EXHIBIT 10.39


                           PLACEMENT AGENCY AGREEMENT
                           --------------------------


                                                                January 29, 2004

Spencer Trask Ventures, Inc.
535 Madison Avenue
18th Floor
New York, New York 10022

Ladies and Gentlemen:

SmartServ Online, Inc., a Delaware corporation (the "Company"),  hereby confirms
its agreement (the  "Agreement")  with Spencer Trask Ventures,  Inc., a Delaware
corporation (the "Placement  Agent"),  as follows (unless the context  otherwise
requires,  as used herein,  the "Company" refers to SmartServ  Online,  Inc. and
each of its subsidiaries, if any):

1. Offering.

(a) The Company will offer (the "Offering") for sale through the Placement Agent
as  exclusive  agent for the  Company,  investment  units  ("Units"),  each Unit
comprised of (i) one (1) share of the Company's  Series A convertible  preferred
stock (the "Shares") having the  designations,  rights,  privileges set forth in
the  certificate of  designations  annexed to the Memorandum (as defined in 1(d)
below) and (ii) one warrant  ("Warrant") for the purchase of 10 shares of common
stock  of the  Company  ("Common  Stock")  The  Warrants  and the  Shares  shall
collectively  be referred to herein as the  Securities.  The offering  price per
Unit (the  "Purchase  Price per Unit") shall be calculated at each closing to be
equal to the lesser of (A) 10 times the lesser of (i) 80% of the  average of the
closing  bid prices of the Common  Stock over the ten trading  days  immediately
preceding  the date of each closing of the  Offering (a "Closing  Date") or (ii)
80% of the closing bid price of the Common Stock on the day immediately prior to
the  applicable  Closing  Date or (B) with  respect to closings  after the first
closing,  the Purchase Price per Unit at the first  closing.  The exercise price
per share of the shares underlying the Warrants will be 150% of the Market Price
(as  defined  below) of the Common  Stock on the day  immediately  prior to each
closing.  Market Price ("Market  Price") shall be equal to the lesser of (i) the
average of the closing bid prices of the Common  Stock over the ten trading days
immediately preceding the applicable Closing Date, or (ii) the closing bid price
of the Common Stock on the day immediately prior to the applicable Closing Date.
The purchase price may be paid in cash or  cancellation  of  indebtedness  to an
investor.  The total amount of gross cash proceeds from the sale of Units in the
Offering  (excluding  for such purpose any  converted  indebtedness)  shall be a
minimum of $3.0  million  (the  "Minimum  Amount") and a maximum of $6.0 million
(the "Maximum Amount"). In addition, for the purposes of covering overallotments
in the sale of the Units,  the Company  agrees to grant the  Placement  Agent an
option to sell additional  Units with an aggregate  purchase price of up to $1.8
<PAGE>

million.  All share  prices,  exercise  prices and  conversion  prices should be
assumed to be proportionally  adjusted to reflect stock splits, stock dividends,
recapitalizations and the like.

(b) The Units will be offered on a reasonable  efforts  basis for a period of 60
days from the date of the  Memorandum  (as  defined  below)  (the  "Commencement
Date"),  which period may be extended by mutual agreement of the Placement Agent
and the Company for up to an additional  30 days (the  "Offering  Period").  The
date  on  which  the  Offering  shall  terminate  shall  be  referred  to as the
"Termination Date."

(c) The minimum subscription for Units shall be $25,000,  however, the Placement
Agent may, in its discretion,  offer less than the minimum  subscription amount;
provided,  however, that the Placement Agent shall not tender to the Company and
the Company shall not accept  subscriptions  from, or sell Units to, any persons
or  entities  that do not  qualify  as (or are not  reasonably  believed  to be)
"accredited  investors,"  as such term is  defined in Rule 501 of  Regulation  D
promulgated  under Section 4(2) of the  Securities  Act of 1933, as amended (the
"Act").

(d) The offering of the Units will be made by the  Placement  Agent on behalf of
the Company solely  pursuant to the Memorandum,  as defined below,  which at all
times will be in form and substance  acceptable  to the Placement  Agent and its
counsel and contain such legends and other  information  as the Placement  Agent
and its counsel may, from time to time,  deem  necessary and desirable to be set
forth  therein.  "Memorandum"  as used in this  Agreement  means  the  Company's
Confidential Private Placement  Memorandum,  inclusive of all exhibits,  and any
and   all   amendments,   supplements   and   appendices   thereto   and   other
Company-approved  documents  that the  Placement  Agent may use on the Company's
behalf  to sell the  Units.  Unless  otherwise  defined,  each term used in this
Agreement will have the same meaning as shall be set forth in the Memorandum.

2.  Representations and Warranties.  Except as set forth under the corresponding
section of the  Schedule of  Exceptions  delivered  concurrently  herewith  (the
"Schedule of  Exceptions"),  the Company  hereby  represents and warrants to the
Placement  Agent that each of the following  shall be true in all respects as of
the date hereof and, as  applicable,  on and as of the date of the Memorandum as
if made on and as of the date hereof:

(a) The  Memorandum  will be,  and as of the date of the  Memorandum  has  been,
diligently  prepared by the Company,  at its sole cost, in  conformity  with all
applicable  laws,  and will be in compliance  with  Regulation D as  promulgated
under Section 4(2) of the Act ("Regulation  D"), the Act and the requirements of
all other  rules and  regulations  (the  "Regulations")  of the  Securities  and
Exchange  Commission (the "SEC") relating to offerings of the type  contemplated
by  the  Offering,  and  the  applicable  securities  laws  and  the  rules  and
regulations of those jurisdictions wherein the Units are to be offered and sold,
excluding foreign jurisdictions.  The Units will be offered and sold pursuant to
the  registration  exemption  provided by  Regulation  D and Section 4(2) and/or
Section 4(6) of the Act as a transaction not involving a public offering and the
requirements of any other  applicable  state  securities laws and the respective
rules and regulations  thereunder in those United States  jurisdictions in which
the  Placement  Agent  notifies the Company that the Units are being offered for
sale. The Memorandum  will describe all material  aspects,  including  attendant
risks,  of an investment  in the Company.  The Company has not taken nor will it
take any

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<PAGE>

action that conflicts with the  conditions  and  requirements  of, or that would
make   unavailable  with  respect  to  the  Offering,   the  exemption(s)   from
registration  available  pursuant to Regulation D or Section 4(2) and/or Section
4(6) of the Act and knows of no reason why any such exemption would be otherwise
unavailable  to it.  Neither the Company nor its  affiliates has been subject to
any  order,  judgment  or  decree  of any  court or  governmental  authority  of
competent jurisdiction temporarily,  preliminarily or permanently enjoining such
person for failing to comply with Section 503 of Regulation D.

(b) The  Memorandum  will not,  and as of the date of the  Memorandum  does not,
include any untrue  statement  of a material  fact or omit to state any material
fact required to be stated therein or necessary to make the statements  therein,
in light of the circumstances  under which they were made, not misleading.  None
of the statements,  documents,  certificates or other items prepared or supplied
by the Company with respect to the transactions  contemplated hereby contains or
will  contain an untrue  statement of a material  fact or omits a material  fact
necessary to make the statements  contained therein not misleading.  There is no
fact that the Company has not disclosed to the  Placement  Agent and its counsel
and of which the Company is aware that  materially  and adversely  affects or is
likely to materially  and adversely  affect the business,  prospects,  financial
condition, operations, assets or affairs of the Company.

(c) The Company is a corporation  duly organized,  validly  existing and in good
standing under the laws of Delaware.  The Company has no active subsidiaries and
except for its wholly owned  subsidiaries  which are inactive,  does not have an
equity interest in any other firm, partnership, association or other entity. The
Company is duly qualified to transact  business as a foreign  corporation and is
in good standing under the laws of each  jurisdiction  where the location of its
properties or the conduct of its business  makes such  qualification  necessary,
except  where the failure to be so qualified  would not have a material  adverse
effect on the Company or its business.

