EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT


          This SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May
                                                    ---------
9,  2005,  is  by  and  between  CITADEL  SECURITY  SOFTWARE  INC.,  a  Delaware
corporation  (the "Company"), and each of the entities whose names appear on the
                   -------
signature  pages  hereof.  Such  entities  are  each  referred  to  herein as an
"Investor"  and,  collectively,  as  the  "Investors".
 --------                                  ---------

          A.   The  Company  wishes  to sell to each Investor, and each Investor
wishes to purchase, on the terms and subject to the conditions set forth in this
Agreement,  (A)  shares  (the  "Preferred  Shares")  of  the  Company's Series B
                                -----------------
Convertible  Preferred  Stock  (the  "Preferred  Stock")  having  the rights and
                                      ----------------
privileges  set  forth in the form of Certificate of Designation attached hereto
as  Exhibit  A  (the  "Certificate of Designation" or "Certificate"), (B) one or
    ----------         --------------------------      -----------
more  Warrant  in  the form attached hereto as Exhibit B (each, a "Warrant" and,
                                               ---------           -------
collectively,  the  "Warrants").
                     --------

          B.   The  Preferred  Stock  will  be  convertible  into  shares of the
Company's  common  stock,  par value $0.01 per share (the "Common Stock") at the
                                                           ------------
Conversion  Price  (as  defined below) and such shares are referred to herein as
the  "Conversion  Shares".  Each Warrant issued to an Investor will entitle such
      ------------------
Investor  to  purchase  a  number  of  shares  of  Common Stock equal to (i) the
purchase  price paid by such Investor for the Preferred Shares and Warrant being
purchased  by  such  Investor  divided  by (ii) the Conversion Price times (iii)
                               -----------                           -----
forty  percent  (40%).  The  Warrants will have an exercise price equal to $1.75
per  share  (subject  to  adjustment as provided therein) and will expire on the
tenth  (10th)  anniversary  of the issuance thereof.  The shares of Common Stock
into  which  the Warrants are exercisable are referred to herein as the "Warrant
                                                                         -------
Shares".  The  Preferred  Shares,  the  Conversion  Shares, the Warrants and the
------
Warrant Shares are collectively referred to herein as the "Securities".
                                                           ----------


          C.   The  Company  has  agreed  to  effect  the  registration  of  the
Conversion  Shares  and  the Warrant Shares under the Securities Act of 1933, as
amended  (the  "Securities Act"), pursuant to a Registration Rights Agreement in
                --------------
the  form  attached  hereto  as Exhibit C (the "Registration Rights Agreement").
                                ---------       -----------------------------

          D.   The  sale of the Preferred Shares and the Warrants by the Company
to the Investors will be effected in reliance upon the exemption from securities
registration  afforded  by  the  provisions of Regulation D ("Regulation D"), as
                                                              ------------
promulgated  by  the  Commission  (as  defined  below) under the Securities Act.

          In consideration of the mutual promises made herein and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, the Company and each Investor hereby agree as follows:


<PAGE>
1.   PURCHASE  AND  SALE  OFPREFERRED  SHARES  AND  WARRANTS.
     -------------------------------------------------------

     1.1  Initial  Closing.  Upon  the  terms and subject to the satisfaction or
          ----------------
waiver  of  the conditions set forth herein, the Company agrees to sell and each
Investor  agrees  to  purchase for the Purchase Price (as defined below) (i) the
number of Preferred Shares set forth below such Investor's name on the signature
pages  hereof  (each,  an "Initial Preferred Share" and, together with the other
                           -----------------------
Preferred  Shares issued and sold at the Initial Closing (as defined below), the
"Initial Preferred Shares") and (ii) a Warrant to purchase the number of Warrant
 ------------------------
Shares  indicated  on  the  signature  page  hereof  (an  "Initial Warrant" and,
                                                           ---------------
together  with  the  other  Warrants issued and sold at the Initial Closing, the
"Initial  Warrants").  The  closing  of  the  purchase  and  sale of the Initial
 -----------------
Preferred  Shares and Initial Warrants (the "Initial Closing") will be deemed to
                                             ---------------
occur at the offices of Duval & Stachenfeld LLP, 300 East 42nd Street, New York,
New  York  10017,  when  (A)  this  Agreement  and the other Initial Transaction
Documents  (as  defined  below)  have been executed and delivered by the Company
and,  to  the extent applicable, by each Investor, (B) each of the conditions to
the  Initial Closing described in Sections 5.1 and 5.2 hereof has been satisfied
                                  ------------     ---
or waived by the Company or each Investor, as appropriate, and (C) each Investor
shall  have  delivered  the  Purchase Price payable by it to the Company by wire
transfer  of  immediately  available  funds  against  physical  delivery of duly
executed  certificates  representing  the  Initial  Preferred Shares and Initial
Warrant being purchased by such Investor.  The date on which the Initial Closing
occurs  is  referred  to  herein  as  the  "Initial  Closing  Date".
                                            ----------------------

     1.2  Put  Option  Closing.  In the event that each Put Option Milestone (as
          --------------------
defined  below)  is  achieved  on  each Business Day occurring during the period
beginning  on (and including) the Approval Date (as defined below) and ending on
(and  including)  the  tenth  (10th) Business Day following the later of (a) the
Approval  Date  and  (b)  the  First  Registration  Deadline  as  defined in the
Registration  Rights Agreement (such tenth Business day, the "Put Option Closing
                                                              ------------------
Date"),  the  Company  shall  have  the right, upon the terms and subject to the
----
satisfaction  or  waiver  of  the  conditions  set forth herein, to require each
Satellite  Entity  (as defined below) to purchase for the Purchase Price, (i) up
to  such  Satellite  Entity's  pro  rata  share  (based on the number of Initial
Preferred  Shares  purchased  by each Satellite Entity) of a number of Preferred
Shares having an aggregate Stated Value equal to the Put Option Aggregate Stated
Value  (as defined below) (subject to adjustment for stock splits, dividends and
similar  events)  (each,  a  "Put Option Preferred Share" and, together with the
                              --------------------------
other  Preferred  Shares  issued  and  sold  at the Put Option Closing, the "Put
                                                                             ---
Option  Preferred  Shares"),  and  (ii)  a  Warrant (a "Put Option Warrant" and,
-------------------------                               ------------------
together  with the other Warrants issued and sold at the Put Option Closing, the
"Put  Option  Warrants").  In  order  to  exercise  such right, the Company must
 ---------------------
deliver  written  notice thereof to each Satellite Entity (a "Put Option Closing
                                                              ------------------
Notice") on or before the seventh (7th) Business Day following the Approval Date
------
(the  "Put  Option  Closing  Notice  Deadline").
       --------------------------------------

     The closing of the purchase and sale of the Put Option Preferred Shares and
the  Put Option Warrants (the "Put Option Closing") will occur at the offices of
                               ------------------
Duval & Stachenfeld, LLP, 300 East 42nd Street, New York, New York 10017, on the
Put  Option Closing Date, provided that each of the conditions to the Put Option
Closing described in Sections 5.3 and 5.4 hereof has been satisfied or waived by
                     ------------     ---
the  Company  or  each Satellite Entity, as appropriate.  The Put Option Closing
will  be  deemed to occur, subject to the terms and conditions set forth in this
Agreement,  when  (A)  each  of the Put Option Transaction Documents (as defined
below)  has  been  executed  and  delivered


                                        2
<PAGE>
by  the Company and, to the extent applicable, by each Satellite Entity, and (B)
each  Satellite  Entity  has  delivered  the Purchase Price payable by it to the
Company  by  wire  transfer  of  immediately  available  funds  against physical
delivery  of  duly  executed  certificates representing the Put Option Preferred
Shares  and Put Option Warrant being purchased by such Satellite Entity.  If the
Company  has  not  delivered  the  Put  Option  Closing Notice by the Put Option
Closing  Notice Deadline, or if the Put Option Closing has not occurred due to a
failure  by  the Company to reach the Put Option Milestones or satisfy the other
conditions  to  a Satellite Entity's obligation to purchase Put Option Preferred
Shares  and  a  Put  Option  Warrant,  the Company shall, within 5 business days
following  the  Put  Option  Closing  Notice  Deadline,  and without any further
payment or consideration owing to it, issue and deliver to each Satellite Entity
a warrant substantially in the form of the Warrants, exercisable into the number
of  shares  of  Common  Stock  that  would  have  been subject to the Put Option
Warrants  had  they  been  issued  (without  regard  to  any restriction on such
conversion),  with  an  exercise  price equal to $1.75 (subject to adjustment as
specified  therein).

     Each  of  the  Initial  Closing  and the Put Option Closing are hereinafter
referred  to  as  a  "Closing".  The Initial Preferred Shares and the Put Option
                      -------
Preferred  Shares are collectively referred to herein as the "Preferred Shares";
                                                              ----------------
the  Initial  Preferred Stock and the Put Option Preferred Stock is collectively
referred  to  herein  as the "Preferred Stock"; and the Initial Warrants and the
                              ---------------
Put Option Warrants are collectively referred to herein as the "Warrants".
                                                                --------

     1.3  Certain Definitions.  When used herein, the following terms shall have
          -------------------
the  respective  meanings  indicated:

                    "Affiliate"  means, as to any Person (the "subject Person"),
                     ---------                                 --------------
any  other  Person  (a)  that  directly  or  indirectly  through  one  or  more
intermediaries  controls  or  is  controlled  by, or is under direct or indirect
common  control  with,  the  subject  Person,  (b)  that  directly or indirectly
beneficially  owns  or  holds  ten  percent (10%) or more of any class of voting
equity  of  the  subject  Person, or (c) ten percent (10%) or more of the voting
equity  of  which  is  directly  or indirectly beneficially owned or held by the
subject  Person.  For  the purposes of this definition, "control" when used with
                                                         -------
respect  to  any Person means the power to direct the management and policies of
such  Person,  directly  or  indirectly, whether through the ownership of voting
securities,  through representation on such Person's board of directors or other
management  committee  or  group,  by  contract  or  otherwise.

                    "Approval Date" means the date on which Stockholder Approval
                     -------------
has  been  obtained.

                    "Board of Directors" means the Company's board of directors.
                     ------------------

                    "Business Day" means any day other than a Saturday, a Sunday
                     ------------
or a day on which the New York Stock Exchange or commercial banks located in New
York  City  are  authorized  or  permitted  by  law  to  close.

                    "Cap  Amount" means 19.99% of the number of shares of Common
                     -----------
Stock outstanding on the Closing Date (subject to adjustment upon a stock split,
stock  dividend  or  similar  event).


                                        3
<PAGE>
                    "Certificate  of  Designation"  has the meaning specified in
                     ----------------------------
the  preamble  to  this  Agreement.

                    "Closing  Date"  means  each of the Initial Closing Date and
                     -------------
the  Put  Option  Closing  Date.

                    "Commission" means the United States Securities and Exchange
                     ----------
Commission.

                    "Common  Stock"  means the common stock, par value $0.01 per
                     -------------
share,  of  the  Company.

                    "Conversion Price" means $1.55 (subject to adjustment as set
                     ----------------
forth  in  the  Certificate).

                    "Debt"  means,  as  to  any  Person  at  any  time:  (a) all
                     ----
indebtedness, liabilities and obligations of such Person for borrowed money; (b)
all indebtedness, liabilities and obligations of such Person to pay the deferred
purchase  price  of  Property or services, except trade accounts payable of such
Person  arising in the ordinary course of business that are not past due by more
than  60  days;  (c)  all  capital  lease  obligations  of  such Person; (d) all
indebtedness,  liabilities  and obligations of others guaranteed by such Person;
(e)  all indebtedness, liabilities and obligations secured by a Lien existing on
Property  owned  by such Person, whether or not the indebtedness, liabilities or
obligations secured thereby have been assumed by such Person or are non-recourse
to  such  Person;  (f)  all  reimbursement  obligations  of such Person (whether
contingent  or otherwise) in respect of letters of credit, bankers' acceptances,
surety  or  other  bonds  and  similar  instruments;  and  (g) all indebtedness,
liabilities and obligations of such Person to redeem or retire shares of capital
stock  of  such  Person.

                    "Environmental  Law"  means  any federal, state, provincial,
                     ------------------
local  or foreign law, statute, code or ordinance, principle of common law, rule
or  regulation,  as  well  as  any Permit, order, decree, judgment or injunction
issued,  promulgated,  approved  or entered thereunder, relating to pollution or
the  protection, cleanup or restoration of the environment or natural resources,
or  to  the public health or safety, or otherwise governing the generation, use,
handling,  collection,  treatment, storage, transportation, recovery, recycling,
discharge  or  disposal  of  hazardous  materials.

                    "ERISA" means the Employee Retirement Income Security Act of
                     -----
1974,  as amended, and the regulations and published interpretations thereunder.

                    "Exchange Act" means the Securities Exchange Act of 1934, as
                     ------------
amended  (or  any  successor  act),  and  the  rules and regulations thereunder.

                    "Excluded Security" means (i) the Securities; (ii) shares of
                     -----------------
Common  Stock  issuable  upon  conversion of the Series A Preferred Stock; (iii)
shares of Common Stock issuable or issued to employees, consultants or directors
from  time  to  time  upon  the  exercise  of  options,


                                        4
<PAGE>
in  such  case  granted  or  to  be  granted  in  the discretion of the Board of
Directors pursuant to one or more stock option plans or agreements or restricted
stock  plans  or  agreements  in  effect  as  of  the  Closing Date and up to an
additional  500,000  shares  of  Common  Stock  issuable or issued to employees,
directors,  consultants  or  lenders  from  time  to  time as shares or upon the
exercise  of  options or warrants, which may be granted in the discretion of the
Board  of  Directors  pursuant  to one or more agreements, stock option plans or
agreements  or  restricted stock plans or agreements approved by the independent
directors  of  the  Board  of  Directors  after the Closing Date; (iv) shares of
Common  Stock  issued  in  connection  with  any  stock split, stock dividend or
recapitalization  of  the  Company;  and  (v)  shares  of Common Stock issued in
connection  with  the  acquisition  by  the  Company of any corporation or other
entity  as  long  as  a  fairness  opinion  with  respect to such acquisition is
rendered  by  an  investment  bank  of  national  recognition.

                    "Execution  Date"  means  the  date  of  this  Agreement.
                     ---------------

                    "First  Registration Statement" has the meaning set forth in
                     -----------------------------
the  Registration  Rights  Agreement.

                    "Floor  Price"  means  $1.26,  subject  to adjustment in the
                     ------------
event  of  a  stock  split,  stock  dividend  or  similar  event.

                    "GAAP"  means  generally  accepted  accounting  principles,
                     ----
applied  on  a  consistent basis, as set forth in (i) opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants, (ii)
statements of the Financial Accounting Standards Board and (iii) interpretations
of  the  Commission  and the Staff of the Commission.  Accounting principles are
applied  on  a  "consistent  basis"  when the accounting principles applied in a
current  period  are  comparable  in  all  material respects to those accounting
principles  applied  in  a  preceding  period.

