain  pursuant  to the
preceding  sentence  have  been  obtained  or  effected  on or prior to the date
hereof.   The  Company  and  its  subsidiaries  are  unaware  of  any  facts  or
circumstance, which might give rise to any of the foregoing.

         (f) SEC  DOCUMENTS:  FINANCIAL  STATEMENTS.  Since January 1, 2001, the
Company has filed all reports,  schedules, forms, statements and other documents
required to be filed by it with the SEC under of the Securities  Exchange Act of
1934, as amended (the "1934 ACT") (all of the foregoing  filed prior to the date
hereof or amended  after the date hereof and all exhibits  included  therein and
financial  statements  and  schedules  thereto  and  documents  incorporated  by
reference therein,  being hereinafter  referred to as the "SEC DOCUMENTS").  The
Company has delivered to the Buyers or their representatives,  or made available
through the SEC's website at  http://www.sec.gov.,  true and complete  copies of
the SEC Documents. As of their respective dates, the financial statements of the


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Company disclosed in the SEC Documents (the "FINANCIAL  STATEMENTS") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally  accepted  accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise  indicated in such Financial  Statements or the notes  thereto,  or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary  statements)  and fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the  Buyer  which  is not  included  in the SEC  Documents,  including,  without
limitation,  information  referred to in Section 2(d) and (i) of this Agreement,
contains any untrue  statement of a material fact or omits to state any material
fact  necessary  in order to make the  statements  therein,  in the light of the
circumstances under which they were made, not misleading.

         (g) 10(b)-5.  The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be stated
therein  necessary to make the  statements  made, in light of the  circumstances
under which they were made, not misleading.

         (h) ABSENCE OF  LITIGATION.  Except as disclosed in the SEC  Documents,
there is no action, suit, proceeding,  inquiry or investigation before or by any
court,  public board,  government agency,  self-regulatory  organization or body
pending  against  or  affecting  the  Company,  the  Common  Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a material adverse effect on the transactions  contemplated hereby (ii)
adversely affect the validity or enforceability  of, or the authority or ability
of the Company to perform its  obligations  under,  this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents,  have  a  material  adverse  effect  on  the  business,   operations,
properties,  financial  condition or results of operation of the Company and its
subsidiaries taken as a whole.

         (i)  ACKNOWLEDGMENT  REGARDING  BUYER'S  PURCHASE  OF  THE  CONVERTIBLE
DEBENTURES.  The Company  acknowledges  and agrees  that the  Buyer(s) is acting
solely  in the  capacity  of an arm's  length  purchaser  with  respect  to this
Agreement  and  the  transactions   contemplated  hereby.  The  Company  further
acknowledges that the Buyer(s) is not 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 the Buyer(s) or any
of their respective  representatives or agents in connection with this Agreement
and the transactions  contemplated  hereby is merely  incidental to such Buyer's
purchase of the  Convertible  Debentures or the Conversion  Shares.  The Company
further  represents to the Buyer that the Company's  decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.

         (j) NO  GENERAL  SOLICITATION.  Neither  the  Company,  nor  any of its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of


                                       8
<PAGE>

Regulation  D under  the 1933 Act) in  connection  with the offer or sale of the
Convertible Debentures or the Conversion Shares.

         (k)  NO  INTEGRATED  OFFERING.  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 require  registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.

         (l) EMPLOYEE RELATIONS. Neither the Company nor any of its subsidiaries
is involved in any labor  dispute nor, to the knowledge of the Company or any of
its subsidiaries,  is any such dispute threatened.  None of the Company's or its
subsidiaries'  employees  is a  member  of a  union  and  the  Company  and  its
subsidiaries believe that their relations with their employees are good.