(d) The Company has all requisite  power and authority  (corporate and other) to
conduct its  business as  presently  conducted  and as proposed to be  conducted
(described in the Memorandum),  to enter into and perform its obligations  under
this Agreement and the other agreements  contemplated hereby, the Securities and
by the Memorandum (collectively, the "Transaction Documents") and to issue, sell
and deliver the Units and the shares of Common Stock  issuable  upon  conversion
and exercise, as applicable,  of the Securities (the "Conversion  Shares").  The
execution  and  delivery  of each of the  Transaction  Documents  has been  duly
authorized  by all  necessary  corporate  action.  This  Agreement has been duly
executed  and  delivered  and  constitutes,  and each of the  other  Transaction
Documents,  upon due execution and delivery, will constitute,  valid and binding
obligations of the Company,  enforceable  against the Company in accordance with
their respective terms.

(e) None of the execution and delivery of, or  performance by the Company under,
any of the Transaction  Documents or the consummation of the transactions herein
or  therein  contemplated  conflicts  with or  violates,  or will  result in the
creation or imposition of, any lien, charge or other encumbrance upon any of the
assets of the  Company  under any  agreement  or other  instrument  to which the
Company is a party or by which the Company or its assets may be bound,  any term
of the charter or by-laws of the  Company,  or any  license,  permit,  judgment,
decree,  order,  statute, rule or regulation applicable to the Company or any of
its assets.

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<PAGE>

(f) The Company will have the authorized and outstanding capital stock set forth
in the Memorandum. Except as set forth in the Memorandum, all outstanding shares
of  capital  stock  of the  Company  are duly  authorized,  validly  issued  and
outstanding, fully paid and nonassessable. Except as set forth in the Memorandum
and the Schedule of  Exceptions:  (i) there are no  outstanding  options,  stock
subscription  agreements,  warrants or other rights  permitting or requiring the
Company or others to purchase or acquire any shares of capital  stock,  or other
equity  securities  of the  Company,  or to pay any  dividend  or make any other
distribution  in  respect  thereof;  (ii)  there  are no  securities  issued  or
outstanding  that are convertible  into or exchangeable for any of the foregoing
and there are no contracts,  commitments  or  understandings,  whether or not in
writing,  to issue or grant any such option,  warrant,  right or  convertible or
exchangeable  security;  (iii) no  shares  of stock or other  securities  of the
Company are reserved  for  issuance  for any  purpose;  (iv) there are no voting
trusts  or  other  contracts,  commitments,  understandings,   arrangements,  or
restrictions  of any kind with respect to the  ownership,  voting or transfer of
shares  of  stock  or  other  securities  of  the  Company,   including  without
limitation,  any preemptive rights, rights of first refusal,  proxies or similar
rights;  and (v) no person  holds a right to require the Company to register any
securities  of  the  Company  under  the  Act  or to  participate  in  any  such
registration.  The issued and outstanding shares of capital stock of the Company
conform to all  statements in relation  thereto  contained in the Memorandum and
the  Memorandum  describes  all  material  terms  and  conditions  thereof.  All
issuances by the Company of its  securities  were at the time of their  issuance
either (x)  exempt  from  registration  under the Act and any  applicable  state
securities laws or (y) appropriately registered.

(g) The Shares, the Warrants, the Conversion Shares and the Agent's Warrants (as
defined in Section 3(e) hereof) have been duly  authorized  and, when issued and
delivered  against payment  therefore as provided in the Transaction  Documents,
will be validly issued,  fully paid and nonassessable and will be free and clear
of all  liens,  charges,  restrictions,  claims and  encumbrances  imposed by or
through the Company  other than as provided  in the  Transaction  Documents.  No
holder of any of the Securities,  the Conversion  Shares or the Agent's Warrants
or  Agent's  Shares  (as  defined in  Section  3(e)  hereof)  will be subject to
personal  liability  solely by reason of being such a holder and,  except as set
forth in the Memorandum and the Schedule of Exceptions,  none of the Securities,
the  Conversion  Shares or the Agent's  Warrants or Agent's Shares is subject to
preemptive  or  similar  rights  of  any  securityholder  of the  Company  or an
adjustment  under the  antidilution  or  exercise  rights of any  holders of any
outstanding  shares of  capital  stock,  options,  warrants  or other  rights to
acquire any  securities of the Company.  A sufficient  number of authorized  but
unissued  shares of  Common  Stock  have been  reserved  for  issuance  upon the
conversion of the Shares,  exercise of the Warrants and the Agent's Warrants (as
defined in Section 3(e) defined hereof).

(h) No  consent,  authorization  or filing of or with any court or  governmental
authority is required in  connection  with the issuance of the  Securities,  the
Conversion  Shares or the Agent's Warrants or Agent's Shares or the consummation
of the transactions  contemplated herein or in the other Transaction  Documents,
except for required  filings with the SEC, if any, and applicable  "blue sky" or
state securities commissions relating specifically to the Offering (all of which
will be duly made on a timely basis).

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<PAGE>

(i) Except as set forth in the Memorandum,  the financial  statements,  together
with the related  notes  thereto,  of the Company  included or  incorporated  by
reference in the  Memorandum  are true and complete and present  fairly,  in all
material  respects,  the financial  position of the Company as of the respective
dates  specified  and the results of its  operations  and  changes in  financial
position for the respective periods covered thereby.  Such financial  statements
and related  notes were  prepared in  accordance  with U.S.  generally  accepted
accounting  principles  ("GAAP")  applied on a consistent  basis  throughout the
periods indicated and except that the unaudited  financial  statements omit full
notes, and except for normal year-end  adjustments.  Except as set forth in such
financial  statements  or  in  the  Memorandum,  the  Company  has  no  material
liabilities of any kind, whether accrued,  absolute,  contingent or otherwise or
entered into any material  transactions or commitments.  The other financial and
statistical  information  with respect to the Company included in the Memorandum
present  fairly the  information  shown therein on a basis  consistent  with the
financial statements of the Company included in the Memorandum. The Company does
not know of any  facts,  circumstances  or  conditions  (or any  state of facts,
circumstances  or conditions which management of the Company has concluded could
give  rise  thereto)  that  could  materially  adversely  affect  its  business,
operations,  earnings or  prospects  that have not been fully  disclosed  in the
Memorandum or the Schedule of Exceptions.

(j) The  conduct of  business by the  Company as  presently  and  proposed to be
conducted is not subject to  continuing  oversight,  supervision,  regulation or
examination  by any  governmental  official or body of the United  States or any
other  jurisdiction  wherein  the Company  conducts or proposes to conduct  such
business,  except as described in the Memorandum or except such regulation as is
applicable  to  commercial  enterprises  generally.  Except  as set forth in the
Memorandum,   all   material   licenses,    permits,    approvals,    government
authorizations,  leases, contracts and agreements referred to in the Memorandum,
along with all other material licenses, permits, approvals, leases, governmental
authorizations  or contracts to which the Company is a party, have been obtained
and are valid and in full force and effect and neither  the Company  nor, to the
knowledge of the Company,  any other party is in default thereunder,  and to the
knowledge of the Company,  no event has occurred  which with the passage of time
or the giving of notice,  or both, would constitute a default  thereunder except
for a default  which would not have a material  adverse  effect on the  Company.
Except as described in the Memorandum, all material licenses, permits, approvals
or  governmental  authorizations  necessary to permit the Company to conduct its
business have been obtained and are  outstanding and will be outstanding on each
Closing Date, and the Company is in all material respects  complying  therewith.
There are no proceedings pending, or to the knowledge of the Company threatened,
seeking to cancel, terminate or limit such licenses, approvals or permits.