                    "Governmental Authority" means any nation or government, any
                     ----------------------
state,  provincial  or  political  subdivision thereof and any entity exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining  to  government,  including  without  limitation  any stock exchange,
securities  market  or  self-regulatory  organization.

                    "Governmental  Requirement"  means  any  law, statute, code,
                     -------------------------
ordinance,  order,  rule,  regulation,  judgment, decree, injunction, franchise,
license  or  other  directive  or  requirement  of  any  federal, state, county,
municipal, parish, provincial or other Governmental Authority or any department,
commission,  board,  court,  agency or any other instrumentality of any of them.

                    "Initial  Closing"  and  "Initial  Closing  Date"  have  the
                     ----------------         ----------------------
respective  meanings  specified  in  Section  1.1  hereof.
                                     ------------

                    "Initial  Effective  Date"  has the meaning set forth in the
                     ------------------------
Registration  Rights  Agreement.


                                        5
<PAGE>
                    "Initial  Transaction  Documents"  means (i) this Agreement,
                     -------------------------------
(ii) the Initial Warrants, (iii) the Registration Rights Agreement, and (iv) all
other  agreements,  documents and other instruments executed and delivered by or
on  behalf  of  the  Company  or  any  of  its  officers at the Initial Closing.

                    "Intellectual  Property"  means any U.S. or foreign patents,
                     ----------------------
patent  rights,  patent  applications,  trademarks,  trade names, service marks,
brand  names,  logos  and other trade designations (including unregistered names
and  marks),  trademark  and  service  mark  registrations  and  applications,
copyrights  and  copyright registrations and applications, inventions, invention
disclosures,  protected  formulae,  formulations,  processes,  methods,  trade
secrets,  computer  software,  computer programs and source codes, manufacturing
research  and  similar technical information, engineering know-how, customer and
supplier  information,  assembly  and  test  data  drawings  or  royalty rights.

                    "Investor" has the meaning specified in the preamble to this
                     --------
Agreement and shall be deemed to include any accounts over which an Investor has
investment  discretion.

                    "Key  Person" means each of Steven Solomon, Richard Connelly
                     -----------
and  Carl  Banzhof.

                    "Lien"  means, with respect to any Property, any mortgage or
                     ----
mortgages,  pledge,  hypothecation,  assignment,  deposit  arrangement, security
interest,  tax lien, financing statement, pledge, charge, or other lien, charge,
easement,  encumbrance,  preference,  priority  or  other  security agreement or
preferential  arrangement of any kind or nature whatsoever on or with respect to
such  Property  (including,  without  limitation,  any conditional sale or other
title  retention  agreement having substantially the same economic effect as any
of  the  foregoing).

                    "Material  Adverse  Effect" means an effect that is material
                     -------------------------
and  adverse to (i) the consolidated business, operations, properties, financial
condition,  prospects  or  results  of  operations  of  the  Company  and  its
Subsidiaries  taken  as  a  whole  or  (ii) the transactions contemplated by the
Certificate,  this  Agreement  or  the  other Transaction Documents or (iii) the
Company's  ability  to  perform  its  obligations  under  the  Certificate, this
Agreement  and  the  other  Transaction  Documents.

                    "Material Contracts" means, as to the Company, any agreement
                     ------------------
required  pursuant  to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, under the Securities Act to be filed as an exhibit to any report,
schedule, registration statement or definitive proxy statement filed or required
to  be  filed  by  the Company with the Commission under the Exchange Act or any
rule  or  regulation  promulgated  thereunder,  and  any  and  all  amendments,
modifications,  supplements, renewals or restatements thereof, including without
limitation  any  such  agreements  (and  amendments, modifications, supplements,
renewals  and  restatements  thereof)  existing  on the date hereof that will be
required  to  be  so  filed  as  an  exhibit  to  the  Registration  Statement.

                    "NASD" means the National Association of Securities Dealers,
                     ----
Inc.


                                        6
<PAGE>
                    "Outstanding Registrable Securities" means, at any time, all
                     ----------------------------------
Registrable  Securities  that  at such time are either issued and outstanding or
issuable  upon  conversion  of  the  Preferred Stock or exercise of the Warrants
(without  regard  to  any  limitation  on  such  conversion  or  exercise).

                    "Pari  Passu  Securities"  means  any  securities ranking by
                     -----------------------
their  terms  pari  passu  with  the  Preferred  Stock  in respect of payment of
dividends,  redemption  or  distribution  upon  liquidation.

                    "Pension Plan" means an employee benefit plan (as defined in
                     ------------
ERISA)  maintained  by  the  Company  for employees of the Company or any of its
Affiliates.

                    "Permitted  Debt"  means  the  following:
                     ---------------

                         (a)  Debt that is outstanding on the Execution Date and
disclosed  on  Schedule 3.5 hereto, and any replacement of such debt, consisting
               ------------
of  revolving working capital credit facilities obtained from commercial lending
institutions  on commercially reasonable terms and secured only by the Company's
and/or  its  Subsidiaries'  accounts  receivable  and/or  inventory;  provided,
however, that in no event shall outstanding Debt exceed Debt that outstanding on
the  Execution  Date  and  disclosed  on  Schedule  3.5  hereto;
                                          -------------

                         (b)  Debt  consisting  of capitalized lease obligations
and  purchase  money  indebtedness  incurred  in  connection with acquisition of
capital  assets  and  obligations  under  sale-leaseback or similar arrangements
provided  in  each  case  that  such obligations are not secured by Liens on any
assets  of  the Company or its Subsidiaries other than the assets so leased; and

                         (c)  Debt  assumed  or  incurred in connection with the
acquisition  by  the  Company or its Subsidiaries of all or substantially all of
the  capital  stock or other equity interests in, or all or substantially all of
the  assets  (constituting  a  business unit) of, any Person; provided, that the
total amount of Debt assumed or incurred in connection with any such acquisition
shall  not  exceed  the  product  of  four  (4) times the amount of the acquired
entity's  or business unit's total earnings before interest, taxes, depreciation
and  amortization  (as  determined  in accordance with GAAP) for the twelve (12)
full  calendar  months  immediately  prior  to  such  acquisition.

                    "Permitted  Liens"  means  the  following:
                     ----------------

                    (a)  encumbrances  consisting  of  easements, rights-of-way,
     zoning  restrictions  or  other restrictions on the use of real property or
     imperfections  to  title  that  do  not  (individually or in the aggregate)
     materially  impair the ability of the Company or any of its Subsidiaries to
     use  such  Property in its businesses, and none of which is violated in any
     material  respect  by  existing  or  proposed  structures  or  land  use;

                    (b)  Liens  for  taxes,  assessments  or  other governmental
     charges  that are not delinquent or which are being contested in good faith
     by  appropriate  proceedings,


                                        7
<PAGE>
     which  proceedings  have the effect of preventing the forfeiture or sale of
     the  Property  subject  to  such Liens, and for which adequate reserves (as
     determined  in  accordance  with  GAAP)  have  been  established;

                    (c)  Liens  of  mechanics,  materialmen,  warehousemen,
     carriers,  landlords  or other similar statutory Liens securing obligations
     that are not yet due and are incurred in the ordinary course of business or
     which  are  being contested in good faith by appropriate proceedings, which
     proceedings  have  the  effect  of preventing the forfeiture or sale of the
     Property  subject to such Liens, for which adequate reserves (as determined
     in  accordance  with  GAAP)  have  been  established;

                    (d)  any interest or title of a lessor under any capitalized
     lease  obligation provided that such Liens do not extend to any property or
     assets  which  is  not  leased  property  subject to such capitalized lease
     obligation;

                    (e)  purchase  money  Liens to finance property or assets of
     the  Company  or  any  Subsidiary  of  the Company acquired in the ordinary
     course  of business; provided, however, that (A) the related purchase money
     Debt  shall  not  exceed the cost of such property or assets (including the
     cost  of  design,  development,  improvement,  production,  acquisition,
     construction, installation and integration) and shall not be secured by any
     property  or  assets  of the Company or any Subsidiary of the Company other
     than  the  property  and  assets  so  acquired  or  constructed  (and  any
     improvements)  and  (B) the Lien securing such purchase money Debt shall be
     created  within  ten  (10)  days  of  such  acquisition,  construction  or
     improvement;

                    (f)  Liens  upon  specific items of inventory or other goods
     and proceeds of any Person securing such Person's obligations in respect of
     bankers'  acceptances  issued  or created for the account of such Person to
     facilitate  the  purchase,  shipment  or storage of such inventory or other
     goods;

                    (g)  Liens  encumbering  deposits made to secure obligations
     arising  from  statutory, regulatory, contractual, or warranty requirements
     of  the  Company or any of its subsidiaries, including rights of offset and
     set  off;  and

                    (h)  Liens  existing  on the Execution Date and disclosed on
     Schedule  3.5  hereto.
     -------------

                    "Person"  means  any  individual,  corporation,  trust,
                     ------
association,  company,  partnership,  joint  venture, limited liability company,
joint  stock  company,  Governmental  Authority  or  other  entity.

                    "Preferred  Stock  Termination Date" means the first date on
                     ----------------------------------
which  there  are  no  Preferred  Shares  outstanding.

                    "Principal Market" means the principal exchange or market on
                     ----------------
which  the  Common  Stock  is  listed  or  traded.


                                        8
<PAGE>
                    "Property"  means  property  and/or  assets  of  all  kinds,
                     --------
whether  real,  personal  or  mixed,  tangible or intangible (including, without
limitation,  all  rights  relating  thereto).

                    "Pro  Rata  Share"  means,  with respect to an Investor, the
                     ----------------
ratio  determined  by  dividing  (i)  the  number  of Preferred Shares purchased
hereunder  by  such  Investor  by  (ii) the aggregate number of Preferred Shares
purchased  hereunder  by  all  of  the  Investors.

                    "Purchase Price" means, with respect to the Preferred Shares
                     --------------
and  Warrant being purchase by an Investor at a Closing, the Stated Value of the
Preferred  Shares  being  purchased  by  such  Investor  at  such  Closing.

                    "Put  Option Aggregate Stated Value" means $11,000,000 minus
                     ----------------------------------                    -----
the  Stated  Value  of  the  Initial  Preferred  Shares.

                    "Put  Option  Milestones"  means  each  of  the  following:
                     -----------------------

                    (a)  the  Company  has  obtained  Stockholder  Approval;

                    (b)  the  First  Registration  Statement  has  been declared
effective and is available to the Investors for resales of Conversion Shares and
Warrant  Shares;  and

                    (c)  the  Closing  Bid Price (as defined in the Certificate)
is  not less than $1.30 (subject to adjustment for stock splits, stock dividends
and  similar  events).

                    "Put  Option Closing" and "Put Option Closing Date" have the
                     -------------------       -----------------------
respective  meanings  specified  in  Section  1.2  hereof.
                                     ------------

                    "Put  Option Transaction Documents" means (i) the Put Option
                     ---------------------------------
Warrants,  and  (ii)  all  other  agreements,  documents  and  other instruments
executed  and delivered by or on behalf of the Company or any of its officers at
the  Put  Option  Closing.

                    "Registrable Securities" means the Conversion Shares and the
                     ----------------------
Warrant  Shares, any other shares of Common Stock issuable pursuant to the terms
of  the  Certificate  of  Designation or the Warrants, and any shares of capital
stock issued or issuable from time to time (with any adjustments) in replacement
of,  in  exchange  for  or  otherwise in respect of the Conversion Shares or the
Warrant  Shares;  provided,  however,  that  "Registrable  Securities" shall not
include  any  such  shares  that  have  been  sold to the public pursuant to the
Registration  Statement  or  Rule  144.

                    "Rule  144"  means Rule 144 under the Securities Act, or any
                     ---------
successor  provision.

                    "Satellite  Entity"  means  an  Investor  whose  assets  are
                     -----------------
managed  by  Satellite  Asset  Management L.P. or one of more of its Affiliates.


                                        9
<PAGE>
                    "SEC  Documents"  has  the  meaning specified in Section 3.4
                     --------------                                  -----------
hereof.

                    "Second  Effective  Date"  has  the meaning set forth in the
                     -----------------------
Registration  Rights  Agreement.

                    "Second Registration Statement" has the meaning set forth in
                     -----------------------------
the  Registration  Rights  Agreement.

                    "Securities"  has  the  meaning specified in the preamble to
                     ----------
this Agreement.

                    "Senior  Securities" means (i) any Debt issued or assumed by
                     ------------------
the  Company  and (ii) any securities of the Company which by their terms have a
preference  over  the  Preferred  Stock  in  respect  of  payment  of dividends,
redemption  or  distribution  upon  liquidation.

                    "Series  A  Preferred  Stock"  means the Company's currently
                     ---------------------------
     outstanding Series A 5% Convertible Preferred Stock.

                    "Stated  Value"  means  $1,000,  subject  to  proportionate
                     -------------
     adjustment in the event of a stock split or similar event.

                    "Stockholder  Approval"  means  the  affirmative  vote  of a
                     ---------------------
majority  (or  such  other  number  as  may  be  required  by  any  Governmental
Requirement)  of  the  holders  of  such number of votes cast at a duly convened
meeting  (or  pursuant  to  a  written  consent)  of  the Company's stockholders
approving  (i)  the issuance of Conversion Shares or Warrant Shares in excess of
the  Cap  Amount as may be required under the applicable listing requirements of
the Nasdaq Stock Market, (ii) the issuance of shares of Common Stock pursuant to
the Series A Preferred Stock and the related warrants in excess of 19.99% of the
number  of  shares of Common Stock outstanding on the date on which the Series A
Preferred  Stock  and  the  related  warrants  were  first  issued  (subject  to
adjustment  upon  a  stock  split,  stock  dividend  or similar event) as may be
required  under  the applicable listing requirements of the Nasdaq Stock Market,
(iii) the authorization of at least 50,000,000 additional shares of Common Stock
for  issuance  and  (iv)  an amendment to the Certificate of Designation for the
Series  A Preferred Stock  for the sole purpose of reducing the conversion price
of  the  Series  A  Preferred  Stock to $3.00 (subject to adjustment as provided
therein).

                    "Subsequent Issuance" means the issuance, sale, exchange, or
                     -------------------
agreement  or  obligation to issue, sell or exchange or reserve, or agreement to
or set aside for issuance, sale or exchange, (1) shares of Common Stock, (2) any
other  equity  security  of  the  Company  or any of its Subsidiaries, including
without  limitation  shares  of  preferred  stock, (3) any other security of the
Company  or  any  of  its Subsidiaries which by its terms is convertible into or
exchangeable or exercisable for any equity security of the Company or any of its
Subsidiaries,  or  (4)  any  option,  warrant  or  other right to subscribe for,
purchase  or  otherwise  acquire  any  such  security described in the foregoing
clauses  (1)  through  (3);  provided,  however,  that  the issuance or sale, or
agreement  to  issue  or  sell,  an  Excluded  Security  shall  not constitute a
Subsequent  Issuance.