         (m) INTELLECTUAL  PROPERTY RIGHTS. The Company and its subsidiaries own
or possess  adequate  rights or licenses  to use all  trademarks,  trade  names,
service  marks,  service mark  registrations,  service  names,  patents,  patent
rights,    copyrights,    inventions,    licenses,    approvals,    governmental
authorizations,  trade secrets and rights  necessary to conduct their respective
businesses as now conducted.  The Company and its  subsidiaries  do not have any
knowledge of any  infringement by the Company or its  subsidiaries of trademark,
trade name rights, patents,  patent rights,  copyrights,  inventions,  licenses,
service names, service marks, service mark registrations,  trade secret or other
similar  rights of others,  and, to the  knowledge  of the  Company  there is no
claim,  action or proceeding being made or brought against,  or to the Company's
knowledge,  being threatened against, the Company or its subsidiaries  regarding
trademark,  trade name, patents, patent rights, invention,  copyright,  license,
service names, service marks, service mark registrations,  trade secret or other
infringement;  and the Company and its  subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.

         (n)  ENVIRONMENTAL  LAWS. The Company and its  subsidiaries  are (i) in
compliance with any and all applicable  foreign,  federal,  state and local laws
and  regulations  relating to the  protection  of human  health and safety,  the
environment  or  hazardous  or  toxic   substances  or  wastes,   pollutants  or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable  Environmental Laws to conduct
their  respective  businesses  and  (iii) are in  compliance  with all terms and
conditions of any such permit, license or approval.

         (o) TITLE.  Any real  property and  facilities  held under lease by the
Company  and its  subsidiaries  are held by them  under  valid,  subsisting  and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such  property and buildings by the
Company and its subsidiaries.

         (p) INSURANCE.  The Company and each of its subsidiaries are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  subsidiaries  are


                                       9
<PAGE>

engaged.  Neither  the  Company  nor any such  subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
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 at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its subsidiaries, taken as a whole.

         (q) REGULATORY  PERMITS.  The Company and its subsidiaries  possess all
material  certificates,  authorizations  and permits  issued by the  appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

         (r)  INTERNAL  ACCOUNTING  CONTROLS.   The  Company  and  each  of  its
subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  and (iii) the recorded  amounts for assets is compared with the
existing  assets at reasonable  intervals and  appropriate  action is taken with
respect to any differences.

         (s) NO MATERIAL ADVERSE  BREACHES,  ETC. Except as set forth in the SEC
Documents,  neither the Company  nor any of its  subsidiaries  is subject to any
charter,  corporate or other legal restriction,  or any judgment, decree, order,
rule or  regulation  which in the judgment of the  Company's  officers has or is
expected  in the  future to have a  material  adverse  effect  on the  business,
properties,  operations, financial condition, results of operations or prospects
of  the  Company  or  its  subsidiaries.  Neither  the  Company  nor  any of its
subsidiaries  is in breach of any contract or  agreement  which  breach,  in the
judgment  of the  Company's  officers,  has or is  expected  to have a  material
adverse effect on the business,  properties,  operations,  financial  condition,
results of operations or prospects of the Company or its subsidiaries.

         (t) TAX STATUS.  The Company and each of its  subsidiaries  has made or
filed all  federal  and state  income  and all other tax  returns,  reports  and
declarations required by any jurisdiction to which it is subject and (unless and
only to the extent that the Company and each of its  subsidiaries  has set aside
on its books  provisions  reasonably  adequate for the payment of all unpaid and
unreported  taxes)  has paid all taxes and other  governmental  assessments  and
charges  that are  material  in amount,  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provision  reasonably adequate for the payment of
all taxes for periods  subsequent to the periods to which such returns,  reports
or declarations  apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any  jurisdiction,  and the officers of the
Company know of no basis for any such claim.

         (u) CERTAIN TRANSACTIONS.  Except as set forth in the SEC Documents and
except  for  arm's  length  transactions  pursuant  to which the  Company  makes
payments in the ordinary  course of business upon terms no less  favorable  than
the Company  could  obtain from third  parties and other than the grant of stock


                                       10
<PAGE>

options  disclosed in the SEC  Documents,  none of the officers,  directors,  or
employees  of the  Company  is  presently  a party to any  transaction  with the
Company  (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 corporation,
partnership,  trust or other entity in which any officer,  director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

         (v) FEES AND RIGHTS OF FIRST  REFUSAL.  The Company is not obligated to
offer the  securities  offered  hereunder on a right of first  refusal  basis or
otherwise to any third parties including,  but not limited to, current or former
shareholders  of the  Company,  underwriters,  brokers,  agents  or other  third
parties.