(k) Except as disclosed in the  Memorandum  or the  Schedule of  Exceptions,  no
default by the Company or, to the best knowledge of the Company, any other party
exists in the due performance under any material  agreement to which the Company
is a party or to which any of its assets is subject,  that could have a material
adverse effect on its business, operations, earnings or prospects (collectively,
the "Company  Agreements").  The Company Agreements are in full force and effect
in accordance with their respective terms.

(l) Except as set forth in the  Memorandum  or in the  Schedule  of  Exceptions,
there are no actions,  proceedings,  claims or investigations,  before or by any
court or governmental  authority (or

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<PAGE>

any state of facts which management of the Company has concluded could give rise
thereto) pending or, to the best knowledge of the Company,  threatened,  against
the  Company,  or  involving  its assets or, to the  knowledge  of the  Company,
involving any of its officers or directors which, if determined adversely to the
Company or such officer or director, could result in any material adverse change
in the  condition  (financial  or  otherwise)  or  prospects  of the  Company or
adversely  affect the  transactions  contemplated by this Agreement or the other
Transaction Documents or the enforceability thereof.

(m) Except as set forth in the  Memorandum  or the Schedule of  Exceptions,  the
Company is not in violation of: (i) its charter or by-laws;  (ii) any indenture,
mortgage,  deed of trust,  note or other  agreement or  instrument  to which the
Company  is a party or by  which  it is or may be  bound or to which  any of its
assets  may  be  subject;  (iii)  any  statute,  rule  or  regulation  currently
applicable to the Company;  or (iv) any judgment,  decree or order applicable to
the Company,  which violation or violations  individually,  or in the aggregate,
would result in any  material  adverse  change in the  condition  (financial  or
otherwise) or prospects of the Company.

(n) Except as set forth in the  Memorandum,  the  Company  does not own any real
property in fee simple,  and the  Company has good and  marketable  title to all
property (personal,  tangible and intangible) owned by it, free and clear of all
security interests, liens and encumbrances.

(o) The Company owns all right, title and interest in, or possesses adequate and
enforceable rights to use, all patents, patent applications,  trademarks,  trade
names, service marks, copyrights,  rights, licenses,  franchises, trade secrets,
confidential  information,  processes,  formulations,  software  and  source and
object codes  reasonably  necessary for the conduct of its  business,  except as
otherwise described in the Memorandum  (collectively,  the  "Intangibles").  The
Company  has not,  after due  inquiry,  knowingly  infringed  upon the rights of
others with respect to the Intangibles; the Company has not received notice that
it has or may have  infringed  or is  infringing  upon the rights of others with
respect to the  Intangibles,  or any notice of conflict with the asserted rights
of others with respect to the  Intangibles  that could,  individually  or in the
aggregate, materially and adversely affect the business, condition (financial or
otherwise) or prospects of the Company.  Except as set forth in the  Memorandum,
to the best  knowledge of the Company,  no other  parties have  infringed or are
infringing upon the Intangibles.

(p) Except as set forth in the  Memorandum or the Schedule of Exceptions  and as
may  otherwise be  contemplated  therein,  the Company has operated its business
diligently and only in the ordinary  course as  theretofore  conducted and there
has been no: (i) material adverse change in the business condition (financial or
otherwise) or prospects of the Company;  (ii) transaction  otherwise than in the
ordinary course of business;  (iii) issuance of any securities  (debt or equity)
or any rights to acquire any such securities;  (iv) damage, loss or destruction,
whether or not covered by  insurance,  with  respect to any asset or property of
the Company; or (v) agreement to permit any of the foregoing.

(q) Except as set forth in the  Memorandum  or the Schedule of  Exceptions,  the
Company has filed each  Federal,  state,  local and foreign tax return  which is
required to be filed by it, or has requested an extension  therefor and has paid
all taxes and all related assessments, penalties and interest to the extent that
the same have become due.

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(r) The Company is not  obligated to pay, and has not  obligated  the  Placement
Agent to pay, a finder's or origination  fee in connection with the Offering and
agrees to indemnify  the  Placement  Agent from any such claim made by any other
person. The Company has not offered for sale or solicited offers to purchase the
Units except for negotiations  with the Placement Agent.  Except as set forth in
the Memorandum,  as of the commencement of the Offering, no other person has any
right  to  participate  in any  offer,  sale or  distribution  of the  Company's
securities to which the Placement Agent's rights, described herein, shall apply.

(s) The  Company  has and  will  maintain  appropriate  casualty  and  liability
insurance  coverage,  in scope and amounts  reasonable and customary for similar
businesses.

(t) All of the  Company's  filings  with  the SEC are true  and  correct  in all
material respects.

3. Placement Agent Appointment and Compensation.

(a) In  accordance  with the terms  hereof,  the  Company  hereby  appoints  the
Placement Agent and its selected  dealers,  as its exclusive agent in connection
with the Offering.  The Company  acknowledges  that the Placement  Agent may use
selected  dealers and sub agents to fulfill its agency  hereunder  provided that
such  dealers  and sub agents are  compensated  solely by the  Placement  Agent.
Except as expressly  stated  herein,  the Company has not and will not make,  or
permit to be made,  any  offers or sales of the Units  other  than  through  the
Placement  Agent  without the  Placement  Agent's  prior  written  consent.  The
Placement  Agent has no obligation  to purchase any of the Units.  The agency of
the  Placement   Agent  hereunder  shall  continue  until  the  earlier  of  the
Termination Date or the Final Closing (as defined in Section 3(f) hereof).

(b) The Company will cause to be delivered to the Placement  Agent copies of the
Memorandum and has consented, and hereby consents, to the use of such copies for
the purposes  permitted by the Act and  applicable  securities  laws, and hereby
authorizes the Placement Agent and its agents, employees and selected dealers to
use  the  Memorandum  in  connection  with  the  sale  of the  Units  until  the
Termination Date, and no other person or entity is or will be authorized to give
any  information or make any  representations  other than those contained in the
Memorandum or to use any offering  materials  other than those  contained in the
Memorandum in connection with the sale of the Units. The Company will provide at
its own expense  such  quantities  of the  Memorandum  and other  documents  and
instruments  relating to the  Offering  as the  Placement  Agent may  reasonably
request.

(c) The Company will cooperate with the Placement  Agent by making  available to
its representatives  such information as may be requested in making a reasonable
investigation  of the Company and its affairs and shall  provide  access to such
employees as shall be reasonably requested.

(d) At each Closing,  the Company  shall pay to the Placement  Agent a placement
fee equal to ten percent  (10%) of the aggregate  cash  Purchase  Price per Unit
paid by each Investor and for which  subscriptions are accepted by the Placement
Agent and the Company (the "Placement  Agent's Fee").  In addition,  the Company
shall pay all expenses set forth in Section 5(j) hereof.  The Placement  Agent's
Fee and the expenses set forth in Section 5(j) hereof will be deducted  from

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the gross proceeds of the Units sold at each Closing,  as set forth in Section 4
hereof.  The  Placement  Agent shall direct all such amounts to be paid directly
from the escrow account established pursuant to Section 4(b) hereof.

(e) As additional  compensation  hereunder,  at each Closing,  the Company shall
sell to the Placement Agent or its designees,  for $1,  five-year  warrants (the
"Agent's  Warrants")  to purchase  the number of Units  equal to twenty  percent
(20%) of the Units purchased for cash at each Closing,  at an exercise price per
Unit equal to the Purchase Price per Unit at the applicable Closing (such shares
of Common Stock underlying the components of the Agent's Warrants,  the "Agent's
Shares").  The holders of the Agent's  Warrants shall have  registration  rights
equivalent to those granted to the holders of Units.  The Agent's  Warrants will
contain cashless exercise and weighted-average antidilution provisions.