                                       10
<PAGE>
                    "Subsidiary"  means,  with  respect  to  the  Company,  any
                     ----------
corporation  or other entity (other than an entity having no material operations
or  business  during the twelve month period immediately preceding the Execution
Date)  of  which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority  of the board of directors (or Persons performing similar functions) of
such corporation or entity (regardless of whether, in the case of a corporation,
stock  of  any  other  class  or classes of such corporation shall or might have
voting  power  by  reason  of  the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by the Company and/or one or more of
its  Affiliates.

                    "Termination  Date"  means the first date on which there are
                     -----------------
     no Preferred Shares or Warrants outstanding.

                    "Trading  Day"  means  any  day on which the Common Stock is
                     ------------
purchased  and  sold  on  the  Principal  Market.

                    "Transaction  Documents"  means  the  Initial  Transaction
                     ----------------------
     Documents and the Put Option Transaction Documents.

     1.4  Other  Definitional  Provisions.  All  definitions  contained  in this
          -------------------------------
Agreement  are  equally applicable to the singular and plural forms of the terms
defined.  The  words  "hereof",  "herein"  and  "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any  particular  provision  of  this  Agreement.

2.   REPRESENTATIONS  AND  WARRANTIES  OF  EACH  INVESTOR.
     ----------------------------------------------------

     Each  Investor (with respect to itself only) hereby represents and warrants
to the Company and agrees with the Company that, as of the Execution Date:

     2.1  Authorization;  Enforceability.  Such  Investor  is  duly  and validly
          ------------------------------
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction  of  its incorporation or organization with the requisite corporate
power and authority to purchase the Preferred Shares and Warrant being purchased
by  it  hereunder  and  to  execute  and  deliver  this  Agreement and the other
Transaction  Documents  to  which it is a party. This Agreement constitutes, and
upon  execution  and  delivery thereof, each other Transaction Document to which
such  Investor  is  a  party  will constitute, such Investor's valid and legally
binding  obligation,  enforceable  in  accordance with its terms, subject to (i)
applicable  bankruptcy,  insolvency,  fraudulent  transfer,  reorganization,
moratorium or other similar laws of general application relating to or affecting
the  enforcement  of  creditors' rights generally and (ii) general principles of
equity.

     2.2  Accredited  Investor.  Such  Investor  is  an "accredited investor" as
          --------------------
that  term  is  defined  in  Rule  501  of  Regulation  D; (ii) is acquiring the
Preferred Shares and Warrants solely for its own account, and not with a present
view  to  the  public  resale or distribution of all or any part thereof, except
pursuant to sales that are registered under, or are exempt from the registration
requirements  of,  the  Securities  Act; provided, however, that, in making such
representation,  such  Investor  does  not  agree to hold the Securities for any
minimum  or  specific term and reserves the right to sell, transfer or otherwise
dispose  of  the  Securities  at  any  time  in  accordance  with  the


                                       11
<PAGE>
provisions  of  this  Agreement  and  with  Federal  and  state  securities laws
applicable  to  such  sale,  transfer  or  disposition.

     2.3  Information.  The  Company  has, prior to the Execution Date, provided
          -----------
such  Investor with information regarding the business, operations and financial
condition  of the Company, and has, prior to the Execution Date, granted to such
Investor  the  opportunity  to ask questions of and receive satisfactory answers
from  representatives  of  the  Company,  its officers, directors, employees and
agents concerning the Company and materials relating to the terms and conditions
of  the  purchase  and  sale of the Preferred Shares and Warrants hereunder, and
based  thereon  believes  it  can  make an informed decision with respect to its
investment  in  the  Securities.  Neither  such  information  nor  any  other
investigation  conducted  by  such Investor or its representatives shall modify,
amend  or  otherwise  affect  such  Investor's  right  to  rely on the Company's
representations  and  warranties  contained  in  this  Agreement.

     2.4  Limitations  on  Disposition.  Such Investor acknowledges that, except
          ----------------------------
as  provided  in the Registration Rights Agreement, the Securities have not been
and are not being registered under the Securities Act and may not be transferred
or resold without registration under the Securities Act or unless pursuant to an
exemption  therefrom.

     2.5  Legend.  Such  Investor understands that the certificates representing
          ------
the  Securities  may  bear at issuance a restrictive legend in substantially the
following  form:

          "The  securities  represented  by  this  certificate  have  not  been
          registered  under  the  Securities  Act  of  1933,  as  amended  (the
          "Securities Act"), or the securities laws of any state, and may not be
          offered  or  sold unless a registration statement under the Securities
          Act  and  applicable state securities laws shall have become effective
          with  regard  thereto,  or  an  exemption  from registration under the
          Securities  Act  and  applicable state securities laws is available in
          connection  with such offer or sale. Notwithstanding the foregoing but
          subject  to compliance with the requirements of the Securities Act and
          applicable  state securities laws, these securities and the securities
          issuable  upon  exercise  hereof (i) may be pledged or hypothecated in
          connection  with  a  bona fide margin account or other loan secured by
          such  securities  and  (ii)  may  be  transferred  or  assigned  to an
          affiliate  of  the  holder  hereof."

          Notwithstanding  the  foregoing, it is agreed that, as long as (A) the
resale  or  transfer  (including  without  limitation  a  pledge)  of any of the
Securities is registered pursuant to an effective registration statement and the
holder  represents  in  writing to the Company that such Securities have been or
will  be sold pursuant to such registration statement and in compliance with the
prospectus  delivery  requirements under the Securities Act, (B) such Securities
have  been  sold  pursuant  to  Rule  144,  subject to receipt by the Company of
customary  documentation  in  connection  therewith,  or (C) such Securities are
eligible  for resale under Rule 144(k) or any successor provision and the holder
thereof  represents  in  writing  to the Company that it is eligible to use such
rule  for  public resales of such Securities, the certificates representing such
Securities shall be issued without any legend or other restrictive language and,
with  respect to Securities upon which such legend is stamped, the Company shall
issue  new  certificates  without  such  legend  to  the  holder  upon  request.


                                       12
<PAGE>
     2.6  Reliance on Exemptions.  Such Investor understands that the Securities
          ----------------------
are  being  offered and sold to it in reliance upon specific exemptions from the
registration  requirements  of  federal  and  state securities laws and that the
Company  is  relying  upon  the  truth  and  accuracy of the representations and
warranties  of  such  Investor set forth in this Section 2 in order to determine
                                                 ---------
the  availability  of  such  exemptions  and the eligibility of such Investor to
acquire  the  Securities.

     2.7  Non-Affiliate Status; Common Stock Ownership.  Such Investor is not an
          --------------------------------------------
Affiliate  of  the  Company  or  of  any  other  Investor  and  is not acting in
association  or  concert  with  any  other Person with regard to its purchase of
Preferred  Shares  and  Warrants  or  otherwise in respect of the Company.  Such
Investor's  investment  in  the  Securities is not for the purpose of acquiring,
directly  or indirectly, control of, and it has no intent to acquire or exercise
control  of,  the Company or to influence the decisions or policies of the Board
of  Directors.

     2.8  General  Solicitation.  Such  Investor is not purchasing the Preferred
          ---------------------
Shares  and  Warrants as a result of any advertisement, article, notice or other
communication  regarding  the  Preferred  Shares  and  Warrants published in any
newspaper,  magazine  or  similar media or broadcast over television or radio or
presented  at  any  seminar.

     2.9  Independent  Investment  Decision.  Such  Investor  has  independently
          ---------------------------------
evaluated  the  merits  of  its  decision  to  purchase the Preferred Shares and
Warrants  pursuant  to this Agreement, such decision has been independently made
by  such Investor and such Investor confirms that it has relied on the advice of
its  own  business  and/or  legal  counsel  and  not  on the advice of any other
Investor's  business  and/or  legal  counsel, or the Company's legal counsel, in
making  such  decision.

     2.10 Fees.  Such Investor is not obligated to pay any compensation or other
          ----
fee,  cost  or  related  expenditure  to any underwriter, broker, agent or other
representative  in  connection  with  the  transactions  contemplated  hereby.


3.   REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.     The  Company hereby
     ---------------------------------------------------
represents  and  warrants to each Investor as of the Execution Date (except that
to  the extent that any representation or warranty relates to a particular date,
the  Company  hereby makes such representation or warranty as of that particular
date),  and  agrees  with  such  Investor, as follows and acknowledges that such
Investor  is relying on the representations, acknowledgments and agreements made
by  the  Company  in  this  Article  3 and elsewhere in this Agreement in making
investing,  trading  and  other  decisions  concerning the Company's securities:

     3.1  Organization,  Good  Standing  and Qualification.  Each of the Company
          ------------------------------------------------
and  each  of  its  Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and  has  all  requisite  power  and  authority  to carry on its business as now
conducted, except as described on Schedule 3.1.  Each of the Company and each of
                                  ------------
its  Subsidiaries is duly qualified to transact business and is in good standing
in  each  jurisdiction  in  which  it  conducts  business except as described on
Schedule  3.1  or  where  the  failure  so  to  qualify has not had or would not
-------------
reasonably  be  expected  to  have  a  Material  Adverse  Effect.


                                       13
<PAGE>
     3.2  Authorization;  Consents.  The  Company  has  the  requisite corporate
          ------------------------
power and authority to adopt and file the Certificate of Designation and perform
its obligations thereunder, to enter into and perform its obligations under this
Agreement  and the other Transaction Documents, including without limitation its
obligations to issue and sell the Preferred Shares and Warrants to such Investor
in  accordance with the terms thereof and to issue Conversion Shares and Warrant
Shares  upon  conversion of the Preferred Shares or exercise of the Warrants, as
the  case  may  be.  All  corporate  action  on  the  part of the Company by its
officers,  directors and stockholders necessary for the authorization, execution
and  delivery  of,  and the performance by the Company of its obligations under,
the  Certificate  of  Designation,  this  Agreement  and  the  other Transaction
Documents  has  been taken, and, except as described on Schedule 3.2, no further
                                                        ------------
consent  or  authorization of the Company, its Board of Directors, stockholders,
any  Governmental  Authority or organization (other than such approval as may be
required  under  the  Securities  Act  and  applicable  state securities laws in
respect  of the Registration Rights Agreement), or any other person or entity is
required (pursuant to any rule of the Nasdaq SmallCap Market or otherwise).  The
Board  of  Directors has determined, at a duly convened meeting or pursuant to a
unanimous written consent, that the issuance and sale of the Securities, and the
consummation of the transactions contemplated by the Certificate of Designation,
this Agreement and the other Transaction Documents (including without limitation
the  issuance  of the Conversion Shares and the Warrant Shares), are in the best
interests  of  the  Company.

     3.3  Due  Execution;  Enforceability.  This  Agreement  has been and, at or
          -------------------------------
prior to each Closing, each other Transaction Document executed and/or delivered
thereat  will  be, duly executed and delivered by the Company.  Each Transaction
Document constitutes (or as of the Closing at which such Transaction Document is
delivered,  will  constitute)  the  valid  and legally binding obligation of the
Company,  enforceable  against  it  in accordance with its terms, subject to (i)
applicable  bankruptcy,  insolvency,  fraudulent  transfer,  moratorium,
reorganization  or  other  similar  laws  of  general application relating to or
affecting  the  enforcement  of  creditors'  rights  generally  and (ii) general
principles  of  equity.

     3.4  SEC  Documents;  Agreements;  Financial Statements; Other Information.
          ---------------------------------------------------------------------

          3.4.1     The  Company is subject to the reporting requirements of the
Exchange  Act  and  has  filed  with  the  Commission  all  reports,  schedules,
registration  statements  and  definitive  proxy statements that the Company was
required  to  file  with  the  Commission  on  or  after  December  31,  2003
(collectively,  the  "SEC  Documents").  Other  than  the  transactions effected
                      --------------
hereby,  the Company is not aware of any event occurring or expected to occur on
or  prior  to the Closing Date that would require the filing of, or with respect
to  which  the  Company  intends to file, a Current Report on Form 8-K after the
Closing.  Each  SEC  Document,  as  of  the  date of the filing thereof with the
Commission,  complied  in  all  material  respects  with the requirements of the
Securities  Act  or  Exchange  Act, as applicable, and the rules and regulations
promulgated  thereunder  and,  as  of  the date of such filing (or if amended or
superseded  by  a  filing  prior to the Execution Date, then on the date of such
amending or superseding filing).  All documents required to be filed as exhibits
to  the  SEC  Documents  have  been  filed  as  required.

          3.4.2     No  SEC  Document  (including  all  exhibits  and  schedules
thereto  and  documents  incorporated by reference therein) filed by the Company
contained  an  untrue  statement


                                       14
<PAGE>
of  material  fact  or  omitted  to  state a 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.

          3.4.3     The financial statements attached as Schedule 3.4 hereto (x)
                                                         ------------
have been prepared in accordance with GAAP consistently applied at the times and
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  (y)  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 adjustments).  Except as disclosed on
Schedule  3.4  hereto,  the Company has no liabilities, contingent or otherwise,
-------------
other  than liabilities incurred in the ordinary course of business which, under
GAAP, are not required to be reflected in the Company's financial statements and
which,  individually  or  in the aggregate, are not material to the consolidated
business  or  financial condition of the Company and its Subsidiaries taken as a
whole.

     3.5  Capitalization;  Debt  Schedule.  The capitalization of the Company as
          -------------------------------
of the date hereof, including its authorized capital stock, the number of shares
issued  and outstanding, the number of shares issuable and reserved for issuance
pursuant  to  the  Company's  stock  option  plans and agreements, the number of
shares issuable and reserved for issuance pursuant to securities (other than the
Preferred  Shares  and  Warrants)  exercisable  for,  or  convertible  into  or
exchangeable  for  any shares of Common Stock and the number of shares initially
to  be  reserved  for  issuance  upon  conversion  of  the Preferred Shares  and
exercise  of the  Warrants is set forth on Schedule 3.5 hereto.  All outstanding
                                           ------------
shares  of capital stock of the Company have been validly issued, fully paid and
nonassessable  and,  except  as  set forth on Schedule 3.5 hereto, all shares of
                                              ------------
capital  stock  and other ownership interests issued by any Subsidiary have been
validly  issued, fully paid and nonassessable, free and clear of all Liens other
than  Permitted  Liens.  All  outstanding shares of capital stock of the Company
were  issued,  sold and delivered in full compliance with all applicable Federal
and  state  securities  laws.  No shares of the capital stock of the Company are
subject  to preemptive rights or any other similar rights of security holders of
the Company or any Liens created by or through the Company.  Except as set forth
on  Schedule  3.5,  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 or exercisable or exchangeable for, any
shares  of capital stock of the Company, or arrangements by which the Company is
or  may  become  bound  to  issue  additional  shares of capital stock (or other
ownership interests) of the Company or any of its Subsidiaries (whether pursuant
to  anti-dilution, "reset" or other similar provisions).  Except as disclosed on
Schedule  3.5 hereto, the Company or a Subsidiary of the Company owns all of the
-------------
capital  stock  of  each  Subsidiary  of  the  Company.  Except  as described on
Schedule  3.5  hereto,  neither  the Company nor any of its Subsidiaries has any
-------------
material  Debt  outstanding  as  of  the  date  hereof.