      4. COVENANTS.

         (a) BEST  EFFORTS.  Each  party  shall use its best  efforts  timely to
satisfy each of the  conditions  to be satisfied by it as provided in Sections 6
and 7 of this Agreement.

         (b) FORM D. The  Company  agrees to file a Form D with  respect  to the
Conversion  Shares as required under  Regulation D and to provide a copy thereof
to each Buyer  promptly after such filing.  The Company shall,  on or before the
Closing  Date,  take such action as the Company  shall  reasonably  determine is
necessary  to qualify the  Conversion  Shares,  or obtain an  exemption  for the
Conversion  Shares  for  sale to the  Buyers  at the  Closing  pursuant  to this
Agreement  under  applicable  securities or "Blue Sky" laws of the states of the
United  States,  and shall  provide  evidence of any such action so taken to the
Buyers on or prior to the Closing Date.

         (c) REPORTING STATUS. Until the earlier of (i) the date as of which the
Investor(s) (as that term is defined in the Registration  Rights  Agreement) may
sell all of the Conversion  Shares without  restriction  pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto), or (ii) the date on which
(A) the Buyer(s) shall have sold all the  Conversion  Shares and (B) none of the
Convertible Debentures are outstanding (the "Registration  Period"), the Company
shall use its  commercially  reasonable  efforts to file in a timely  manner all
reports  required  to be  filed  with the SEC  pursuant  to the 1934 Act and the
regulations  of the SEC there under,  and the Company  shall not  terminate  its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules  and  regulations  there  under  would  otherwise  permit  such
termination.

         (d) USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Convertible Debentures for general corporate purposes.

         (e) RESERVATION OF SHARES. The Company shall take all action reasonably
necessary  to at all times have  authorized,  and  reserved  for the  purpose of
issuance,  such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion  Shares. If at any time the Company does not have
available  such shares of Common Stock as shall from time to time be  sufficient
to effect the  conversion of all of the  Conversion  Shares of the Company shall


                                       11
<PAGE>

call and hold a special  meeting of the  shareholders  within sixty (60) days of
such  occurrence,  for the sole  purpose  of  increasing  the  number  of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of  increasing  the  number  of  shares  of  Common  Stock  authorized.
Management  shall also vote all of its shares in favor of increasing  the number
of authorized shares of Common Stock.

         (f)  LISTINGS OR  QUOTATION.  The  Company  shall  promptly  secure the
listing or  quotation of the  Conversion  Shares upon each  national  securities
exchange, automated quotation system or Over-The-Counter Bulletin Board or other
market,  if any,  upon which  shares of Common  Stock are then  listed or quoted
(subject  to  official  notice of  issuance)  and shall use its best  efforts to
maintain,  so long as any other shares of Common Stock shall be so listed,  such
listing of all  Conversion  Shares from time to time issuable under the terms of
this Agreement.  The Company shall maintain the Common Stock's authorization for
quotation in the over-the counter market.

         (g) EXPENSES.  Each of the Company and the Buyer(s) shall pay all costs
and  expenses  incurred  by such  party  in  connection  with  the  negotiation,
investigation,  preparation,  execution  and delivery of this  Agreement and the
Registration  Rights  Agreement.  The costs and expenses of the Consultant,  its
counsel,  and  Kirkpatrick  & Lockhart  LLP shall be paid for by the  Company at
Closing in accordance  with the terms of the  Consulting  Agreement  between the
Company and the Consultant, of even date herewith.

         (h) CORPORATE EXISTENCE.  So long as any of the Convertible  Debentures
remain outstanding,  the Company shall not directly or indirectly consummate any
merger,   reorganization,   restructuring,   consolidation,   sale   of  all  or
substantially all of the Company's assets or any similar  transaction or related
transactions (each such transaction,  a "Sale of the Company") unless,  prior to
the  consummation  of a Sale  of the  Company,  the  Company  makes  appropriate
provision to insure  that,  upon the  consummation  of such Sale of the Company,
each of the holders of the Convertible Debentures will thereafter have the right
to acquire and  receive  such  shares of stock,  securities  or assets as may be
issued or payable  with  respect to or in  exchange  for the number of shares of
Common  Stock  immediately   theretofore  acquirable  and  receivable  upon  the
conversion of such holder's Convertible  Debentures had such Sale of the Company
not taken place. In any such case, the Company will make  appropriate  provision
with respect to such holders' rights and interests to insure that the provisions
of  this  Section  4(h)  will   thereafter  be  applicable  to  the  Convertible
Debentures.