(f) In the  event  any  investor  in the  Offering  or  party  contacted  by the
Placement  Agent in connection  with the Offering  (except for parties that have
previously  invested in the Company  not as a result of an  introduction  by the
Placement   Agent,   and  third  parties  that  have  a  pre-existing   business
relationship  with the Company  that did not arise from an  introduction  by the
Placement Agent),  subsequently  invests (except through an underwritten  public
offering) in the Company at any time within  eighteen (18) months from the later
of the termination date or the final closing of the Offering ("Final  Closing"),
the Company  shall pay to the Placement  Agent the  Placement  Agent's Fee and a
nonaccountable  expense  allowance  equal to 3%, and sell to the Placement Agent
the Agent's Warrants  (exercisable at the subsequent  offering share price) with
respect to, and based on the gross proceeds from investments in the Company made
within eighteen months after the Final Closing by such investors or parties.

4.   Subscription and Closing Procedures.

(a) Each  prospective  purchaser  will be required  to complete  and execute one
original  signature page for the  Subscription  Agreement in the form annexed to
the  Memorandum,  which will be forwarded or delivered to the Placement Agent at
the  Placement  Agent's  offices at the  address set forth in Section 11 hereof,
together  with the  subscriber's  check or good funds in the full  amount of the
Purchase Price Per Unit for the number of Units desired to be purchased.

(b) All funds for  subscriptions  received  from the  Offering  will be promptly
forwarded  by the  Placement  Agent or the  Company,  if  received by it, to and
deposited in an escrow  account  (the  "Escrow  Account")  with  American  Stock
Transfer & Trust Co.,  acting as escrow  agent.  established  for the purpose of
holding  subscription  funds prior to a Closing (the "Escrow  Agent").  All such
funds for subscriptions will be held in the Escrow Account pursuant to the terms
of the escrow  agreement with respect  thereto among the Company,  the Placement
Agent  and the  Escrow  Agent.  The  Company  will pay all fees  related  to the
establishment  and  maintenance of the Escrow  Account.  The Placement Agent can
reject  any  subscriptions  for  any  reason.  Subject  to the  receipt  of such
subscriptions  for the Minimum Amount,  the Company will either accept or reject
the  Subscription  Agreements  in a  timely  fashion  and  at the  Closing  will
countersign the Subscription Agreements and provide copies of such agreements to
the Placement Agent. The Company will give written notice to the Placement Agent
of its  acceptance  or  rejection  of each  subscription.  The  Company,  or the
Placement  Agent on the Company's  behalf,  will promptly  return to subscribers

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<PAGE>

incomplete, improperly completed, improperly executed and rejected subscriptions
and give written notice thereof to the Placement Agent upon such return.

(c) If subscriptions for at least the Minimum Amount have been accepted prior to
the Termination Date, the funds therefor have been collected by the Escrow Agent
and all of the conditions set forth elsewhere in this Agreement are fulfilled, a
closing  shall be held  promptly  with respect to that portion of the Units sold
(the "First  Closing").  Thereafter,  the  remaining  Units will  continue to be
offered and sold until the Termination Date.  Additional  closings  ("Closings")
may from time to time be conducted at times  mutually  agreeable with respect to
the additional  Units sold, with the Final Closing to occur within ten (10) days
from the  earlier  of the  Termination  Date or the sale of all  Units  offered.
Delivery of payment for the  accepted  subscriptions  from the funds held in the
Escrow  Account will be made at each Closing at the  Placement  Agent's  offices
against  delivery of the  Securities  comprising the Units by the Company at the
address  set  forth in  Section  11  hereof  (or at such  other  place as may be
mutually  agreed  upon  between the Company  and the  Placement  Agent),  net of
amounts due to the Placement Agent and Blue Sky counsel pursuant to Section 5(j)
hereof as of such Closing.  Executed Securities and the Agent's Warrants will be
in such authorized denominations and issued in such names as the Placement Agent
may  request on or before the second  full  business  day prior to each  Closing
Date, and will be made available to the Placement Agent for review and packaging
at the Placement Agent's office at least one full business day prior thereto.

(d) If Subscription Agreements for the Minimum Amount have not been received and
accepted by the Company on or before the  Termination  Date for any reason,  the
Offering will be  terminated,  no Units will be sold, and the Escrow Agent will,
at  the  request  of  the  Placement  Agent,  cause  all  monies  received  from
subscribers for the Units to be promptly  returned to such  subscribers  without
interest, penalty, expense or deduction.

5.   Further Covenants. The Company hereby covenants and agrees that:

(a) Except with the prior written  consent of the Placement  Agent,  the Company
shall not,  at any time prior to the Final  Closing,  take any action that would
cause any of the representations and warranties made by it in this Agreement not
to be complete  and correct on and as of each  Closing  Date with the same force
and effect as if such  representations and warranties had been made on and as of
each such date.

(b) If, at any time prior to the Final Closing,  any event shall occur that does
or may  materially  affect the  Company or as a result of which it might  become
necessary to amend or supplement the Memorandum so that the  representations and
warranties herein remain true, or in case it shall, in the reasonable opinion of
counsel  to the  Placement  Agent,  be  necessary  to  amend or  supplement  the
Memorandum to comply with Regulation D or any other  applicable  securities laws
or regulations,  the Company will promptly notify the Placement Agent and shall,
at its  sole  cost,  prepare  and  furnish  to the  Placement  Agent  copies  of
appropriate  amendments  and/or  supplements in such quantities as the Placement
Agent may request. The Company will not at any time, whether before or after the
Final  Closing,  prepare or use any amendment or supplement to the Memorandum of
which the Placement  Agent will not  previously  have been advised and furnished
with a copy, or to which the  Placement  Agent or its counsel will have objected
in writing or orally

                                       9
<PAGE>

(confirmed in writing within 24 hours),  or which is not in compliance  with the
Act,  the  Regulations  and other  applicable  securities  laws.  As soon as the
Company is advised thereof,  the Company will advise the Placement Agent and its
counsel,  and  confirm  the  advice  in  writing,  of any  order  preventing  or
suspending the use of the Memorandum,  or the suspension of the qualification or
registration  of the Units for offering or the  suspension  of any exemption for
such   qualification   or   registration  of  the  Units  for  offering  in  any
jurisdiction, or of the institution or threatened institution of any proceedings
for any of such  purposes,  and the Company will use its best efforts to prevent
the issuance of any such order, judgment or decree, and, if issued, to obtain as
soon as reasonably possible the lifting thereof.

(c) The Company  shall  comply with the Act,  the  Regulations,  the  Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder,  all applicable  state securities laws and the rules and regulations
thereunder  in the states in which the  Placement  Agent's  Blue Sky counsel has
advised the Placement  Agent that the Units are qualified or registered for sale
or  exempt  from  such  qualification  or  registration,  so  as to  permit  the
continuance  of the sales of the  Units,  and will file with the SEC,  and shall
promptly  thereafter forward to the Placement Agent, any and all reports on Form
D as are required.

(d) The Company shall use its  reasonable  best efforts to qualify the Units for
sale  (or  seek  exemption   therefrom)   under  the  securities  laws  of  such
jurisdictions in the United States as the Placement Agent shall  designate,  and
the Company will (through Blue Sky counsel) make such  applications  and furnish
information as may be required for such purposes. The Company will, from time to
time,  prepare and file such statements and reports as are or may be required to
continue  such  qualifications  in effect for so long a period as the  Placement
Agent may reasonably request.