     3.6  Due  Authorization; Valid Issuance.  The shares of Preferred Stock are
          ----------------------------------
duly  authorized  and,  when  issued,  sold and delivered in accordance with the
terms  hereof,  (i) will be duly and validly issued, free and clear of any Liens
imposed by or through the Company, (ii) assuming the accuracy of each Investor's
representations  in  this  Agreement,  will  be  issued,  sold  and delivered in
compliance  with all applicable Federal and state securities laws and (iii) will
be  entitled  to  all  rights,  preferences  and  privileges  described  in  the
Certificate  of  Designation.  The  Warrants,  the


                                       15
<PAGE>
Conversion  Shares  and the Warrant Shares are duly authorized and, when issued,
sold  and  delivered  in  accordance  with  the  terms  of  this  Agreement, the
Certificate  or  the  Warrants,  as  the  case  may be, will be duly and validly
issued,  fully paid and nonassessable, free and clear of any Liens imposed by or
through  the  Company  and,  assuming  the  accuracy  of  each  Investor's
representations  in  this  Agreement,  will  be  issued,  sold  and delivered in
compliance  with  all  applicable  Federal  and  state  securities  laws.

     3.7  No  Conflict.  Neither  the  Company nor any of its Subsidiaries is in
          ------------
violation  of  any provisions of its Certificate of Incorporation, Bylaws or any
other governing document.  Neither the Company nor any of its Subsidiaries is in
violation  of  or  in  default  (and no event has occurred which, with notice or
lapse  of  time  or both, would constitute a default) under any provision of any
instrument  or  contract  to  which  it  is a party or by which it or any of its
Property  is  bound,  or  in  violation  of  any  provision  of any Governmental
Requirement applicable to the Company or any of its Subsidiaries, except for any
violation  or  default  that  has not had or would not reasonably be expected to
have  a Material Adverse Effect.  The (i) execution, delivery and performance of
this  Agreement  and  the  other  Transaction  Documents,  (ii)  filing  of  and
performance  of  its  obligations under the Certificate of Designation and (iii)
consummation  of  the  transactions  contemplated  hereby and thereby (including
without limitation, the issuance of the Preferred Stock and the Warrants and the
reservation  for  issuance and issuance of the Conversion Shares and the Warrant
Shares)  will  not result in any violation of any provisions of the Company's or
any  of  its  Subsidiary's  Certificate  of  Incorporation,  Bylaws or any other
governing  document  or  in  a  default under any provision of any instrument or
contract  to which it is a party or by which it or any of its Property is bound,
or  in  violation of any provision of any Governmental Requirement applicable to
the  Company  or  any  of its Subsidiaries or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a default under
any  such  provision,  instrument  or  contract or an event which results in the
creation  of  any  Lien  upon  any  assets  of  the  Company  or  of  any of its
Subsidiaries  or,  except  as  described  on Schedule 3.7, the triggering of any
                                             ------------
preemptive or anti-dilution rights (including without limitation pursuant to any
"reset" or similar provisions) or rights of first refusal or first offer, or any
other  rights that would allow or permit the holders of the Company's securities
or  other  Persons to purchase shares of Common Stock or other securities of the
Company  (whether pursuant to a shareholder rights plan provision or otherwise).
The  Company and its board of directors have taken all necessary action, if any,
in  order  to  render  inapplicable  any  control  share  acquisition,  business
combination,  poison  pill (including any distribution under a rights agreement)
or  other  similar anti-takeover provision under its organizational documents or
the  laws  of  the  jurisdiction  of  its  organization which is or could become
applicable to the Investors as a result of the transactions contemplated by this
Agreement,  including,  without  limitation,  the  Company's  issuance  of  the
Securities  or  any other securities pursuant to the terms of this Agreement and
any  and  all  of  the  Investors' ownership of the Securities or any such other
securities.

     3.8  Financial  Condition;  Taxes;  Litigation.
          -----------------------------------------

          3.8.1     Except  as  otherwise described on Schedule 3.8.1, since the
                                                       --------------
date  of  the  most  recent  audited  balance  sheet  included  in the financial
statements attached as a Schedule 3.4 hereto, there has occurred no (i) material
                         ------------
adverse  change  to  the  Company's  business, operations, properties, financial
condition,  or  results  of  operations  or  (ii)  change  by the Company in its
accounting  principles,  policies  and  methods except as required by changes in
GAAP  or  applicable  law.


                                       16
<PAGE>
          3.8.2     Except as otherwise described on Schedule 3.8.2, the Company
                                                     --------------
and each of its Subsidiaries (i) have prepared in good faith and duly and timely
filed  all  tax returns required to be filed by it and such returns are complete
and  accurate  in all material respects and (ii) have paid all taxes required to
have  been  paid  by  it,  except for taxes which it reasonably disputes in good
faith  or  the  failure  of  which to pay has not had or would not reasonably be
expected  to have a Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries  has  any  liability with respect to accrued taxes in excess of the
amounts  that  are  described as accrued in the most recent financial statements
attached  as  Schedule  3.4  hereto.
              -------------

          3.8.3     Except  as  described on Schedule 3.8.3, neither the Company
                                             --------------
nor  any  of its Subsidiaries is the subject of any pending or, to the Company's
knowledge,  threatened  inquiry,  investigation  or  administrative  or  legal
proceeding  by the Internal Revenue Service, the taxing authorities of any state
or local jurisdiction, the Commission, the NASD, any state securities commission
or  other  Governmental  Authority.

          3.8.4     Except  as described on Schedule 3.8.4, there is no material
                                            --------------
claim,  litigation  or  administrative  proceeding  pending or, to the Company's
knowledge,  threatened  or  contemplated,  against  the  Company  or  any of its
Subsidiaries,  or,  to the Company's knowledge, against any officer, director or
employee  of the Company or any such Subsidiary in connection with such person's
employment  therewith.  Neither  the  Company  nor  any of its Subsidiaries is a
party  to or subject to the provisions of, any order, writ, injunction, judgment
or  decree  of  any  court  or  Governmental  Authority  which  has had or would
reasonably  be  expected  to  have  a  Material  Adverse  Effect.

     3.9  Registration  Statement.  The  Company  is  eligible  to  register the
          -----------------------
Conversion  Shares and Warrant Shares for resale in a secondary offering by each
Investor  on  a  registration statement on Form S-3 under the Securities Act. To
the Company's knowledge, as of the date hereof and as of the Closing Date, there
exist  no  facts  or  circumstances  (including  without limitation any required
approvals  or  waivers  of  any  circumstances  that  may  delay  or prevent the
obtaining  of  accountant's  consents)  that  could  reasonably  be  expected to
prohibit  or delay the preparation, filing or effectiveness of such registration
statement.

     3.10 Acknowledgement  of  Dilution.  The  Company  acknowledges  that  the
          -----------------------------
issuance  of  the  Conversion Shares upon conversion of the Preferred Shares and
issuance  of Warrant Shares upon exercise of the Warrants may result in dilution
of  the  outstanding  shares  of Common Stock, which dilution may be substantial
under  certain  market  conditions.  The  Company  further acknowledges that its
obligation  to issue Conversion Shares and Warrant Shares in accordance with the
terms  of  the  Certificate  of  Designation  and  Warrants,  respectively,  is
unconditional regardless of the effect of any such dilution. The Company further
acknowledges  that  each Investor may enter into short sales and engage in other
hedging  activity  with  respect to the Preferred Shares, the Conversion Shares,
the  Warrants and the Warrant Shares and, assuming such activity complies in all
material  respects with applicable Governmental Requirements, the Company hereby
waives  any claim against any Investor alleging that such activity constitutes a
breach  of  such  Investor's  contractual,  legal  or  other  obligations.


                                       17
<PAGE>
     3.11 Intellectual Property.  Except as set forth in Schedule 3.11:
          ---------------------                          -------------

          (a)  Except  for  Permitted Liens, the Company and/or its Subsidiaries
own,  free and clear of claims or rights of any other Person, with full right to
use,  sell,  license, sublicense, dispose of, and bring actions for infringement
of,  or  has acquired licenses or other rights to use, all Intellectual Property
necessary  for  the  conduct  of its business as presently conducted (other than
with  respect  to  "off-the-shelf"  software  which  is  generally  commercially
available  and open source software which may be subject to one or more "general
public"  licenses).  All  works that are used or incorporated into the Company's
or  its  Subsidiaries' services, products or services or products actively under
development  and  which  is  proprietary  to the Company or its Subsidiaries was
developed  by  or  for  the Company or its Subsidiaries by the current or former
employees,  consultants  or  independent  contractors  of  the  Company  or  its
Subsidiaries  or  purchased  by the Company or its Subsidiaries and are owned by
the  Company  or  its  Subsidiaries,  free and clear of claims and rights of any
other  Person,  other  than  Permitted  Liens.

          (b)  The  business  of  the  Company and its Subsidiaries as presently
conducted  and  the  production,  marketing, licensing, use and servicing of any
products  or  services  of  the  Company  and  its  Subsidiaries  do not, to the
Company's knowledge, infringe or conflict with any patent, trademark, copyright,
or  trade  secret rights of any third parties or any other Intellectual Property
of  any  third  parties.  Neither  the  Company  nor any of its Subsidiaries has
received  written  notice  from  any third party asserting that any Intellectual
Property  owned  or  licensed  by  the Company or its Subsidiaries, or which the
Company  or  its  Subsidiaries  otherwise  has  the  right to use, is invalid or
unenforceable  by  the  Company or its Subsidiaries, as the case may be, and, to
the  Company's knowledge, there is no valid basis for any such claim (whether or
not  pending  or  threatened).

          (c)  No  claim  is  pending or, to the Company's knowledge, threatened
against the Company or any of its Subsidiaries nor has the Company or any of its
Subsidiaries  received any written notice or other written claim from any Person
asserting that any of the Company's or its Subsidiaries' present or contemplated
activities  infringe  or  may  infringe in any material respect any Intellectual
Property of such Person, and the Company is not aware of any infringement by any
other  Person  of  any material rights of the Company or any of its Subsidiaries
under  any  Intellectual  Property  Rights.

          (d)  All  unexpired  and  in  force licenses or other agreements under
which  the  Company  or any of its Subsidiaries is granted Intellectual Property
(excluding licenses to use "off-the-shelf" software utilized in the Company's or
its  Subsidiaries'  internal  operations  and  which  is  generally commercially
available)  are  listed in Schedule 3.11.  All such licenses or other agreements
                           -------------
are  in  full  force  and  effect  and,  to the Company's knowledge, there is no
material  default  by  any  party thereto.  The Company has no reason to believe
that  the licensors under such licenses and other agreements do not have and did
not  have  all  requisite  power  and  authority  to  grant  the  rights  to the
Intellectual  Property  purported  to  be  granted  thereby.

          (e)  All  unexpired  licenses  or  other  agreements  under  which the
Company  or  any of its Subsidiaries has granted rights to Intellectual Property
to  others  (including  all  end-user  agreements) are in full force and effect,
there  has  been  no  material  default  by  the  Company  or  its


                                       18
<PAGE>
Subsidiaries  thereunder  and,  to the Company's knowledge, there is no material
default  by  any  other  party  thereto.

          (f)  Each  of  the  Company  and its Subsidiaries have taken all steps
required  in  accordance  with  commercially  reasonable  business  practice  to
establish  and  preserve  its  respective  ownership  in  its owned Intellectual
Property  and  to keep confidential all material technical information developed
by  or  belonging to the Company or its Subsidiaries which has not been patented
or  copyrighted.  To the Company's knowledge, neither the Company nor any of its
Subsidiaries  is  making  unlawful use of any Intellectual Property of any other
Person,  including,  without  limitation,  any  former  employer  of any past or
present  employees  of  the  Company  or  any  of its Subsidiaries.  Neither the
Company  nor  any  of  its Subsidiaries, nor, to the Company's knowledge, any of
their  respective  employees  or consultants, has any agreements or arrangements
with  former  employers  of  such  employees  or  consultants  relating  to  any
Intellectual  Property of such employers, which materially interfere or conflict
with  the  performance of such employee's or consultant's duties for the Company
or  its  Subsidiaries  or  result  in any former employers of such employees and
consultants  having  any  rights  in,  or  claims  on,  the  Company's  or  its
Subsidiaries' Intellectual Property.  To the Company's knowledge, the activities
of  the Company's and its Subsidiaries' employees and consultants do not violate
any  agreements  or  arrangements  which  any  such  employees  have with former
employers.  Each  current  employee, independent contractor or consultant of the
Company  and its Subsidiaries has executed agreements regarding confidentiality,
proprietary  information  and  assignment  of  inventions  and copyrights to the
Company  or  its  Subsidiaries (as the case may be), and neither the Company nor
any  of  its  Subsidiaries  has  received  written  notice  that  any  employee,
consultant  or  independent  contractor  is  in violation of any agreement or in
breach of any agreement or arrangement with former or present employers relating
to proprietary information or assignment of inventions.  Each employee listed in
Schedule  3.11  has  executed a non-competition agreement.  Without limiting the
--------------
foregoing:  (i)  the  Company and each of its Subsidiaries have taken reasonable
security  measures to guard against unauthorized disclosure or use of any of its
Intellectual  Property;  and  (ii) the Company has no reason to believe that any
Person  (including, without limitation, any former employee or consultant of the
Company  or  its  Subsidiaries)  has  unauthorized  possession  of  any  of  its
Intellectual  Property,  or  any  part  thereof, or that any Person has obtained
unauthorized  access  to  any of its Intellectual Property.  The consummation of
the  transactions  contemplated by the Certificate, this Agreement and the other
Transaction  Documents  will  not materially alter or impair, individually or in
the  aggregate,  any  of  such  rights  of the Company or its Subsidiaries.  The
Company and its Subsidiaries each has complied in all material respects with its
obligations  pursuant to all agreements relating to Intellectual Property rights
that  are  the  subject  of  licenses  granted  by third parties, except for any
non-compliance  that  has  not had or would not reasonably be expected to have a
Material  Adverse  Effect.

     3.12 Registration Rights.  Except as described on Schedule 3.12 hereto, the
          --------------------                         -------------
Company  has  not  granted or agreed to grant to any person or entity any rights
(including  "piggy-back"  registration  rights)  to  have  any securities of the
Company registered with the Commission or any other governmental authority which
has  not  been  satisfied  in  full  prior  to  the  date  hereof.