         (i) TRANSACTIONS WITH AFFILIATES. So long as any Convertible Debentures
are outstanding, the Company shall not, and shall cause each of its subsidiaries
not to, enter into,  amend,  modify or  supplement,  or permit any subsidiary to
enter into, amend, modify or supplement any agreement, transaction,  commitment,
or arrangement with any of its or any subsidiary's officers,  directors,  person
who were  officers or  directors  at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or  Affiliates  (as  defined  below) or with any  individual  related  by blood,
marriage,  or  adoption to any such  individual  or with any entity in which any
such entity or individual owns a five percent (5%) or more  beneficial  interest
(each a "RELATED PARTY"),  except for (a) customary employment  arrangements and
benefit programs on reasonable  terms, (b) any investment in an Affiliate of the
Company,  (c) any  agreement,  transaction,  commitment,  or  arrangement  on an

                                       12
<PAGE>

arms-length  basis on terms no less  favorable  than terms which would have been
obtainable  from a person  other  than such  Related  Party,  (d) any  agreement
transaction,  commitment,  or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any  subsidiary  of the Company shall not be a
disinterested  director  with  respect  to  any  such  agreement,   transaction,
commitment, or arrangement.  "Affiliate" for purposes hereof means, with respect
to any person or entity,  another person or entity that, directly or indirectly,
(i) has a ten percent  (10%) or more  equity  interest in that person or entity,
(ii) has ten percent (10%) or more common  ownership with that person or entity,
(iii)  controls that person or entity,  or (iv) shares common  control with that
person or entity.  "Control"  or  "controls"  for  purposes  hereof means that a
person or entity has the  power,  direct or  indirect,  to conduct or govern the
policies of another person or entity.

         (j) TRANSFER AGENT. The Company covenants and agrees that, in the event
that the  Company's  agency  relationship  with the  transfer  agent  should  be
terminated  for any  reason  prior to a date  which is two (2)  years  after the
Closing Date,  the Company shall  immediately  appoint a new transfer  agent and
shall require that the transfer agent execute and agree to be bound by the terms
of the Irrevocable Instructions (as defined herein) to Transfer Agent.

      5. TRANSFER AGENT INSTRUCTIONS.

      The Company  shall issue  irrevocable  instructions  in the form  attached
hereto as Exhibit C to its transfer agent to issue  certificates,  registered in
the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing  such amounts of  Convertible  Debentures as specified from time to
time  by the  Buyer(s)  to  the  Company  upon  conversion  of  the  Convertible
Debentures   (the   "Irrevocable   Transfer  Agent   Instructions").   Prior  to
registration of the Conversion  Shares under the 1933 Act, all such certificates
shall bear the restrictive  legend  specified in Section 2(g) of this Agreement.
The Company  warrants that no instruction  other than the  Irrevocable  Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give  effect to Section  2(f)  hereof (in the case of the  Conversion  Shares
prior to  registration  of such shares  under the 1933 Act) will be given by the
Company to its transfer agent and that the Conversion  Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the  Registration  Rights  Agreement.  Nothing in
this Section 5 shall affect in any way the Buyer's  obligations and agreement to
comply with all applicable  securities laws upon resale of Conversion Shares. If
the  Buyer(s)  provides  the  Company  with an  opinion of  counsel,  reasonably
satisfactory  in form,  and  substance to the Company,  that  registration  of a
resale by the Buyer(s) of any of the Conversion Shares is not required under the
1933 Act,  the Company  shall  permit the transfer  and,  promptly  instruct its
transfer  agent  to  issue  one or more  certificates  in such  name and in such
denominations as specified by the Buyer. The Company  acknowledges that a breach
by it of its obligations  hereunder will cause  irreparable harm to the Buyer by
vitiating  the  intent  and  purpose  of the  transaction  contemplated  hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations  under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened  breach by the Company of the  provisions of this Section
5, that the  Buyer(s)  shall be  entitled,  in addition  to all other  available
remedies,  to an  injunction  restraining  any  breach and  requiring  immediate
issuance  and  transfer,  without the  necessity  of showing  economic  loss and
without any bond or other security being required.