(e) The  Company  shall file on or before the later of April 30, 2004 or 30 days
following the date of the Final Closing, a resale  registration  statement under
the  Securities  Act for the resale of the shares of Common Stock (i) underlying
the Series A Preferred,  (ii)  underlying  the  Warrants,  (iii)  issuable  upon
dividend  distributions in respect of the Series A Preferred and (iv) underlying
the Agent's Warrants.  The Company will (x) use reasonable best efforts to cause
the registration statement to become effective within 120 days after the date of
filing and (y) maintain the effectiveness of such registration  statement for 24
months after the Final  Closing of the  Offering.  If the Company  fails to file
such registration statement on or before 45 days following the date of the Final
Closing or such registration statement does not become effective within 120 days
after such date of filing (or if earlier, the expiration of such 45-day period),
the Company  will pay a cash  penalty to the holders of the Shares  equal to two
percent of their aggregate  Purchase Price per Unit for each 30 days (or portion
thereof)  such  registration  obligations  are not met by the Company.  The cash
payments shall be paid promptly on the first business day of each calendar month
during such period of  noncompliance.  Notwithstanding  anything in this Section
5(e) to the  contrary,  if the  Company  shall  furnish  to the  holders  of the
Securities  ("Holders") a certificate signed by the President or Chief Executive
Officer of the Company  stating  that the Board of  Directors of the Company has
made the good faith  determination that it is therefore essential to suspend the
use by the Holders of such registration  statement (and the prospectus  relating
thereto)  for purposes of

                                       10
<PAGE>

effecting  offers or sales of Common Stock pursuant  thereto,  then the right of
such Holders to use such  registration  statement (and the  prospectus  relating
thereto)  for purposes of  effecting  offers or sales of Common  Stock  pursuant
thereto,  shall be suspended for a period (the "Suspension  Period") of not more
than 30 days after delivery by the Company of the certificate  referred to above
in this Section  5(e),  provided,  that the Company shall provide the Holders of
the Securities with no less than  twenty-four (24) hours prior written notice of
any  Suspension  Period.  During the Suspension  Period,  such Holders shall not
offer or sell any Common Stock pursuant to or in reliance upon such registration
statement (or the  prospectus  relating  thereto).  The Company  agrees that, as
promptly as  practicable,  the Company  will  provide  such Holders with revised
prospectuses,  if  required,  and will  notify the  Holders of their  ability to
effect  offers or sales of Common  Stock  pursuant to or in  reliance  upon such
registration statement.  Notwithstanding for foregoing, the Company shall not be
entitled to  Suspension  Periods  totaling more than 30 days in the aggregate in
any twelve (12) month period.

(f) The  Company  shall  place a legend  on the  certificates  representing  the
Securities issued to subscribers  stating that the securities  evidenced thereby
have not been  registered  under the Act or applicable  state  securities  laws,
setting forth or referring to the applicable restrictions on transferability and
sale of such securities under the Act and applicable state laws.

(g) The Company  shall apply the net proceeds from the sale of the Units to fund
its  working  capital  requirements  and/or for such other  purposes as shall be
specifically described under "Use of Proceeds" in the Memorandum.  Except as set
forth  in the  Memorandum,  the SEC  Reports  or as  approved  by the  Board  of
Directors  of the  Company,  the  net  proceeds  shall  not  be  used  to  repay
indebtedness  to current  executive  officers or principal  shareholders  of the
Company,  or to  repurchase  or redeem any  securities,  other than  pursuant to
Section 1(a) hereof,  and except as otherwise  authorized by the Placement Agent
in writing

(h) During the Offering  Period,  the Company shall make available for review by
prospective  purchasers  of  the  Units  during  normal  business  hours  at the
Company's offices,  upon their request,  copies of the Company Agreements to the
extent that such disclosure  shall not violate any obligation on the part of the
Company  to  maintain  the   confidentiality   thereof  and  shall  afford  each
prospective  purchaser of Units the  opportunity to ask questions of and receive
answers from an officer of the Company  concerning  the terms and  conditions of
the Offering and the  opportunity  to obtain such other  additional  information
necessary  to verify the accuracy of the  Memorandum  to the extent it possesses
such information or can acquire it without unreasonable expense.

(i) Except with the prior written consent of the Placement Agent or as set forth
in the  Memorandum,  the Company  shall not, at any time prior to the earlier of
the Final Closing or the Termination  Date, engage in or commit to engage in any
transaction  outside  the  ordinary  course  of  business,   including,  without
limitation,  the  incurrence  of material  indebtedness,  materially  change its
business or operations as shall be described in the  Memorandum,  dispose of any
material assets or make any material  acquisition,  or issue,  agree to issue or
set aside for issuance any  securities  (debt or equity) or any right to acquire
such securities except as shall be contemplated by the Memorandum.

(j) Whether or not the transactions contemplated hereby are consummated, or this
Agreement is terminated,  the Company  hereby agrees to pay all fees,  costs and
expenses  incident hereto and to the Offering,  including,  without  limitation,
those in connection with (i) preparing,  distributing and

                                       11
<PAGE>

binding the Memorandum and any and all amendments  and/or  supplements  thereto,
fees for bound volumes and any and all agreements, contracts and other documents
related  hereto and  thereto;  (ii) the  authorization,  issuance,  transfer and
delivery of the Securities,  the Conversion Shares, the Agent's Warrants and the
Agent's Shares, including, without limitation, fees and expenses of any transfer
agent or registrar;  (iii) the fees and expenses of the Escrow Agent (subject to
Section 4(b) hereof); (iv) all fees and expenses of legal,  accounting and other
advisers to the Company;  (v) all reasonable  filing fees,  costs and legal fees
and expenses for Blue Sky services and related  filings with respect to Blue Sky
exemptions and qualifications,  including legal fees of $3,000 for the first ten
states  and $450 per  state  thereafter,  $3,000  of which  shall be paid to the
Placement Agent's counsel at the First Closing for legal fees in connection with
obtaining Blue Sky exemptions (the "Blue Sky Fees"); and (vi) subject to Section
9 hereof,  a  nonaccountable  expense  allowance  ("Placement  Agent  Expenses")
relating to expenses  incurred by the  Placement  Agent in  connection  with the
Offering  (including,  without limitation,  travel and related expenses and fees
and expenses of legal,  accounting  and other  advisers to the Placement  Agent)
equal to three  (3%)  percent  of the  aggregate  Purchase  Price per Unit sold,
deducted from the gross proceeds of the Units sold in the Offering.

(k) Until the  Termination  Date,  neither  the Company nor any person or entity
acting on its behalf will  negotiate or enter into any agreement  with any other
placement  agent or underwriter  with respect to a private or public offering of
the Company's or any subsidiary's debt or equity securities. Neither the Company
nor anyone acting on its behalf will,  until the Termination  Date,  without the
prior  written  consent of the  Placement  Agent,  offer for sale to, or solicit
offers to  subscribe  for Units or other  securities  of the  Company  from,  or
otherwise approach or negotiate in respect thereof with, any other person.

(l) Prior to the First Closing,  the chief executive officer and chief financial
officer of the Company shall have  provided  representations  and  warranties in
form and substance  acceptable to the Placement  Agent relating to the Company's
most recent quarterly unaudited and year to date financial statements,  internal
financial  controls,  similar to those  included  in the  Company's  2002 annual
report on Form 10-K under the Securities  Exchange Act of 1934, as amended,  and
as  required  by the  Sarbanes-Oxley  Act of 2002,  the  absence of  undisclosed
liabilities  and such other  matters  relating to the  financial  condition  and
prospects of the Company as the Placement Agent may reasonably request.

6. Conditions of Placement Agent's Obligations. The obligations of the Placement
Agent hereunder are subject to the  fulfillment,  at or before each Closing,  of
the following additional conditions:

(a) Each of the  representations and warranties of the Company shall be true and
correct  when  made on the date  hereof  and on and as of each  Closing  Date as
though made on and as of each Closing Date.