     3.13 Solicitation;  Other Issuances of Securities.  Neither the Company nor
          --------------------------------------------
any  of  its  Subsidiaries  or Affiliates, nor any person acting on its or their
behalf,  (i)  has  engaged  in  any  form  of


                                       19
<PAGE>
general solicitation or general advertising (within the meaning of Regulation D)
in connection with the offer or sale of the Securities, or (ii) has, directly or
indirectly,  made  any  offers or sales of any security or the right to purchase
any  security,  or  solicited  any offers to buy any security or any such right,
under  circumstances that would require registration of the Securities under the
Securities  Act.

     3.14  Fees.  Except  as  set  forth  on  Schedule  3.14, the Company is not
           ----                               --------------
obligated  to  pay any compensation or other fee, cost or related expenditure to
any  underwriter,  broker,  agent or other representative in connection with the
transactions  contemplated hereby.  The Company will indemnify and hold harmless
each  Investor from and against any claim by any person or entity alleging that,
as a result of any agreement or arrangement between such Person and the Company,
such  Investor  is  obligated to pay any such compensation, fee, cost or related
expenditure  in  connection  with  the  transactions  contemplated  hereby.

     3.15  Foreign  Corrupt  Practices.  Neither  the  Company,  any  of  its
           ---------------------------
Subsidiaries  nor,  to  the  Company's  knowledge, any director, officer, agent,
employee  or other person acting on behalf of the Company or any Subsidiary, has
(i)  used any corporate funds for any unlawful contribution, gift, entertainment
or  other unlawful expenses relating to political activity, (ii) made any direct
or  indirect  unlawful payment to any foreign or domestic government official or
employee  (including  without  limitation  any  bribe, rebate, payoff, influence
payment, kickback or other unlawful payment), or (iii) violated any provision of
the  Foreign  Corrupt  Practices  Act  of  1977,  as  amended.

     3.16  Key Persons; Officers and Directors.  Set forth on Schedule 3.16 is a
           -----------------------------------                -------------
list of each of the Company's officers and directors.  Each of the Company's Key
Persons  is  currently  serving in the capacity described on Schedule 3.16.  The
                                                             -------------
Company  has  no  knowledge  of  any  fact  or  circumstance  (including without
limitation (i) the terms of any agreement to which such person is a party or any
litigation  in  which such person is or may become involved and (ii) any illness
or  medical  condition  that  could  reasonably  be  expected  to  result in the
disability  or  incapacity  of such person) that would limit or prevent any such
person  from  serving  in  such capacity on a full-time basis in the foreseeable
future, or of any intention on the part of any such person to limit or terminate
his  or  her employment with the Company.  Except as set forth on Schedule 3.16,
                                                                  -------------
no  Key  Person has borrowed money pursuant to a currently outstanding loan that
is  secured  by  Common  Stock  or  any right or option to receive Common Stock.

     3.17  Employee  Matters.  There  is  no  strike,  labor  dispute  or  union
           -----------------
organization  activities pending or, to the knowledge of the Company, threatened
between  it  and  its  employees  (or  between  any of its Subsidiaries and such
Subsidiary's  employees).  No  employees  of  the Company belong to any union or
collective  bargaining  unit.  The Company has complied in all material respects
with  all  applicable federal and state equal opportunity and other laws related
to  employment.

     3.18  Environment.  To the Company's knowledge, neither the Company nor any
           -----------
of  its Subsidiaries has any current liability under any Environmental Law, nor,
to the knowledge of the Company, do any factors exist that are reasonably likely
to  give  rise to any such liability that, individually or in the aggregate, has
had  or  would reasonably be expected to have a Material Adverse Effect.  To the
Company's  knowledge,  neither  the  Company  nor  any  of  its Subsidiaries has
violated  any  Environmental  Law  applicable to it now or previously in effect,
other  than  such


                                       20
<PAGE>
violations or infringements that, individually or in the aggregate, have not had
and would not reasonably be expected to have a Material Adverse Effect.

     3.19  ERISA.  Except as described on Schedule 3.19, neither the Company nor
           -----                          -------------
any  of  its  Subsidiaries  maintains  or  contributes to, or has any obligation
under,  any  Pension  Plan.  The  Company  and  each  of  its Subsidiaries is in
compliance  in all material respects with the presently applicable provisions of
ERISA  and  the  United States Internal Revenue Code of 1986, as amended, except
for  matters that, individually or in the aggregate, have not had, and would not
reasonably be expected to have, a Material Adverse Effect.

     3.20  Insurance.  The  Company  maintains  insurance  for  itself  and  its
           ---------
Subsidiaries  in  such amounts and covering such losses and risks as the Company
believes  to  be  reasonably  prudent in relation to the businesses in which the
Company  and  its  Subsidiaries are engaged.  No notice of cancellation has been
received for any of such policies and the Company reasonably believes that is in
compliance  with  all  of  the terms and conditions thereof.  The Company has no
reason  to  believe  that  it  will  not be able to renew any existing insurance
coverage  as  and  when such coverage expires or to obtain similar coverage from
similar  insurers  as  may  be necessary to continue doing business as currently
conducted without a significant increase in cost, other than normal increases in
the  industry.  Without  limiting  the  generality of the foregoing, the Company
maintains  Director's  and  Officer's  insurance  in  an amount not less than $2
million  for  each  covered  occurrence  and  in  the  aggregate.

     3.21  Property.  Except  as described on Schedule 3.21, the Company and its
           --------                           -------------
Subsidiaries  have  good  and marketable title to all personal Property and good
and  marketable  title  in  fee simple to all real property owned by them which,
individually or in the aggregate, is material to the business of the Company and
its  Subsidiaries,  in  each  such  case  free and clear of all Liens except for
Permitted  Liens.  Any  Property  held  under  lease  by  the  Company  or  its
Subsidiaries is held by them under valid, subsisting and enforceable leases with
such  exceptions  as  are not material and do not interfere with the use made or
proposed to be made of such Property by the Company and its Subsidiaries.

     3.22  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 other than where the failure to possess such certificates,
authorizations  or  permits,  individually  or in the aggregate, has not had and
would not reasonably be expected to have a Material Adverse Effect.  Neither the
Company  nor any of its Subsidiaries has received any notice or otherwise become
aware of any proceedings, inquiries or investigations relating to the revocation
or modification of any such certificate, authorization or permit.

     3.23  Exchange  Act  Registration;  Listing.  The Company is subject to the
           -------------------------------------
reporting requirements of Section 15(d) of the Exchange Act and is quoted on the
Nasdaq  SmallCap Market.  The Company currently meets the continuing eligibility
requirements  for  quotation  on the Nasdaq SmallCap Market and has not received
any  notice  from Nasdaq, the NASD or any other Person that it may not currently
satisfy  such  requirements  or  that  such continued quotation of the Company's
Common  Stock  on  the  Nasdaq  SmallCap  Market  is in any way threatened.  The
Company  has  taken  no  action  designed  to, or which, to the knowledge of the
Company,  may


                                       21
<PAGE>
have  the  effect  of, terminating the Company's reporting obligations under the
Exchange  Act or, except as otherwise described on Schedule 3.23, the removal of
                                                   -------------
the Common Stock from the Nasdaq SmallCap Market.

     3.24  Investment Company Status.  The Company is not, and immediately after
           -------------------------
receipt  of  the  Purchase  Price for the Securities issued under this Agreement
will not be, an "investment company" or an entity "controlled" by an "investment
                 ------------------                ----------         ----------
company"  within  the  meaning of the Investment Company Act of 1940, as amended
-------
(the  "Investment Company Act"), and the Company shall conduct its business in a
       ----------------------
manner so that it will not become subject to the Investment Company Act.

     3.25  Transfer  Taxes.  No stock transfer or other taxes (other than income
           ---------------
taxes)  are  required to be paid in connection with the issuance and sale of any
of  the  Securities, other than such taxes for which the Company has established
appropriate reserves and intends to pay in full on or before each Closing.

     3.26  Sarbanes-Oxley Act; Internal Controls and Procedures.  The Company is
           ----------------------------------------------------
in  compliance  in all material respects with all applicable requirements of the
Sarbanes-Oxley  Act of 2002 and all applicable rules and regulations promulgated
by  the  SEC  thereunder  that  are  effective as of the date hereof, except for
instances  of  noncompliance  that  would  not  reasonably  be expected to have,
individually  or  in  the  aggregate,  a  Material  Adverse Effect.  The Company
maintains  internal accounting controls, policies and procedures, and such books
and  records as are reasonably designed to provide reasonable assurance that (i)
all  transactions  to which the Company or any Subsidiary is a party or by which
its  properties are bound are effected by a duly authorized employee or agent of
the  Company, supervised by and acting within the scope of the authority granted
by  the  Company's  senior  management;  (ii)  the  recorded  accounting  of the
Company's  consolidated  assets  is  compared  with  existing  assets at regular
intervals;  and (iii) all transactions to which the Company or any Subsidiary is
a  party,  or  by which its properties are bound, are recorded (and such records
maintained)  in  accordance  with  all  Government  Requirements  and  as may be
necessary  or appropriate to ensure that the financial statements of the Company
are  prepared  in accordance with GAAP, except, in any individual case or in the
aggregate, has not had, and would not reasonably be expected to have, a Material
Adverse  Effect.

     3.27 Embargoed Person.  None of the funds or other assets of the Company or
          ----------------
its  Subsidiaries constitutes property of, or is beneficially owned, directly or
indirectly,  by,  any  person  subject to trade restrictions under United States
law,  including, but not limited to, the International Emergency Economic Powers
Act, 50 U.S.C. Sec. 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App.
1  et  seq.,  and any Executive Orders or regulations promulgated under any such
United  States  laws  (each,  an  "Embargoed  Person"), with the result that the
                                   -----------------
investments evidenced by the Securities are or would be in violation of law.  No
Embargoed Person has any interest of any nature whatsoever in the Company or any
of  its  Subsidiaries  with  the  result  that  the investments evidenced by the
Securities  are  or  would  be  in violation of law.  None of the funds or other
assets  of  the  Company  has  been  derived from any unlawful activity with the
result  that  the  investments  evidenced  by  the Securities are or would be in
violation  of  law.


                                       22
<PAGE>
     3.28 Solvency.  (i) The fair saleable value of the Company's assets exceeds
          --------
the  amount  that  will be required to be paid on or in respect of the Company's
existing  Debt  as such Debt matures or is otherwise payable; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the  current fiscal year as now conducted and as proposed to be conducted taking
into  account  the  current  and  projected capital requirements of the business
conducted  by  the  Company  and  projected  capital availability; and (iii) the
current  cash  flow of the Company, together with the proceeds the Company would
receive  upon  liquidation  of  its  assets,  after  taking  into  account  all
anticipated  uses of such amounts, would be sufficient to pay all Debt when such
Debt  is  required to be paid.  The Company does not intend to incur Debt beyond
its ability to pay such Debt as it matures.  The Company has no knowledge of any
facts or circumstances which lead it to believe that it will be required to file
for reorganization or liquidation under the bankruptcy or reorganization laws of
any  jurisdiction,  and  has  no  present  intention  to  so  file.

     3.29 Transactions with Interested Person.   Except as set forth in Schedule
          -----------------------------------                           --------
3.29, no officer, director or employee of the Company or any of its Subsidiaries
----
is  or has taken any steps to become a party to any transaction with the Company
or any Subsidiary (other than for services as employees, officers and directors)
that  could reasonably be considered material to the Company or such individual,
including  any  contract,  agreement  or  other  arrangement  providing  for the
furnishing  of  services  to  or  by,  providing  for rental of real or personal
property  to  or  from,  or otherwise requiring payments to or from any officer,
director  or  such  employee  or, to the knowledge of the Company, any entity in
which  any officer, director, or any such employee has a substantial interest or
is  an  officer,  director,  trustee  or  partner.

     3.30  Customers;  Suppliers.  The  relationships  of  the  Company  and its
           ---------------------
Subsidiaries  with  their  respective  customers and suppliers are maintained on
commercially reasonable terms.  Since December 31, 2004, no customer or supplier
of  the  Company  or  its  Subsidiaries  has  canceled,  materially modified, or
otherwise  terminated  its  relationship with the Company or its Subsidiaries or
decreased materially its usage or purchase or supply of the services or products
of  the  Company  or  its  Subsidiaries,  except  for  such  modifications  and
terminations  which, individually and in the aggregate, have not had, and cannot
reasonably be expected to have, a Material Adverse Effect, nor does any customer
or supplier have, to the Company's knowledge, any plan or intention to do any of
the  foregoing.  The  Company  has  no  reason to believe that any of its or its
Subsidiaries' suppliers will experience a manufacturing disruption, a failure to
dedicate  adequate  resources  to  the  production,  assembly  or testing of the
Company's  or  its Subsidiaries' products, or financial instability, or that any
such  supplier  will  be  unable  to  successfully  transition its manufacturing
capabilities  to  the  future  needs  of  the  Company  and  its  Subsidiaries.

     3.31  Full  Disclosure.  No  written  statement,  information,  report,
           -----------------
representation  or  warranty  made by the Company in this Agreement or any other
Transaction  Document  or  furnished  to  such  Investor  by or on behalf of the
Company  or  any  of  its  Subsidiaries  in connection with each Closing or such
Investor's  due  diligence  investigation  of  the  Company  contains any untrue
statement  of  a  material fact or omits to state any material fact necessary to
make  the  statements  herein or therein, in light of the circumstances in which
made,  not


                                       23
<PAGE>
misleading.  Neither  the  Company nor any Person acting on its behalf or at its
direction  has  provided  such Investor with any information that, following the
issuance  of  the  press  release in accordance with Section 4.1(c) hereof, will
                                                     --------------
constitute material non-public information.  Following the issuance of the press
release  and filing of the Current Report on Form 8-K in accordance with Section
                                                                         -------
4.1(c)  hereof,  to  the Company's knowledge, such Investor will not possess any
------
material non-public information concerning the Company. The Company acknowledges
that  such  Investor  is  relying  on  the representations, acknowledgements and
agreements  made  by  the  Company  in  this  Section 3.31 and elsewhere in this
                                              ------------
Agreement  in  making  trading  and  other  decisions  concerning  the Company's
securities.

     3.32  No  Other  Agreements.  The  Company has not, directly or indirectly,
           ---------------------
entered into any agreement with or granted any right to any Investor relating to
the  terms  or conditions of the transactions contemplated by the Certificate of
Designation  or the Transaction Documents except as expressly set forth therein.