                                       13
<PAGE>

      6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligation of the Company  hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closing is subject to the satisfaction,  at or
before the Closing  Date,  of each of the  following  conditions,  provided that
these  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:

         (a) Each Buyer shall have executed this Agreement and the  Registration
Rights Agreement and delivered the same to the Company.

         (b) The Buyer(s)  shall have delivered to the Escrow Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached  hereto and the Escrow Agent shall have
delivered  such funds to the Company by wire transfer of  immediately  available
U.S. funds pursuant to the wire instructions provided by the Company.

         (c) The  representations  and  warranties of the Buyer(s) shall be true
and  correct  in all  material  respects  as of the date when made and as of the
Closing  Date as  though  made at that  time  (except  for  representations  and
warranties  that  speak as of a  specific  date),  and the  Buyer(s)  shall have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Buyer(s) at or prior to the Closing Date.

      7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

      The  obligation  of the Buyer(s)  hereunder  to purchase  the  Convertible
Debentures  at the  Closing  is subject  to the  satisfaction,  at or before the
Closing  Date,  of  each  of  the  following  conditions,  provided  that  these
conditions are for the Buyer's sole benefit and may be waived by the Buyer(s) at
any time in its sole discretion:

         (a) The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer(s).

         (b) The Common Stock shall be authorized  for quotation on The National
Association  of  Securities  Dealers,  Inc. OTC Bulletin  Board,  trading in the
Common  Stock  shall  not have  been  suspended  for any  reason  and all of the
Conversion  Shares issuable upon conversion of the Convertible  Debentures shall
be approved for listing or quotation on The National  Association  of Securities
Dealers, Inc. OTC Bulletin Board.

         (c) The representations and warranties of the Company shall be true and
correct  in all  material  respects  (except  to the  extent  that  any of  such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such  representations  and warranties  shall be true and
correct  without further  qualification)  as of the date when made and as of the
Closing  Date as  though  made at that  time  (except  for  representations  and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall

                                       14
<PAGE>

have received a certificate,  executed by the President of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Buyer including,  without limitation an update as
of the Closing  Date  regarding  the  representation  contained  in Section 3(c)
above.

         (d) The Company  shall have  executed and delivered to the Buyer(s) the
Convertible  Debentures  in the  respective  amounts  set  forth  opposite  each
Buyer(s) name on Schedule I attached hereto.

         (e) As of the Closing Date,  the Company shall have reserved out of its
authorized  and unissued  Common Stock,  solely for the purpose of effecting the
conversion of the Convertible  Debentures,  shares of Common Stock to effect the
conversion of all of the Conversion then outstanding.

         (f) The Irrevocable Transfer Agent Instructions,  in form and substance
satisfactory  to the Buyer,  shall have been  delivered to and  acknowledged  in
writing by the Company's transfer agent.

      8. INDEMNIFICATION.

         (a) In  consideration  of the Buyer's  execution  and  delivery of this
Agreement and acquiring the  Convertible  Debentures and the  Conversion  Shares
hereunder,  and in addition to all of the Company's other obligations under this
Agreement,  the Company shall defend,  protect,  indemnify and hold harmless the
Buyer(s) and each other holder of the Convertible  Debentures and the Conversion
Shares, and all of their officers,  directors,  employees and agents (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement) (collectively, the "Buyer Indemnitees") from and
against any and all actions,  causes of action,  suits, claims,  losses,  costs,
penalties,  fees,  liabilities and damages, and expenses in connection therewith
(irrespective  of whether any such Buyer Indemnitee is a party to the action for
which indemnification  hereunder is sought), and including reasonable attorneys'
fees and disbursements  (the "Indemnified  Liabilities"),  incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any  misrepresentation  or breach of any  representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Registration Rights
Agreement or any other certificate,  instrument or document  contemplated hereby
or thereby,  (b) any breach of any  covenant,  agreement  or  obligation  of the
Company contained in this Agreement, or the Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or thereby, or (c)
any cause of action,  suit or claim brought or made against such  Indemnitee and
arising  out of or  resulting  from  the  execution,  delivery,  performance  or
enforcement  of this  Agreement or any other  instrument,  document or agreement
executed pursuant hereto by any of the Indemnities,  any transaction financed or
to be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Convertible  Debentures or the status of the Buyer or holder
of the Convertible  Debentures the Conversion  Shares, as a Buyer of Convertible
Debentures in the Company.  To the extent that the foregoing  undertaking by the
Company may be unenforceable for any reason,  the Company shall make the maximum
contribution  to the  payment  and  satisfaction  of  each  of  the  Indemnified
Liabilities, which is permissible under applicable law.