(b) The Company shall have performed and complied with all agreements, covenants
and  conditions  required  to be  performed  and  complied  with by it under the
Transaction Documents at or before each Closing.

                                       12
<PAGE>

(c) No order  suspending  the use of the Memorandum or enjoining the offering or
sale of the Units shall have been issued, and no proceedings for that purpose or
a similar  purpose shall have been initiated or pending,  or, to the best of the
Company's knowledge, are contemplated or threatened.

(d) As of the First Closing, the Company will have an authorized and outstanding
capitalization  as set forth in the  Memorandum  (including  the  Company's  SEC
filing attached thereto).  Prior to the Final Closing, no additional  securities
will be issued by the  Company,  including  but not limited to shares,  options,
stock  subscription  agreements or warrants to purchase shares of the Company or
any other obligation to issue shares or other securities of the Company, without
the prior written consent of the Placement Agent.  Notwithstanding the preceding
sentence,  the Company may issue (i)  compensatory  option  grants to  employees
pursuant to option plans approved by the stockholders of the Company that are in
effect as of the date hereof,  (ii) shares of its Common Stock upon  exercise of
outstanding  options  or  warrants  or  conversion  of  outstanding  convertible
securities,  (iii) securities included in the Units sold in the Offering and the
Agent's Warrants and (iv) securities issued to former and current management and
consultants  and in settlement of various claims not to exceed 275,000 shares of
underlying  Common Stock in the aggregate,  and in each such case as approved by
the Board of Directors of the Company.

(e) The Placement Agent shall have received  certificates of the chief executive
officer of the Company,  dated as of each Closing Date,  certifying on behalf of
the Company, in such detail as Placement Agent may reasonably request, as to the
fulfillment of the conditions set forth in  subparagraphs  (a), (b), (c) and (d)
above.

(f) The Company  shall have  delivered  to the  Placement  Agent (i) a currently
dated good standing certificate from the Secretary of State of Delaware and each
jurisdiction  in which the  Company is  qualified  to do  business  as a foreign
corporation,  and (ii) certified resolutions of the Company's Board of Directors
approving  this  Agreement  and  the  other  Transaction   Documents,   and  the
transactions  and  agreements  contemplated  by this  agreement  and  the  other
Transaction Documents.

(g) On or prior to the date  hereof  and at each  Closing,  the chief  executive
officer  and chief  financial  officer  of the  Company  shall  have  provided a
certificate  to the  Placement  Agent  confirming  on behalf of the Company that
there have been no  undisclosed  material  and adverse  changes in the  business
condition  (financial or otherwise) or prospects of the Company from the date of
the latest  financial  statements  included  in the  Memorandum,  the absence of
undisclosed  liabilities  and  such  other  matters  relating  to the  financial
condition and prospects of the Company that the Placement  Agent may  reasonably
request.

(h) At each Closing,  the Company shall have (i) paid to the Placement Agent the
Placement  Agent's Fee in respect of all Units sold at such  Closing,  (ii) paid
all fees,  costs  and  expenses  set forth in  Section  5(j)  hereof,  and (iii)
executed and delivered to the Placement Agent the Agent's  Warrants in an amount
proportional to the Units sold at such Closing.

(i) There shall have been  delivered to the Placement  Agent a signed opinion of
counsel to the Company,  dated as of each  Closing  Date,  in the form  attached
hereto as Schedule A.

                                       13
<PAGE>

(j) All  proceedings  taken at or prior to each Closing in  connection  with the
authorization,  issuance and sale of the Units and the Agent's  Warrants will be
reasonably  satisfactory  in form and substance to the  Placement  Agent and its
counsel,  and such counsel shall have been  furnished  with all such  documents,
certificates  and opinions as they may reasonably  request upon reasonable prior
notice in connection with the transactions contemplated hereby.

(k) The Placement Agent shall be satisfied with the results of its due diligence
investigation of the Company.

7.   Indemnification.

(a) The Company will (i) indemnify and hold  harmless the Placement  Agent,  its
selected dealers and their respective  officers,  directors,  employees and each
person,  if any, who controls the Placement  Agent within the meaning of the Act
and such selected dealers (each an "Indemnitee")  against,  and pay or reimburse
each  Indemnitee  for,  any and all  losses,  claims,  damages,  liabilities  or
expenses  whatsoever  (or actions or proceedings  or  investigations  in respect
thereof),  joint or several  (which will,  for all  purposes of this  Agreement,
include,   but  not  be  limited  to,  all  reasonable   costs  of  defense  and
investigation and all reasonable  attorneys' fees, including appeals),  to which
any Indemnitee  may become  subject,  under the Act or otherwise,  in connection
with the offer and sale of the Units,  whether  such  losses,  claims,  damages,
liabilities  or expenses  shall result from any claim of any  Indemnitee  or any
third party;  and (ii) reimburse each Indemnitee for any legal or other expenses
reasonably  incurred in connection with  investigating or defending  against any
such loss, claim, action, proceeding or investigation;  provided,  however, that
the  Company  will not be liable in any such  case to the  extent  that any such
claim,  damage or liability  results  directly and primarily  from (A) an untrue
statement or alleged untrue statement of a material fact made in the Memorandum,
or an omission or alleged  omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
reliance  upon and in  conformity  with  written  information  furnished  to the
Company by the Placement Agent or any such controlling persons  specifically for
use in the preparation  thereof, or (B) any violations by the Placement Agent or
its selected dealers (if any) of the Act or state securities laws which does not
result from a violation  thereof or a breach  hereafter by the Company or any of
its  affiliates.  In  addition  to the  foregoing  agreement  to  indemnify  and
reimburse,  the Company will indemnify and hold harmless each Indemnitee against
any and all losses,  claims,  damages,  liabilities  or expenses  whatsoever (or
actions or proceedings or investigations  in respect thereof),  joint or several
(which shall for all purposes of this Agreement, include, but not be limited to,
all costs of defense  and  investigation  and all  reasonable  attorneys'  fees,
including  appeals) to which any Indemnitee  may become subject  insofar as such
costs,  expenses,  losses,  claims,  damages or liabilities  arise out of or are
based  upon the  claim of any  person  or entity  that he or it is  entitled  to
broker's or finder's fees from any Indemnitee in connection with the Offering.

(b) The  Placement  Agent will  indemnify  and hold  harmless the  Company,  its
officers, directors, employees and each person, if any, who controls the Company
within the meaning of the Act against, and pay or reimburse any such person for,
any and all losses,  claims,  damages or liabilities or expenses  whatsoever (or
actions,  proceedings or investigations in respect thereof) to which the Company
or any such person may become  subject under the Act or otherwise,  whether

                                       14
<PAGE>

such losses, claims, damages,  liabilities or expenses (or actions,  proceedings
or  investigations  in  respect  thereof)  shall  result  from any  claim of the
Company,  any of its  officers,  directors,  employees,  agents,  any person who
controls the Company  within the meaning of the Act or any third party,  insofar
as such  losses,  claims,  damages  or  liabilities  are based  upon any  untrue
statement or alleged  untrue  statement of any  material  fact  contained in the
Memorandum but only with  reference to  information  contained in the Memorandum
relating to the  Placement  Agent,  or an omission or alleged  omission to state
therein a material fact  required to be stated  therein or necessary to make the
statements  therein not  misleading,  if made or omitted in reliance upon and in
conformity  with written  information  furnished to the Company by the Placement
Agent or any such controlling  persons,  specifically for use in the preparation
thereof,  or any violations by the Placement  Agent or its selected  dealers (if
any) of the Act or state  securities laws which does not result from a violation
thereof or a breach hereafter by the Company or any of its affiliates, officers,
directors,  employees or agents.  The Placement Agent will reimburse the Company
or any such  person  for any  legal or other  expenses  reasonably  incurred  in
connection with investigating or defending against any such loss, claim, damage,
liability  or  action,  proceeding  or  investigation  to which  such  indemnity
obligation  applies.  Notwithstanding  the  foregoing,  in no  event  shall  the
Placement Agent's indemnification  obligation hereunder exceed the amount of the
Placement Agent's Fees actually received by it.