4.   COVENANTS  OF  THE  COMPANY  AND  EACH  INVESTOR.
     ------------------------------------------------

     4.1  The Company agrees with each Investor that the Company will:

               (a)  file  a  Form D with the Commission and any applicable state
securities  department  with respect to the Securities issued at each Closing as
and  when  required under Regulation D and provide a copy of each such Form D to
such  Investor  promptly  after  such  filing;

               (b)  take  such  action as the Company reasonably determines upon
the  advice  of  counsel  is  necessary to qualify the Securities for sale under
applicable  state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to such Investor at each Closing;

               (c)  (i)  on or prior to 8:30 a.m. (eastern time) on the Business
Day  immediately  following the Execution Date, issue a press release disclosing
the  material terms of the Certificate, this Agreement and the other Transaction
Documents  and  the  transactions contemplated hereby and thereby and (ii) on or
prior  to 5:00 p.m. (eastern time) on the Business Day immediately following the
Execution Date, file with the Commission a Current Report on Form 8-K disclosing
the  material  terms  of  this Agreement, the Certificate of Designation and the
other  Transaction  Documents  and  the  transactions  contemplated  hereby  and
thereby,  including  as exhibits this Agreement, the Certificate of Designation,
Registration  Rights Agreement and form of Warrant; provided, however, that each
Investor named therein shall have a reasonable opportunity to review and comment
on any such press release or Current Report on Form 8-K prior to the issuance or
filing  thereof.  Thereafter,  the  Company  shall  timely  file any filings and
notices  required  by  the  Commission  or  applicable  law  with respect to the
transactions  contemplated  hereby;  and

               (d)  (i)  on or prior to 8:30 a.m. (eastern time) on the Business
Day  immediately  following  the  Put Option Closing Date, issue a press release
disclosing  the  occurrence of the Put Option Closing and material terms thereof
and (ii) on or prior to 5:00 p.m. (eastern time) on the Business Day immediately
following the Put Option Closing Date, file with the Commission a Current Report
on  Current  Report  on Form 8-K disclosing the material terms of the Put Option


                                       24
<PAGE>
Closing;  provided,  however,  that  each  Investor  named  therein shall have a
reasonable  opportunity  to  review  and  comment  on  any such press release or
Current Report on Form 8-K prior to the issuance or filing thereof.  Thereafter,
the Company shall timely file any filings and notices required by the Commission
or applicable law with respect to the transactions contemplated hereby.

     4.2  The  Company  agrees  that it will, during the period beginning on the
Execution  Date  and  ending  on  the  Termination  Date:

               (a)  maintain  its  corporate  existence  in  good  standing;

               (b)  maintain,  keep and preserve all of its Properties necessary
in  the  proper  conduct  of  its  businesses  in good repair, working order and
condition  (ordinary  wear  and  tear  excepted) and make all necessary repairs,
renewals  and replacements and improvements thereto, except where the failure to
do  so  would  not  reasonably  be  expected  to  have,  individually  or in the
aggregate,  a  Material  Adverse  Effect;

               (c)  pay  or  discharge before becoming delinquent (A) all taxes,
levies,  assessments  and  governmental  charges  imposed on it or its income or
profits or any of its Property and (B) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property, except
where  the  failure  to  do  so  would  not  reasonably  be  expected  to  have,
individually  or in the aggregate, a Material Adverse Effect; provided, however,
that  the  Company  shall  not  be  required  to pay or discharge any tax, levy,
assessment  or  governmental  charge,  or claim for labor, material or supplies,
whose  amount,  applicability  or  validity  is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have  been  established  under  GAAP;

               (d)  comply  in  all  material  respects  with  all  Governmental
Requirements  applicable  to  the  operation  of its business, including without
limitation  the  Sarbanes-Oxley  Act  of  2002  and  all  applicable  rules  and
regulations  promulgated  by  the  SEC  thereunder;

               (e)  comply  with  all  agreements,  documents  and  instruments
binding  on  it  or  affecting  its  Properties  or business, including, without
limitation,  all  Material Contracts, except for instances of noncompliance that
would  not  reasonably  be expected to have, individually or in the aggregate, a
Material  Adverse  Effect;

               (f)  provide  each  Investor with copies of all materials sent to
its  stockholders,  in  each  such  case  at the same time as such materials are
delivered  to  such  stockholders;

               (g)  timely  file  with the Commission all reports required to be
filed pursuant to the Exchange Act and refrain from terminating its status as an
issuer  required  by  the  Exchange  Act  to file reports thereunder even if the
Exchange  Act  or  the  rules  or  regulations  thereunder  would  permit  such
termination;

               (h)  until  the  first to occur of (x) the Initial Effective Date
(or  if  Put Option Closing occurs, the Second Effective Date) and (y) the first
date  upon  which  the  Securities


                                       25
<PAGE>
are  eligible  for  resale  to the public by Investors without restriction under
Rule  144,  enter  into  and  maintain  written  agreements  with  Key  Persons
restricting  them  from selling shares of Common Stock, other than in connection
with any 10b-5(1) trading plans in effect as of the Execution Date and disclosed
to  each  Investor  in  writing;  and

               (i)  use  commercially  reasonable  efforts  to maintain adequate
insurance  coverage  (including  Director's and Officer's insurance in an amount
not  less  than $2 million for each covered occurrence and in the aggregate) for
the  Company  and  each  Subsidiary.

     4.3  Reservation  of  Common  Stock.  The  Company  shall,  on  the Initial
          ------------------------------
Closing  Date  have authorized and reserved for issuance pursuant to the Initial
Preferred Shares and the Initial Warrants (the "Reserved Amount"), free from any
                                                ---------------
preemptive  rights,  a  number  of  shares of Common Stock at least equal to one
hundred percent (100%) of the number of shares of Common Stock issuable upon (A)
conversion  of  the Initial Preferred Stock in full at the Conversion Price then
in effect and (B) exercise of the Initial Warrants in full at the Exercise Price
then  in  effect,  in  each  such  case  without  regard  to  any  limitation or
restriction  on  such  conversion  or  exercise  that  may  be  set forth in the
Certificate of Designation or the Warrants.  On and after the Approval Date, the
Reserved  Amount  shall  be  equal  to two hundred percent (200%) of the maximum
number of shares of Common Stock issuable upon (A) conversion of the outstanding
Initial Preferred Shares and, if issued, the Put Option Preferred Shares in full
at  the  Conversion  Price  then  in  effect and (B) exercise of the outstanding
Initial Warrants and, if issued, the Put Option Warrants in full at the Exercise
Price  then  in  effect,  in  each such case without regard to any limitation or
restriction  on  such  conversion  or  exercise  that  may  be  set forth in the
Certificate  of  Designation or the Warrants.  In the event that, as a result of
an  adjustment  to  the  Conversion Price of the Preferred Stock or the Exercise
Price  for  the  Warrants  (pursuant  to anti-dilution adjustments or otherwise)
after  the Approval Date, the Reserved Amount is less than one hundred and fifty
percent  (150%)  of  the  number  of  shares  of Common Stock then issuable upon
conversion  of  all  of  the Preferred Stock and exercise of all of the Warrants
then  outstanding  (without  regard  to  any  limitation  or restriction on such
conversion  or  exercise  that  may  be  set forth in the Preferred Stock or the
Warrants),  the  Company shall take action (including without limitation seeking
stockholder  approval  for the authorization or reservation of additional shares
of  Common  Stock)  as soon as practicable (but in no event later than the tenth
(10th)  business day or, in the event that stockholder approval is required, the
sixtieth  (60th)  day following such date) to increase the Reserved Amount to no
less  than  two  hundred  percent (200%) of the number of shares of Common Stock
into  which  such  outstanding  Preferred  Stock  are  then convertible and such
outstanding  Warrants  are exercisable.  The Company shall not reduce the number
of  shares  reserved  for  issuance hereunder without the written consent of the
holders  of seventy-five percent (75%) of the Outstanding Registrable Securities
at such time. The initial Reserved Amount shall be allocated among the Investors
based  on  each Investor's Pro Rata Share.  Each increase in the Reserved Amount
shall  be  allocated  pro  rata  among  the  Investors  based  on  the amount of
Outstanding  Registrable  Securities  held by each Investor  at the time of such
increase . In the event that an Investor shall sell or otherwise transfer any of
such Investor's Preferred Stock or Warrant, each transferee shall be allocated a
pro  rata  portion  of  such  transferor's  Reserved  Amount. Any portion of the
Reserved  Amount  which remains allocated to any person or entity which does not
hold  any  Preferred Stock shall be reallocated to the remaining Investors based
on  the  amount  of  Outstanding  Registrable  Securities  at  the  time of such
increase.


                                       26
<PAGE>
     4.4  Use  of Proceeds.  The Company shall use the proceeds from the sale of
          ----------------
the  Securities  for  general corporate purposes only, in the ordinary course of
its  business  and  consistent  with  past practice; provided, however, that the
Company  may not use such proceeds to repurchase or redeem any securities issued
by the Company or any Subsidiary or to repay any loan made to or incurred by any
Affiliate  of  the  Company.

     4.5  Limitation  on  Debt  and  Liens.  During  the period beginning on the
          --------------------------------
Execution  Date  and ending on the Preferred Stock Termination Date, the Company
shall refrain, and shall ensure that each of its Subsidiaries refrains, (a) from
incurring  any  Debt  (including  without  limitation  by  issuing  any  Debt
securities), other than Permitted Debt, or increasing the amount of any existing
line  of credit or other Debt facility beyond the amount outstanding on the date
hereof,  and  (b)  from granting, establishing or maintaining any Lien on any of
its  assets, including without limitation any pledge of securities owned or held
by  it  (including  without  limitation  any  securities  issued  by  any  such
Subsidiary),  other  than  Permitted  Liens.

     4.6  Issuance  Limitation.
          --------------------

     (a)  During  the  period  beginning on the Execution Date and ending on the
Approval Date, the Company shall not effect a Subsequent Issuance at a price per
share  of  Common  Stock  that  is  less  than  the  Floor Price then in effect.

     (b)  During  the  period  beginning on the Execution Date and ending on the
latest  to  occur  of (i) the ninetieth (90th) day following the Initial Closing
Date,  (ii) the thirtieth (30th) day following the Initial Effective Date, (iii)
the  ninetieth  (90th)  day  following  the  Put Option Closing Date (if the Put
Option  Closing  occurs), and (iv) the thirtieth (30th) day following the Second
Effective  Date (if the Put Option Closing occurs), the Company shall not effect
a  Subsequent  Issuance.

     4.7  Certain  Transactions.  During  the  period beginning on the Execution
          ---------------------
Date  and  ending  on the Preferred Stock Termination Date, and except as may be
expressly  permitted or required by the Certificate or the Transaction Documents
and  the  Debt  that  is  outstanding  on  the  Execution  Date and specifically
disclosed  on Schedule 3.5 hereto, the Company shall not, nor will it permit any
              ------------
of  its  Subsidiaries to, create or otherwise cause or permit to exist or become
effective  any  consensual encumbrance or restriction of any kind on the ability
of the Company or any Subsidiary of the Company (a) to pay dividends or make any
other distribution to the Company or any Subsidiary of the Company in respect of
capital  stock  or  with  respect  to any other interest or participation in, or
measured  by,  its profits, or (b) to pay any amounts that are or become payable
under  the  Certificate  or  any  of  the  Transaction  Documents.

     4.8  Transactions  with  Affiliates.  The  Company  agrees that, during the
          ------------------------------
period  beginning  on  the  Execution  Date  and  ending  on the Preferred Stock
Termination  Date,  any  transaction  or  arrangement  between  it or any of its
Subsidiaries  and  any  Affiliate  or  employee  of  the  Company  or any of its
Subsidiaries  shall  be  effected  only  on  an  arms' length basis and shall be
approved  by  the  Board  of  Directors,  including  a majority of the Company's
directors  not  having  an  interest  in  such  transaction.


                                       27
<PAGE>
     4.9  Use  of  Investor  Name.  Except  as may be required by applicable law
          -----------------------
and/or  this  Agreement,  the Company shall not use, directly or indirectly, any
Investor's  name  or  the  name  of  any of its Affiliates in any advertisement,
announcement,  press  release  or  other  similar  communication  unless  it has
received  the  prior  written  consent  of  such  Investor  for the specific use
contemplated or as otherwise required by applicable law or regulation.

     4.10 Company's Instructions to Transfer Agent.  On or prior to each Closing
          ----------------------------------------
Date,  the Company shall execute and deliver irrevocable written instructions to
the transfer agent for its Common Stock (the "Transfer Agent"), and provide each
                                              --------------
Investor  with  a  copy  thereof,  directing  the  Transfer  Agent  (i) to issue
certificates  representing  Conversion  Shares  upon conversion of the Preferred
Shares  and receipt of a valid Conversion Notice (as defined in the Certificate)
from an Investor, in the amount specified in such Conversion Notice, in the name
of such Investor or its nominee, (ii) to issue certificates representing Warrant
Shares  upon  exercise of the Warrants and (iii) to deliver such certificates to
such  Investor  no  later than the close of business on the third (3rd) business
day  following  the  related  Conversion Date (as defined in the Certificate) or
Exercise  Date  (as  defined  in  the  Warrant),  as  the  case  may  be.  Such
certificates  may  bear  legends  pursuant  to  applicable  provisions  of  this
Agreement  or  applicable  law.  The  Company  shall instruct the transfer agent
that,  in lieu of delivering physical certificates representing shares of Common
Stock to an Investor upon conversion of the Preferred Shares, or exercise of the
Warrants,  and  as long as the Transfer Agent is a participant in the Depository
Trust  Company  ("DTC")  Fast Automated Securities Transfer program ("FAST") and
                  ---
the  Conversion Shares are eligible to be delivered through the FAST system, and
such  Investor  has  not informed the Company that it wishes to receive physical
certificates  therefor,  and  no restrictive legend is required to appear on any
physical  certificate  if  issued,  the  transfer  agent  may effect delivery of
Conversion  Shares  or  Warrant  Shares,  as  the  case may be, by crediting the
account  of  such  Investor  or  its nominee at DTC for the number of shares for
which  delivery  is required hereunder within the time frame specified above for
delivery  of  certificates.  The  Company  represents  to  and  agrees with each
Investor  that  it will not give any instruction to the Transfer Agent that will
conflict  with  the  foregoing instruction or otherwise restrict such Investor's
right  to  convert  the  Preferred  Shares  or  to  receive Conversion Shares in
accordance  with  the  terms of the Certificate or to exercise the Warrant or to
receive  Warrant  Shares  upon  exercise of the Warrants.  In the event that the
Company's  relationship  with  the  Transfer  Agent should be terminated for any
reason,  the  Company  shall use its best efforts to cause the Transfer Agent to
continue  acting  as transfer agent pursuant to the terms hereof until such time
that  a  successor  transfer  agent is appointed by the Company and receives the
instructions  described  above.

     4.11  No  Adverse  Action.  The Company and its Subsidiaries shall refrain,
           -------------------
during  the period beginning on the Execution Date and ending on the Termination
Date,  from  taking any action or entering into any arrangement which in any way
materially  and  adversely  affects  the  provisions  of  the  Certificate  of
Designation,  this  Agreement  or  any  other  Transaction  Document.