                                       15
<PAGE>

         (b) In  consideration  of the Company's  execution and delivery of this
Agreement,  and in addition to all of the Buyer's other  obligations  under this
Agreement,  the Buyer shall  defend,  protect,  indemnify  and hold harmless the
Company and all of its officers,  directors,  employees  and agents  (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement)  (collectively,  the "Company Indemnitees") from
and against any and all Indemnified  Liabilities  incurred by the Indemnitees or
any of  them  as a  result  of,  or  arising  out  of,  or  relating  to (a) any
misrepresentation  or  breach  of any  representation  or  warranty  made by the
Buyer(s) in this  Agreement,  ,  instrument or document  contemplated  hereby or
thereby  executed by the Buyer,  (b) any breach of any  covenant,  agreement  or
obligation  of  the  Buyer(s)   contained  in  this   Agreement,   the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby  executed  by the  Buyer,  or (c) any cause of
action,  suit or claim brought or made against such Company  Indemnitee based on
material  misrepresentations  or due to a material  breach and arising out of or
resulting  from the  execution,  delivery,  performance  or  enforcement of this
Agreement,  the Investor  Registration Rights Agreement or any other instrument,
document  or  agreement   executed   pursuant  hereto  by  any  of  the  Company
Indemnities.  To the extent that the foregoing  undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum  contribution to
the payment and  satisfaction of each of the Indemnified  Liabilities,  which is
permissible under applicable law.

      9. GOVERNING LAW: MISCELLANEOUS.

         (a) GOVERNING LAW. This Agreement  shall be governed by and interpreted
in  accordance  with the laws of the  State of New York  without  regard  to the
principles  of  conflict  of laws.  The  parties  further  agree that any action
between them shall be heard in New York City, New York, and expressly consent to
the  jurisdiction  and  venue of the  Supreme  Court of New York and the  United
States District Court for the Southern District of New York for the adjudication
of any civil action asserted pursuant to this Paragraph.

         (b)  COUNTERPARTS.  This  Agreement  may be  executed  in  two or  more
identical  counterparts,  all of  which  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.  In the event any  signature  page is
delivered  by  facsimile  transmission,  the party  using such means of delivery
shall  cause  four  (4)  additional  original  executed  signature  pages  to be
physically  delivered to the other party  within five (5) days of the  execution
and delivery hereof.

         (c) HEADINGS.  The headings of this  Agreement are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

         (d)  SEVERABILITY.  If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction,  such invalidity or unenforceability shall
not affect the validity or  enforceability of the remainder of this Agreement in
that  jurisdiction  or the validity or  enforceability  of any provision of this
Agreement in any other jurisdiction.

         (e) ENTIRE AGREEMENT,  AMENDMENTS.  This Agreement supersedes all other
prior oral or written  agreements  between  the  Buyer(s),  the  Company,  their
affiliates  and  persons  acting on their  behalf  with  respect to the  matters

                                       16
<PAGE>

discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither the Company nor any Buyer makes any representation,  warranty,
covenant or  undertaking  with  respect to such  matters.  No  provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.