(c)  Promptly  after  receipt by an  indemnified  party under this  Section 7 of
notice of the  commencement of any action,  claim,  proceeding or  investigation
("Action"),  such indemnified party, if a claim in respect thereof is to be made
against  the   indemnifying   party  under  this  Section  7,  will  notify  the
indemnifying  party of the commencement  thereof,  but the omission to so notify
the indemnifying  party will not relieve it from any liability which it may have
to any indemnified party under this Section 7 unless the indemnifying  party has
been substantially  prejudiced by such omission.  The indemnifying party will be
entitled to  participate  in, and, to the extent that it may wish,  jointly with
any other  indemnifying  party,  to assume the  defense  thereof  subject to the
provisions  herein  stated,   with  counsel  reasonably   satisfactory  to  such
indemnified  party. The indemnified party will have the right to employ separate
counsel in any such Action and to  participate in the defense  thereof,  but the
fees and expenses of such counsel will not be at the expense of the indemnifying
party if the  indemnifying  party has  assumed  the  defense of the Action  with
counsel  reasonably  satisfactory to the indemnified party;  provided,  however,
that if the indemnified  party shall be requested by the  indemnifying  party to
participate  in the defense  thereof or shall have  concluded  in good faith and
specifically  notified the indemnifying  party either that there may be specific
defenses  available  to it  which  are  different  from or  additional  to those
available to the indemnifying party or that such Action involves or could have a
material  adverse effect upon it with respect to matters beyond the scope of the
indemnity agreements contained in this Agreement,  then the counsel representing
it, to the  extent  made  necessary  by such  defenses,  shall have the right to
direct  such  defenses  of  such  Action  on its  behalf  and in such  case  the
reasonable  fees  and  expenses  of such  counsel  in  connection  with any such
participation or defenses shall be paid by the indemnifying party. No settlement
of any Action against an  indemnified  party will be made without the consent of
the  indemnifying  party and the indemnified  party,  which consent shall not be
unreasonably  withheld or delayed in light of all factors of  importance to such
party and no indemnifying  party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party's consent.

                                       15
<PAGE>

8.  Contribution.  To provide  for just and  equitable  contribution,  if (i) an
indemnified party makes a claim for indemnification pursuant to Section 7 hereof
and it is finally  determined,  by a  judgment,  order or decree not  subject to
further appeal that such claims for  indemnification  may not be enforced,  even
though this Agreement  expressly  provides for  indemnification in such case; or
(ii) any indemnified or indemnifying party seeks contribution under the Act, the
1934 Act, or otherwise,  then each  indemnifying  party shall contribute to such
amount  paid or  payable  by such  indemnified  party in such  proportion  as is
appropriate  to reflect not only such  relative  benefits  but also the relative
fault of the  Company  on the one hand and the  Placement  Agent on the other in
connection  with the  statements  or  omissions  which  resulted in such losses,
claims,  damages,  liabilities or expenses (or actions in respect  thereof),  as
well as any other  relevant  equitable  considerations.  The  relative  benefits
received  by the  Company on the one hand and the  Placement  Agent on the other
shall be deemed to be in the same  proportion as the total net proceeds from the
Offering (before deducting  expenses)  received by the Company bear to the total
commissions and fees received by the Placement Agent. The relative fault, in the
case of an untrue  statement,  alleged  untrue  statement,  omission  or alleged
omission will 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 allocation of the aggregate losses, liabilities,  claims,
damages and expenses or by any other method or allocation  that does not reflect
the equitable  considerations referred to in this Section 8. No person guilty of
a fraudulent  misrepresentation (within the meaning of Section 11(f) of the Act)
will be  entitled  to  contribution  from any  person  who is not guilty of such
fraudulent  misrepresentation.  For purposes of this Section 8, each person,  if
any, who controls  the  Placement  Agent within the meaning of the Act will have
the same rights to contribution as the Placement Agent, and each person, if any,
who controls the Company within the meaning of the Act will have the same rights
to contribution  as the Company,  subject in each case to the provisions of this
Section 8. Anything in this Section 8 to the contrary notwithstanding,  no party
will be liable for  contribution  with respect to the settlement of any claim or
action  effected  without its  written  consent.  This  Section 8 is intended to
supersede,  to the extent permitted by law, any right to contribution  under the
Act, the 1934 Act or otherwise available.

9.   Termination.

(a) (I) The Offering may be terminated by the Placement  Agent at any time prior
to the  expiration  of the  Offering  Period  in the  event  that (i) any of the
representations  or  warranties of the Company  contained  herein shall prove to
have been false or misleading in any material  respect when made or deemed made,
(ii) the Company shall have failed to perform any of its obligations  hereunder,
(iii) the Company shall have  determined for any reason not to continue with the
Offering or (iv) the  Placement  Agent shall  determine in its sole  discretion,
reasonably exercised, that it is reasonably likely that any of the conditions to
Closing set forth herein will not, or cannot, be satisfied.  In the event of any
such  termination  occasioned  by or arising  out of or in  connection  with the
matters set forth in clauses (i)-(iii) above, or occasioned by or arising out of
or in connection  with a matter set forth in clause (iv) above due to any breach
or failure  hereunder on the part of the Company,  the Placement  Agent shall be
entitled to receive,  an amount equal to the

                                       16
<PAGE>

sum of: (A) any Placement  Agent's Fees to which the Placement Agent is entitled
pursuant to Section 3(d) hereof  earned  through the  Termination  Date,  (B) an
amount equal to three  percent (3%) of the Purchase  Price Per Unit of all Units
sold in the Offering  (deeming,  for this  purpose,  all Units offered as having
been sold),  less any amounts  theretofore  paid in respect of  Placement  Agent
Expenses,  and all unpaid Blue Sky Fees and other  expenses set forth in Section
5(j) hereof.  If the Company,  for any reason,  including,  without  limitation,
breach by it of any  representation,  covenant or warranty made by it,  prevents
completion of the Offering  (including,  without  limitation,  failure to obtain
necessary  stockholder  approval),  the  Company's  liability  for the Placement
Agent's  expenses  shall be  equal  to 3% of the  Maximum  Amount  to cover  the
Placement Agent's expenses and efforts.  Notwithstanding  the foregoing,  in the
event the  Company  completes  one or more  public or private  offerings  of its
securities  within one (1) year after the Company prevents the completion of the
Offering the Company  shall also pay the Placement  Agent an investment  banking
fee  equal to five  percent  (5%) of the  total  consideration  received  by the
Company in connection with such sales of securities.

(II) This Offering may be  terminated  by the  Placement  Agent by notice to the
Company  at any time if,  in the  sole  judgment  of the  Placement  Agent,  the
Offering or the sale or the payment for or the delivery of the Units is rendered
impracticable  or  inadvisable  because  (i)  additional  material  governmental
restrictions  not in force and effect on the date hereof shall have been imposed
upon trading in securities  generally,  or minimum or maximum  prices shall have
been  generally  established  on the New York  Stock  Exchange,  or  trading  in
securities  generally on such  exchange  shall have been  suspended or a general
banking  moratorium  shall  have been  established  by federal or New York State
authorities,  (ii) a war, major hostilities,  terrorist or similar activity, act
of God or other calamity shall have occurred, (iii) of a material adverse change
in the  condition  (financial  or  otherwise)  of the  Company,  its business or
business prospects or (iv) the Placement Agent, in its sole discretion, shall be
dissatisfied with the results of its due diligence investigation.