     4.12  Limitations on Disposition.  No Investor shall sell, transfer, assign
           --------------------------
or  dispose  of  any  Securities,  unless:

          (a)  there is then in effect an effective registration statement under
the  Securities  Act  covering such proposed disposition and such disposition is
made  in  accordance  with  such  registration  statement;  or


                                       28
<PAGE>
          (b)  such  Investor  has  notified  the Company in writing of any such
disposition,  received the Company's written consent (which consent shall not be
unreasonably  withheld or delayed) to such disposition and furnished the Company
with  an  opinion  of counsel, reasonably satisfactory to the Company, that such
disposition  will  not  require  registration  of  such  Securities  under  the
Securities  Act;  provided,  however, that no such consent or opinion of counsel
will  be  required (A) if the sale, transfer or assignment complies with federal
and  state  securities  laws  (and Investor certifies to such compliance) and is
made  to an Affiliate of such Investor which is also an "accredited investor" as
that  term  is defined in Rule 501 of Regulation D, (B) if the sale, transfer or
assignment  is  made pursuant to Rule 144 and such Investor provides the Company
with  evidence  reasonably  satisfactory  to  the  Company  that  the  proposed
transaction  satisfies  the requirements of Rule 144 or (C) in connection with a
bona  fide  pledge or hypothecation of any Securities under a margin arrangement
with  a  broker-dealer  or  other  financial institution or the sale of any such
Securities  by  such broker-dealer or other financial institution following such
Investor's  default  under  such  margin  arrangement.

     4.13 Disclosure of Information.  The Company agrees that it will not at any
          -------------------------
time  following  the  Execution Date disclose material non-public information to
any  Investor without first obtaining such Investor's written consent to receive
such  information.  If  the  Company breaches its obligations under this Section
                                                                         -------
4.13,  it  shall  promptly,  and  no  later than one Business Day following such
----
breach,  make a public disclosure, in compliance with Regulation FD, of all such
material non-public information theretofore disclosed to such Investor.

     4.14  Listing.  The  Company  (i)  shall  use its best efforts to cause the
           -------
Common Stock, including all of the Conversion Shares issuable upon conversion of
the Preferred Shares and all of the Warrant Shares issuable upon exercise of the
Warrants  (without  regard to any limitation on such conversion or exercise), to
be  listed  on  the  Nasdaq  SmallCap  Market,  and (ii) use its best efforts to
maintain  the  designation and quotation, or listing, of the Common Stock on the
Nasdaq  SmallCap  Market,  the  Nasdaq  National  Market  or  the New York Stock
Exchange  for a minimum of five (5) years following the later of (i) the Initial
Closing  Date  or  (ii)  the  Put Option Closing Date (if the Put Option Closing
occurs).

     4.15  Indemnification  of  Investors.   The Company will indemnify and hold
           ------------------------------
each  Investor  and  its  directors,  managers, officers, shareholders, members,
partners, employees and agents (each, an "Investor Party") harmless from any and
                                          --------------
all  losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses,  including all judgments, amounts paid in settlements, court costs and
reasonable  attorneys'  fees  and  costs of investigation that any such Investor
Party may suffer or incur as a result of or relating to (a) any breach of any of
the  representations, warranties, covenants or agreements made by the Company in
this  Agreement  or  in  the  other  Transaction  Documents  or  (b)  any action
instituted  against  an Investor, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Investor, with
respect  to  any  of  the transactions contemplated by the Transaction Documents
(unless  such  action is based upon a breach by such Investor of such Investor's
representations,  warranties or covenants under the Transaction Documents or any
agreements or understandings such Investor may have with any such stockholder or
any  violations  by  such  Investor  of  state or federal securities laws or any
conduct  by  such  Investor  which  constitutes


                                       29
<PAGE>
fraud,  gross  negligence,  willful  misconduct  or malfeasance).  If any action
shall be brought against any Investor Party in respect of which indemnity may be
sought pursuant to this Agreement, such Investor Party shall promptly notify the
Company  in  writing, and the Company shall have the right to assume the defense
thereof  with  counsel  of its own choosing and to control any settlement of the
claim;  provided,  however, that the Company will not settle any claim unless it
first  obtains the consent of the relevant Investor Parties, which consent shall
not  be  unreasonably  withheld  if  such  settlement  (i)  does not require the
Investor  Parties  to  make  any  payment  that  is  not  indemnified under this
Agreement,  (ii)  does  not impose any non-financial obligations on the Investor
Parties  and  (iii) does not require an acknowledgment of wrongdoing on the part
of  the  Investor  Parties.  Any  Investor  Party shall have the right to employ
separate  counsel in any such action and participate in the defense thereof, but
the  fees  and expenses of such counsel shall be at the expense of such Investor
Party except to the extent that (i) the employment thereof has been specifically
authorized  by  the  Company  in  writing,  (ii)  the Company has failed after a
reasonable  period of time to assume such defense and to employ counsel or (iii)
in  such  action there is, in the reasonable opinion of such separate counsel, a
material  conflict on any material issue between the position of the Company and
the  position  of  such  Investor  Party.  The Company will not be liable to any
Investor  Party under this Agreement (i) for any settlement by an Investor Party
effected  without  the  Company's  prior  written  consent,  which  shall not be
unreasonably  withheld  or  delayed  (it  being  agreed  that  it  shall  not be
unreasonable  for  the  Company to withhold or delay such consent if the Company
(x)  has acknowledged in writing its obligation to indemnify such Investor Party
with  respect to such matter, (y) the Company has assumed and is actively and in
good  faith  pursuing  the  defense  of  such matter as herein provided, and (z)
provided  to such Investor Party reasonably acceptable evidence that the Company
is  able  to  comply with its indemnification obligations hereunder); or (ii) to
the  extent,  but  only to the extent that a loss, claim, damage or liability is
attributable  to  such  Investor Party's wrongful actions or omissions, or gross
negligence  or  to  such  Investor Party's breach of any of the representations,
warranties,  covenants  or agreements made by such Investor in this Agreement or
in  the  other  Transaction  Documents.

     4.16  Stockholder  Approval.  The  Company  shall as promptly as reasonably
           ---------------------
practicable,  and  in  any  event  not  later  than  July  20,  2005 (subject to
reasonable  delay  based  on  regulatory review of the related proxy statement),
hold  a  meeting of its stockholders for the purpose of obtaining, and shall use
its  best  efforts  to  obtain,  Stockholder  Approval.

     4.17  Breachof  Representation.  In  the  event  that any representation or
           ------------------------
warranty made by the Company in this Agreement or any other Transaction Document
is  untrue  or  incorrect  in  any material respect as of the date made and such
representation  or warranty, if capable of being cured, is not cured within five
(5)  Business  Days  following  written  notice  thereof  from any Investor, the
Company  shall pay each Investor such Investor's Pro Rata Share of the amount of
$100,000  per  occurrence  (not to exceed $500,000 in the aggregate for all such
occurrences); provided that in the event the damages or dollar amount related to
such  untrue  or  incorrect representation or warranty are quantifiable and less
than  $100,000,  the Company shall pay such lesser amount; and provided further,
that  any  such  payment  shall not impair any Investor's ability to seek actual
damages or injunctive relief pursuant to the terms of this Agreement.

5.   CONDITIONS  TO  CLOSING.
     -----------------------


                                       30
<PAGE>
     5.1  Conditions  to  Investors'  Obligations  at the Initial Closing.  Each
          ----------------------------------------------------------------
Investor's  obligations  to  effect  the  Initial  Closing,  including  without
limitation  its  obligation  to purchase Initial Preferred Shares and an Initial
Warrant  at the Initial Closing, are conditioned upon the fulfillment (or waiver
by  such  Investor in its sole and absolute discretion) of each of the following
events  as  of  the Initial Closing Date, and the Company shall use commercially
reasonably efforts to cause each of such conditions to be satisfied:

          5.1.1          the  representations  and warranties of the Company set
                         forth  in  this  Agreement  and  in  the  other Initial
                         Transaction  Documents shall be true and correct in all
                         material  respects as of the Initial Closing Date as if
                         made  on  such date (except that to the extent that any
                         such representation or warranty relates to a particular
                         date,  in  which  case  such representation or warranty
                         shall  be  true and correct in all material respects as
                         of  that  particular  date);

          5.1.2          the  Company  shall  have complied with or performed in
                         all  material  respects  all  of  the  agreements,
                         obligations and conditions set forth in the Certificate
                         of  Designation,  this  Agreement  or the other Initial
                         Transaction  Documents that are required to be complied
                         with  or  performed  by  the  Company on or before such
                         date;

          5.1.3          the  Company  shall  have  filed  the  Certificate  of
                         Designation with the Secretary of State of the State of
                         Delaware,  and  delivered  to  such  Investor  written
                         evidence  of  the  acceptance  of  such  filing;

          5.1.4          the Initial Closing Date shall occur not later than May
                         9,  2005;

          5.1.5          the  Company  shall  have  delivered to such Investor a
                         certificate,  signed by the Chief Executive Officer and
                         Chief Financial Officer of the Company, certifying that
                         the  conditions  specified  in  this paragraph 5.1 have
                         been  fulfilled (or waived in writing by such Investor)
                         as  of  the  Initial  Closing Date, it being understood
                         that  such  Investor  may  rely  on such certificate as
                         though  it  were  a  representation and warranty of the
                         Company  made  herein;

          5.1.6          the  Company  shall  have  delivered to such Investor a
                         certificate,  signed  by  the Secretary or an Assistant
                         Secretary of the Company, attaching (i) the Certificate
                         of  Incorporation  and By-Laws of the Company, and (ii)
                         resolutions  passed  by  its  Board  of  Directors  to
                         authorize  the  transactions contemplated hereby and by
                         the other Initial Transaction Documents, and certifying
                         that such documents are true and complete copies of the
                         originals  and  that  such  resolutions  have  not been
                         amended  or  superseded,  it being understood that such
                         Investor may rely on such certificate as though it were
                         a  representation  and  warranty  of  the  Company made
                         herein;


                                       31
<PAGE>
          5.1.7          the  Company  shall  have delivered to such Investor an
                         opinion  of  counsel  for  the Company, dated as of the
                         Initial  Closing Date, in form and substance reasonably
                         satisfactory  to  such  Investor;

          5.1.8          the  Company  shall  have  delivered to such Investor a
                         duly  executed  Initial  Warrant  and  a  certificate
                         representing  the  Initial  Preferred  Shares  being
                         purchased  by  such  Investor  at  the Initial Closing;

          5.1.9          the  Company  shall have executed and delivered to such
                         Investor  the  Registration  Rights  Agreement;

          5.1.10         the  Company  shall have obtained the written agreement
                         of  each  Key  Person to refrain from selling shares of
                         Common  Stock  until  the  first  to  occur  of (x) the
                         Initial  Effective  Date  (or  if  Put  Option  Closing
                         occurs,  the  Second  Effective Date) and (y) the first
                         date  upon  which all of the outstanding Securities are
                         eligible  for resale to the public by Investors without
                         restriction  under  Rule  144;

          5.1.11         there shall have occurred no material adverse change in
                         the  Company's  consolidated  business  or  financial
                         condition  since  the date of the Company's most recent
                         audited  financial  statements attached as Schedule 3.4
                                                                    ------------
                         hereto  (except as described on Schedule 3.8.1 hereto);
                                                         --------------

          5.1.12         the Common Stock shall be quoted on the Nasdaq SmallCap
                         Market;

          5.1.13         the  Company  shall  have  authorized  and reserved for
                         issuance  at  least  one  hundred percent (100%) of the
                         aggregate  number  of  shares  of Common Stock issuable
                         upon  conversion  of all of the Initial Preferred Stock
                         and  exercise  of  all  of  the  Initial Warrants to be
                         issued  at  the  Initial  Closing  (such  number  to be
                         determined  using  the  Conversion  Price  and Exercise
                         Price in effect on the Initial Closing Date and without
                         regard to any restriction on the ability of an Investor
                         to  convert  Initial  Preferred  Stock  or exercise the
                         Initial  Warrants  as  of  such  date);  and

          5.1.14         there  shall  be  no  injunction,  restraining order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby  or  by  the  other
                         Initial  Transaction  Documents.

     5.2  Conditions  to  Company's  Obligations  at  the  Initial Closing.  The
          -----------------------------------------------------------------
Company's  obligations  to  effect  the  Initial  Closing with each Investor are
conditioned  upon  the  fulfillment  (or


                                       32
<PAGE>
waiver  by  the  Company  in  its  sole  and absolute discretion) of each of the
following  events  as  of  the  Initial  Closing  Date:

          5.2.1          the representations and warranties of such Investor set
                         forth  in  this  Agreement  and  in  the  other Initial
                         Transaction  Documents shall be true and correct in all
                         material  respects  as  of such date as if made on such
                         date  (except  that  to  the  extent  that  any  such
                         representation  or  warranty  relates  to  a particular
                         date,  in  which  case  such representation or warranty
                         shall  be  true and correct in all material respects as
                         of  that  particular  date);

          5.2.2          such Investor shall have complied with or performed all
                         of the agreements, obligations and conditions set forth
                         in  this Agreement and in the other Initial Transaction
                         Documents  that  are  required  to  be complied with or
                         performed  by  such  Investor  on or before the Initial
                         Closing  Date;

          5.2.3          there  shall  be  no  injunction,  restraining order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby  or  by  the  other
                         Initial  Transaction  Documents;

          5.2.4          such  Investor  shall  have  executed  each  Initial
                         Transaction  Document  to which it is a party and shall
                         have  delivered  the  same  to  the  Company;  and

          5.2.5          such  Investor  shall  have tendered to the Company the
                         Purchase  Price  for  the  Initial Preferred Shares and
                         Initial  Warrants  being purchased by it at the Initial
                         Closing.

     5.3  Conditions  to Investors' Obligations at the Put Option Closing.  Each
          ----------------------------------------------------------------
Satellite  Entity's  obligations  to  effect  the  Put Option Closing, including
without  limitation its obligation to purchase Put Option Preferred Shares and a
Put  Option  Warrant  at  the  Put  Option  Closing,  are  conditioned  upon the
fulfillment  (or  waiver  by  such  Satellite  Entity  in  its sole and absolute
discretion)  of  each of the following events as of the Put Option Closing Date,
and  the Company shall use commercially reasonably efforts to cause each of such
conditions  to  be  satisfied:

          5.3.1          the  representations  and warranties of the Company set
                         forth  in  this  Agreement and in the other Transaction
                         Documents  shall  be  true  and correct in all material
                         respects  as  of the Put Option Closing Date as if made
                         on  such  date (except that to the extent that any such
                         representation  or  warranty  relates  to  a particular
                         date,  in  which  case  such representation or warranty
                         shall  be  true and correct in all material respects as
                         of  that  particular  date);


                                       33
<PAGE>
          5.3.2          the  Company  shall  have complied with or performed in
                         all  material  respects  all  of  the  agreements,
                         obligations and conditions set forth in the Certificate
                         of  Designation, this Agreement or the other Put Option
                         Transaction  Documents that are required to be complied
                         with  or  performed  by  the  Company on or before such
                         date;

          5.3.3          the  Put Option Closing Date shall occur not later than
                         ten Business Days after the First Registration Deadline
                         (as  defined  in  the  Registration  Rights Agreement);

          5.3.4          the  Company  shall  have  delivered  to such Satellite
                         Entity  a  certificate,  signed  by the Chief Executive
                         Officer  and  Chief  Financial  Officer of the Company,
                         certifying  that  the  conditions  specified  in  this
                         paragraph 5.3 have been fulfilled (or waived in writing
                         by  such Satellite Entity) as of the Put Option Closing
                         Date,  it  being  understood that such Satellite Entity
                         may  rely  on  such  certificate  as  though  it were a
                         representation and warranty of the Company made herein;

          5.3.5          the  Company  shall  have  delivered  to such Satellite
                         Entity  an opinion of counsel for the Company, dated as
                         of  the  Put Option Closing Date, in form and substance
                         reasonably  satisfactory  to  such  Satellite  Entity;

          5.3.6          the  Company  shall  have  delivered  to such Satellite
                         Entity  a  duly  executed  Put  Option  Warrant  and  a
                         certificate  representing  the  Put  Option  Preferred
                         Shares  being purchased by such Satellite Entity at the
                         Put  Option  Closing;

          5.3.7          there shall have occurred no material adverse change in
                         the  Company's  consolidated  business  or  financial
                         condition  since  the date of the Company's most recent
                         audited  financial  statements attached as Schedule 3.4
                                                                    ------------
                         hereto  (except as described on Schedule 3.8.1 hereto);
                                                         --------------

          5.3.8          the Common Stock shall be quoted on the Nasdaq SmallCap
                         Market;  and

          5.3.9          there  shall  be  no  injunction,  restraining order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby  or by the other Put
                         Option  Transaction  Documents.