         (f) NOTICES.  Any notices,  consents,  waivers, or other communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be  deemed  to have  been  delivered  (i) upon  receipt,  when
delivered personally; (ii) upon confirmation of receipt, when sent by facsimile;
(iii) three (3) days after being sent by U.S.  certified  mail,  return  receipt
requested,  or (iv)  one (1) day  after  deposit  with a  nationally  recognized
overnight  delivery  service,  in each case  properly  addressed to the party to
receive the same.  The addresses and facsimile  numbers for such  communications
shall be:

      If to the Company, to:          Vertical Computer Systems, Inc.
                                      6336 Wilshire Boulevard
                                      Los Angeles, CA  90048
                                      Attention:        Richard Wade
                                                        President
                                      Telephone:        (323) 658-4211
                                      Facsimile:        (323) 658-4223

      With a copy to:                 Kirkpatrick & Lockhart LLP
                                      201 South Biscayne Boulevard - Suite 2000
                                      Miami, FL  33131
                                      Attention:        Clayton E. Parker, Esq.
                                      Telephone:        (305) 539-3300
                                      Facsimile:        (305) 358-7095

      If to the Transfer Agent, to:





      If to the Investor:             At the address listed on Schedule A.

         If to the Buyer(s),  to its address and facsimile number on Schedule I,
with copies to the Buyer's  counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written  notice to the other party of any change in
address or facsimile number.

         (g)  SUCCESSORS AND ASSIGNS.  This Agreement  shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor any Buyer shall  assign this  Agreement or any rights or
obligations  hereunder  without  the prior  written  consent of the other  party
hereto.

                                       17
<PAGE>

         (h) NO THIRD PARTY  BENEFICIARIES.  This  Agreement is intended for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         (i) SURVIVAL.  Unless this Agreement is terminated  under Section 9(l),
the  representations  and warranties of the Company and the Buyers  contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the  indemnification  provisions  set forth in Section 8, shall  survive the
Closing for a period of one (1) year following the date on which the Convertible
Debentures are converted in full. The Buyer(s) shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

         (j)  PUBLICITY.  The Company and the  Buyer(s)  shall have the right to
approve,  before  issuance any press release or any other public  statement with
respect to the  transactions  contemplated  hereby made by any party;  provided,
however,  that the Company shall be entitled,  without the prior approval of the
Buyer(s),  to issue any press release or other public disclosure with respect to
such  transactions  required  under  applicable  securities  or  other  laws  or
regulations  (the Company  shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public  disclosure  prior to its
release  and  Buyer(s)  shall  be  provided  with a copy  thereof  upon  release
thereof).

         (k) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and  performed,  all such  further acts and things,  and shall  execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

         (l) TERMINATION.  In the event that the Closing shall not have occurred
with  respect to the Buyers on or before  five (5)  business  days from the date
hereof due to the Company's or the Buyer's failure to satisfy the conditions set
forth in Sections 6 and 7 above (and the non-breaching  party's failure to waive
such unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this  Agreement  with respect to such breaching  party at the close of
business  on such  date  without  liability  of any  party to any  other  party;
provided, however, that if this Agreement is terminated pursuant to this Section
9(l),  the Company  shall remain  obligated  to  reimburse  the Buyer(s) for the
expenses described in Section 4(g) above.

         (m) NO STRICT CONSTRUCTION. 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.


                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]


                                       18
<PAGE>

         IN WITNESS  WHEREOF,  the  Buyers  and the  Company  have  caused  this
Securities  Purchase  Agreement to be duly executed as of the date first written
above.


                                            COMPANY:
                                            VERTICAL COMPUTER SYSYTEMS INC.

                                            By:
                                               ---------------------------------
                                            Name:    Richard Wade
                                            Title:   President


                                            INVESTOR:

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



                                       19
<PAGE>



                                                                       EXHIBIT A


                      FORM OF REGISTRATION RIGHTS AGREEMENT
                      -------------------------------------




<PAGE>

                                                                       EXHIBIT B



                            FORM OF ESCROW AGREEMENT
                            ------------------------





<PAGE>

                                                                       EXHIBIT C



                           TRANSFER AGENT INSTRUCTIONS
                           ---------------------------


<PAGE>

                                   SCHEDULE I


                               SCHEDULE OF BUYERS



                                                               Amount of
Name                Address/Facsimile Number of Buyer          Subscription
----------------    ---------------------------------          -----------------