(b) This  Offering  may be  terminated  by the  Company at any time prior to the
Termination  Date in the event that the  Placement  Agent  shall have  failed to
perform  any  of  its  material  obligations  hereunder.  In  the  event  of any
termination by the Company, the Placement Agent shall be entitled to receive all
amounts as may be due under any indemnity or  contribution  obligation  provided
herein  or  any  other  Transaction  Document,  at  law or  otherwise.  On  such
Termination  Date,  the  Company  shall pay all  unpaid  Blue Sky Fees and other
expenses set forth in Section 5(j) hereof.

(c) Upon any such  termination,  the Escrow  Agent  will,  at the request of the
Placement Agent,  cause all money received in respect of subscriptions for Units
not sold to be promptly returned to such subscribers without interest,  penalty,
expense or deduction.  Any interest earned thereon shall be applied first to the
payment of amounts,  if any,  due to the Escrow Agent and next to the payment of
any amounts payable to the Placement Agent hereunder which remain unpaid.

10.  Survival.

(a) The  obligations of the parties to pay any costs and expenses  hereunder and
to provide indemnification and contribution as provided herein shall survive any
termination hereunder.

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<PAGE>

(b) The  respective  indemnities,  agreements,  representations,  warranties and
other  statements of the Company set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of, and regardless of any access to information by, the Company or the
Placement Agent, or any of their officers or directors or any controlling person
thereof, and will survive the sale of the Units.

11.  Notices.  All  communications  hereunder will be in writing and,  except as
otherwise expressly provided herein or after notice by one party to the other of
a change of address,  if sent to the Placement Agent, will be mailed,  delivered
or telefaxed and confirmed to Spencer Trask Ventures,  Incorporated, 535 Madison
Avenue, 18th Floor, New York, New York 10022,  Attention:  William P. Dioguardi,
President,  Telefax number  212-829-4406,  with a copy to Feldman Weinstein LLP,
420 Lexington  Avenue,  New York, New York 10170,  Attention:  David N. Feldman,
Esq., Telefax number (212) 997-4242, and if sent to the Company, will be mailed,
delivered or telefaxed  and  confirmed to SmartServ  Online,  Inc.,  2250 Butler
Pike, Suite 150 Plymouth Meeting,  Pennsylvania 19462,  Attention:  Robert Pons,
Telefax  number (610)  397-0846,  with a copy to Stradley Ronon Stevens & Young,
LLP, 2600 One Commerce Square, Philadelphia, PA 19103, Attention: Dean Schwartz,
Telefax number (215) 564-8120.

12.  APPLICABLE LAW, COSTS,  ETC. THIS AGREEMENT WILL BE GOVERNED BY,  CONSTRUED
AND ENFORCED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. ALL  CONTROVERSIES,
WHICH  MAY  ARISE  BETWEEN  THE  PARTIES  CONCERNING  THIS  AGREEMENT,  SHALL BE
EXCLUSIVELY  DETERMINED BY ARBITRATION  PURSUANT TO THE RULES THEN PERTAINING TO
THE AMERICAN  ARBITRATION  ASSOCIATION (THE "AAA") IN NEW YORK COUNTY, NEW YORK.
HEARINGS WITH REGARD TO SUCH DISPUTE SHALL BE HELD EXCLUSIVELY AT THE OFFICES OF
THE AAA IN THE CITY OF NEW YORK AND JUDGMENT  UPON ANY AWARD  RENDERED  PURSUANT
THERETO  MAY BE ENTERED IN ANY COURT OF  COMPETENT  JURISDICTION.  ANY  DECISION
RENDERED BY THE AAA SHALL BE FINAL AND  BINDING.  SERVICE OF PROCESS MAY BE MADE
UPON THE COMPANY BY MAILING A COPY  THEREOF TO IT, BY  CERTIFIED  OR  REGISTERED
MAIL, AT ITS ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS  AGREEMENT.
THE COMPANY AND THE PLACEMENT AGENT EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION  BASED UPON OR ARISING OUT OF THIS  AGREEMENT OR
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.

13.  Confidentiality.  The  Company  hereby  agrees  to  hold  confidential  the
identities of the  purchasers in the Offering and shall not disclose their names
and addresses  without the prior written consent of the Placement Agent,  unless
required by law. The Company  hereby  consents to the granting of an  injunction
against it by any court of competent  jurisdiction  to enjoin it from  violating
the foregoing  confidentiality  provisions.  The Company  hereby agrees that the
Placement  Agent will not have an  adequate  remedy at law in the event that the
Company breaches these confidentiality provisions contained herein, and that the
Placement  Agent will  suffer  irreparable  damage and injury as a result of any
such breach. Resort to such equitable relief shall not, however, be construed to
be a waiver of any other rights or remedies which the Placement Agent may have.

                                       18
<PAGE>

14.  Miscellaneous.  No provision of this Agreement may be changed or terminated
except by a writing  signed by the party or  parties  to be  charged  therewith.
Unless expressly so provided,  no party to this Agreement will be liable for the
performance  of any other party's  obligations  hereunder.  Any party hereto may
waive  compliance by the other with any of the terms,  provisions and conditions
set forth herein;  provided,  however,  that any such waiver shall be in writing
specifically setting forth those provisions waived thereby. No such waiver shall
be  deemed  to  constitute  or imply  waiver of any  other  term,  provision  or
condition  of this  Agreement.  This  Agreement  contains  the entire  agreement
between  the  parties  hereto and is  intended  to  supersede  any and all prior
agreements  between  the  parties  relating  to the same  subject  matter.  This
Agreement  may be  executed  in  counterparts,  each of which shall be deemed an
original  and all of which  shall  constitute  a single  agreement.  The parties
acknowledge  that the Schedule of  Exceptions  to this  Agreement  have not been
prepared or are  incomplete  as of the date hereof.  SmartServ  shall deliver to
Placement Agent and its counsel for their review a complete and accurate version
of the Schedule of Exceptions  (or written  confirmation  from SmartServ that no
such  Schedule of  Exceptions  will be required)  not later than 5 business days
after  the  date of  this  Agreement.  Notwithstanding  anything  herein  to the
contrary, Spencer Trask shall have the right to terminate this Agreement and the
Offering by written  notice to SmartServ in the event that Spencer Trask has not
received such  schedules (or written  confirmation  from  SmartServ that no such
Schedule of Exceptions  will be required)  within 5 business days  following the
date hereof or if Spencer Trask, in its sole  discretion,  is not satisfied with
such Schedule of Exceptions.

15. Entire Agreement.  This Agreement together with any other agreement referred
to herein is intended to supersede all prior agreements between the parties with
respect to the Units purchased hereunder and the subject matter hereof.

                            [SIGNATURE PAGE FOLLOWS]

                                       19
<PAGE>



If the  foregoing is in accordance  with your  understanding  of our  agreement,
kindly  sign and  return  this  Agreement,  whereupon  it will  become a binding
agreement  between the Company and the Placement  Agent in  accordance  with its
terms.

                                        Very truly yours,

                                        SMARTSERV ONLINE, INC.



                                        By: /s/ Robert M. Pons
                                           -------------------------------------
                                        Name: Robert M. Pons
                                        Title: CEO


                                        Accepted and agreed to this 29th day of
                                        January ___, 2004.


                                        SPENCER TRASK VENTURES, INC.



                                        By: /s/ William P. Dioguardi
                                           -------------------------------------
                                        Name: William P. Dioguardi
                                        Title: President





                                       20
<PAGE>




                           Placement Agency Agreement
                                January 29, 2004

List of Schedules
-----------------

Schedule A - Form of Opinion of Counsel
Schedule of Exceptions