     5.4  Conditions  to  Company's  Obligations at the Put Option Closing.  The
          -----------------------------------------------------------------
Company's  obligations  to  effect  the  Put  Option Closing with each Satellite
Entity  are  conditioned  upon  the


                                       34
<PAGE>
fulfillment  (or  waiver  by the Company in its sole and absolute discretion) of
each of the following events as of the Put Option Closing Date:

          5.4.1          the  representations  and  warranties of such Satellite
                         Entity  set  forth  in this Agreement shall be true and
                         correct  in all material respects as of such date as if
                         made  on  such date (except that to the extent that any
                         such representation or warranty relates to a particular
                         date,  in  which  case  such representation or warranty
                         shall  be  true and correct in all material respects as
                         of  that  particular  date);

          5.4.2          such  Satellite  Entity  shall  have  complied  with or
                         performed  all  of  the  agreements,  obligations  and
                         conditions set forth in this Agreement and in the other
                         Transaction  Documents that are required to be complied
                         with or performed by such Satellite Entity on or before
                         the  Put  Option  Closing  Date;

          5.4.3          there  shall  be  no  injunction,  restraining order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby  or by the other Put
                         Option  Transaction  Documents;  and

          5.4.4          such  Satellite  Entity  shall  have  tendered  to  the
                         Company the Purchase Price for the Put Option Preferred
                         Shares and Put Option Warrants being purchased by it at
                         the  Put  Option  Closing.

6.   MISCELLANEOUS.
     -------------

          6.1  Survival;  Severability.  The  representations,  warranties,
               -----------------------
covenants  and  indemnities  made  by  the parties herein, in the Certificate of
Designation  and  in  the  other Transaction Documents shall survive the Initial
Closing  and  the  Put  Option  Closing  notwithstanding  any  due  diligence
investigation made by or on behalf of the party seeking to rely thereon.  In the
event  that any provision of this Agreement becomes or is declared by a court of
competent  jurisdiction  to  be  illegal,  unenforceable or void, this Agreement
shall  continue  in full force and effect without said provision; provided, that
in such case the parties shall negotiate in good faith to replace such provision
with  a  new  provision  which is not illegal, unenforceable or void, as long as
such  new  provision  does  not  materially change the economic benefits of this
Agreement  to  the  parties.

          6.2  Successors  and  Assigns.  The  terms  and  conditions  of  this
               ------------------------
Agreement  shall  inure  to  the  benefit  of and be binding upon the respective
successors  and  permitted  assigns  of the parties.  Nothing in this Agreement,
express  or implied, is intended to confer upon any party other than the parties
hereto  or  their  respective  successors  and  permitted  assigns  any  rights,
remedies,  obligations  or  liabilities  under  or  by reason of this Agreement,
except  as  expressly  provided in this Agreement.  Each Investor may assign its
rights  and  obligations  hereunder,  in  connection  with  any  private sale or
transfer of Preferred Shares or Warrants in accordance with the terms hereof, as
long


                                       35
<PAGE>
as,  as  a  condition  precedent  to  such  transfer, the transferee executes an
acknowledgment  agreeing  to  be  bound  by  the  applicable  provisions of this
Agreement,  in  which  case the term "Investor" shall be deemed to refer to such
                                      --------
transferee  as  though  such  transferee were an original signatory hereto.  The
Company may not assign its rights or obligations under this Agreement.

          6.3  No  Reliance.  Each  party  acknowledges  that  (i)  it  has such
               ------------
knowledge in business and financial matters as to be fully capable of evaluating
this  Agreement,  the  other  Transaction  Documents,  and  the  transactions
contemplated  hereby  and  thereby,  (ii)  it  is  not  relying on any advice or
representation  of  any  other  party  in  connection  with  entering  into this
Agreement, the other Transaction Documents, or such transactions (other than the
representations  made  in  this  Agreement  or the other Transaction Documents),
(iii)  it  has  not received from any party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this  Agreement  or  the  other  Transaction Documents or the performance of its
obligations  hereunder  and  thereunder,  and (iv) it has consulted with its own
legal,  regulatory, tax, business, investment, financial and accounting advisors
to  the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the  advice  of  its  advisors  as  it has deemed necessary, and not on any view
(whether  written  or  oral)  expressed  by  any  party.

          6.4  Independent  Nature  of  Investors'  Obligations and Rights.  The
               -----------------------------------------------------------
obligations  of  each  Investor  hereunder  are  several  and not joint with the
obligations  of  the  other  Investors  hereunder,  and  no  Investor  shall  be
responsible  in  any  way  for  the  performance of the obligations of any other
investor hereunder.  Nothing contained herein, in the Certificate of Designation
or  in  any  other  Transaction  Document,  and  no action taken by any Investor
pursuant  hereto  or  thereto,  shall be deemed to constitute any Investors as a
partnership,  an  association, a joint venture or any other kind of entity, or a
"group"  as  described  in  Section  13(d)  of  the  Exchange  Act,  or create a
presumption  that any Investors are in any way acting in concert with respect to
such  obligations  or  the  transactions  contemplated  by this Agreement.  Each
Investor has been represented by its own separate counsel in connection with the
transactions  contemplated  hereby, shall be entitled to protect and enforce its
rights, including without limitation rights arising out of this Agreement or the
other  Transaction Documents, individually, and shall not be required to be join
any  other  Investor  as an additional party in any proceeding for such purpose.

          6.5  Injunctive  Relief.  The  Company  acknowledges and agrees that a
               ------------------
breach  by  it  of  its obligations hereunder may cause irreparable harm to each
Investor  and  that  the  remedy  or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all other
available  remedies,  such  Investor  shall  be  entitled  to seek an injunction
restraining  any breach and requiring immediate and specific performance of such
obligations  without  the  necessity  of  showing  economic  loss.

          6.6  Governing Law; Jurisdiction.  This Agreement shall be governed by
               ---------------------------
and  construed  under  the laws of the State of New York applicable to contracts
made  and  to  be  performed  entirely within the State of New York.  Each party
hereby  irrevocably  submits  to the non-exclusive jurisdiction of the state and
federal  courts  sitting in the City and County of New York for the adjudication
of  any  dispute  hereunder  or  in  connection herewith or with any transaction
contemplated  hereby  (including  without  limitation  any dispute under or with
respect  to


                                       36
<PAGE>
the  Certificate,  the Preferred Shares or the Warrants), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding involving the
Investor  or  permitted  assignee  of  the  Investor,  any  claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or  proceeding  is  brought  in  an inconvenient forum or that the venue of such
suit,  action  or  proceeding is improper.  Each party hereby irrevocably waives
personal  service  of  process  and consents to process being served in any such
suit,  action  or  proceeding  by  mailing  a  copy thereof to such party at the
address  in  effect  for notices to it under this Agreement and agrees that such
service  shall  constitute  good  and  sufficient  service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any right
to  serve  process  in  any  manner  permitted  by  law.

          6.7  Counterparts.  This  Agreement  may  be executed in any number of
               ------------
counterparts,  each  of  which  shall  be  deemed  an original, and all of which
together  shall  constitute  one and the same instrument.  This Agreement may be
executed  and  delivered  by  facsimile  transmission.

          6.8  Headings.  The  headings  used  in  this  Agreement  are used for
               --------
convenience only and are not to be considered in construing or interpreting this
Agreement.

          6.9  Notices.  Any  notice, demand or request required or permitted to
               -------
be given by the Company or the Investors pursuant to the terms of this Agreement
shall  be in writing and shall be deemed delivered (i) when delivered personally
or  by  verifiable  facsimile  transmission  (immediately  followed  by  written
confirmation delivered according to another mechanism provided by this section),
unless  such delivery is made on a day that is not a Business Day, in which case
such  delivery  will  be  deemed to be made on the next succeeding Business Day,
(ii)  on the next Business Day after timely delivery to an overnight courier and
(iii)  on  the  Business  Day  actually  received  if deposited in the U.S. mail
(certified  or  registered  mail,  return  receipt  requested, postage prepaid),
addressed  as  follows:

          If  to  the  Company:

          Citadel  Security  Software  Inc.
          Two  Lincoln  Centre,  Suite  1600
          5420  LBJ  Freeway
          Dallas,  TX  75240
          Attn: Steven B. Solomon
          Phone: (214) 750-2454
          Fax:  (214)  520-0034

          with  a  copy  to:

          Wood  &  Sartain,  LLP
          12655 North Central Expressway, Suite 325
          Dallas,  Texas  75243
          Attn:  David A. Wood
          Tel:   (972) 458-0300
          Fax:   (972) 701-0302


                                       37
<PAGE>
and if to any Investor, to such address for such Investor as shall appear on the
signature  page  hereof  executed by such Investor, or as shall be designated by
such  Investor  in  writing  to the Company in accordance with this Section 6.9.
                                                                    -----------

          6.10  Expenses.  The Company and each Investor shall pay all costs and
                --------
expenses  that it incurs in connection with the negotiation, execution, delivery
and  performance of this Agreement or the other Transaction Documents; provided,
however,  that  that,  at  the Initial Closing, the Company shall pay $55,000 in
immediately  available  funds  to Satellite Asset Management, L.P. in connection
its due diligence investigation of the Company and the negotiation, preparation,
execution,  delivery  and  performance  of this Agreement, the other Transaction
Documents  and  the Certificate of Designation. Such amount may be netted out of
the Purchase Price payable by Satellite Asset Management, L.P. or its Affiliates
at  the  Initial  Closing.  If  the  Initial  Closing  does  not  occur due to a
determination  by  the  Company  that  it  does  not  wish  to  proceed with the
transactions  contemplated  hereby, or because the Company failed to satisfy the
conditions  to an Investor's obligation to purchase Initial Preferred Shares and
an Initial  Put Option Warrant, the Company shall pay $20,000 to Satellite Asset
Management,  L.P.  at  the  time  that  it  makes  such  determination.

          6.11 Entire Agreement; Amendments.  This Agreement, the Certificate of
               ----------------------------
Designation  and the other Transaction Documents constitute the entire agreement
between  the  parties  with  regard  to  the  subject matter hereof and thereof,
superseding  all  prior  agreements  or understandings, whether written or oral,
between or among the parties.  Except as expressly provided herein, neither this
Agreement  nor  any  term  hereof  may  be  amended except pursuant to a written
instrument  executed by the Company and the holders of at least two-thirds (2/3)
of  the Outstanding Registrable Securities at such time, and no provision hereof
may  be  waived  other  than by a written instrument signed by the party against
whom  enforcement  of  any such waiver is sought.  Any waver or consent shall be
effective  only  in the specific instance and for the specific purpose for which
given.  Neither  the Company nor any Person acting on its behalf shall, directly
or  indirectly,  pay  or  cause  to  be  paid  any  consideration  (immediate or
contingent),  whether  by  way  of  interest,  fee,  payment for the redemption,
conversion or exercise of the Securities, or otherwise, to an Investor for or as
an  inducement  to,  or in connection with the solicitation of, any amendment of
any of the terms of this Agreement, the Certificate of Designation or any of the
other Transaction Documents, unless such consideration is required to be paid to
all  of  the  Investors  bound  by  such  amendment.


                          [Signature Pages to Follow]


                                       38
<PAGE>
     IN  WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date  first-above  written.

CITADEL  SECURITY  SOFTWARE  INC.


By:  __________________________
     Name:
     Title:


SATELLITE STRATEGIC FINANCE ASSOCIATES, LLC

By:  Satellite Asset Management, L.P., its Manager


     By:  __________________________
          Name:
          Title:

ADDRESS:

     c/o Satellite Asset Management, L.P.
     623 Fifth Avenue, 20th Floor
     New York, New York 10022
     Tel:    212-209-2000
     Fax:    212-209-2021

     With  a  copy  to:

     Duval  &  Stachenfeld  LLP
     300  East  42nd  Street
     New  York,  New  York  10017
     Attn:   Robert  L.  Mazzeo,  Esq.
     Tel:    212-883-1700
     Fax:    212-883-8883


Number of Preferred Shares to be Purchased: _______________

Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________


<PAGE>
     IN  WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date  first-above  written.

CITADEL  SECURITY  SOFTWARE  INC.


By:  __________________________
     Name:
     Title:


SATELLITE STRATEGIC FINANCE PARTNERS, LTD.

By:  Satellite Asset Management, L.P., its Manager


     By:  __________________________
          Name:
          Title:

ADDRESS:

     c/o Satellite Asset Management, L.P.
     623 Fifth Avenue, 20th Floor
     New York, New York 10022
     Tel:    212-209-2000
     Fax:    212-209-2021

     With  a  copy  to:

     Duval  &  Stachenfeld  LLP
     300  East  42nd  Street
     New  York,  New  York  10017
     Attn:   Robert  L.  Mazzeo,  Esq.
     Tel:    212-883-1700
     Fax:    212-883-8883


Number of Preferred Shares to be Purchased: _______________

Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________


<PAGE>
     IN  WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date  first-above  written.

CITADEL  SECURITY  SOFTWARE  INC.

By:  __________________________
     Name:
     Title:


___________________________________________
          Investor  Name

By:  __________________________,  its  Manager


     By:  __________________________
          Name:
          Title:

ADDRESS:

     ________________________
     ________________________
     Attn:  _________________
     Tel:   _________________
     Fax:   _________________

     With  a  copy  to:

     ________________________
     ________________________
     Attn:  _________________
     Tel:   _________________
     Fax:   _________________


Number of Preferred Shares to be Purchased: _______________

Number of Warrant Shares Initially
Issuable Upon Exercise of Warrants:_______________