EXHIBIT
        10.2
 
 Data
        Systems & Software Inc.
 
 **PLACEMENT
        AGENT AGREEMENT**
 
 June
        12,
        2006
 
 First
        Montauk Securities Corp.
 Parkway
        109 Office Center
 328
        Newman Springs Road
 Red
        Bank,
        New Jersey 07701
 
 Ladies
        and Gentlemen:
  Data
        Systems & Software Inc., a Delaware corporation (the “Company” or “DSSI”),
        proposes to offer for sale (the "Offering") in a private offering pursuant
        to
        Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and/or
        Regulation D promulgated thereunder, shares of its Common Stock, par value
        $.01
        per share (“Shares”) and (ii) warrants for purchase of Shares (“Warrants”). The
        Shares and Warrants to be offered and sold are sometimes referred to herein
        as
        the “Securities”. The Offering is being conducted on a “best efforts” basis
        (with no minimum gross proceeds) for up to $3,000,000 of gross proceeds (the
        “Maximum Offering”). Offers and sales of the Securities shall be made solely to
        Accredited Investors (as defined in Regulation D). This letter agreement
        shall
        confirm our agreement concerning First Montauk Securities Corp. acting as
        our
        placement agent (the “Placement Agent” or “First Montauk”) in connection with
        the sale of the Securities.
 
 l.
        Appointment of Placement Agent.
 
 On
        the
        basis of the representations and warranties contained herein, and subject
        to the
        terms and conditions set forth herein, the Company hereby appoints First
        Montauk
        as its Placement Agent and grants to First Montauk the exclusive right to
        offer,
        as its agent, the Securities through the period of the Offering, as such
        period
        may be extended in accordance with Section 2(c) below (the “Exclusive Period”).
        The Company expressly acknowledges and agrees that First Montauk's obligations
        hereunder are not on a firm commitment basis and that the execution of this
        Agreement does not constitute a commitment by First Montauk to purchase the
        Securities and does not ensure the successful placement of the Securities
        or any
        portion thereof. Further, First Montauk's obligation to use its best efforts
        to
        assist the Company in the Offering is subject to the completion of a due
        diligence review of the Company, the industry and the market for such securities
        generally, as well as general market conditions. On the basis of such
        representations and warranties, and subject to such conditions, First Montauk
        hereby accepts such appointment and agrees to use its reasonable commercial
        efforts to secure subscriptions for the purchase of Securities up to the
        Maximum
        Offering.
 
 2.  Terms
        of
        the Offering.
 
 (a)
        The
        Company has prepared and delivered to the Placement Agent copies of a
        Confidential Private Placement Memorandum (as may be amended from time to
        time,
        and including the exhibits thereto, the “Memorandum”), relating to, among other
        things, the business of the Company, its financial condition, the Securities
        and
        the terms of Offering.
  
  
 
 (b)  Pursuant
        to the Offering as further described in the Memorandum the Company intends
        to
        offer Shares with an aggregate purchase price of $3,000,000. The purchase
        price
        per Share in the Offering shall be $2.65 (the “Purchase Price”). In addition,
        each purchaser in the Offering will receive Warrants equal to 25% of the
        number
        of Shares purchased (“Investor Warrants”). The Investor Warrants will have a
        term of five (5) years and will be exercisable at an exercise price of $2.78
        per
        Share. The investors shall be entitled to such “registration rights”,
        anti-dilution protection, future participation rights and other rights as
        are
        described in the Offering Documents (as defined below).
 
 (c)  The
        Offering shall commence on the date hereof and shall expire at 3:00 p.m.,
        New
        York time, on July 12, 2006 and may be extended at the discretion of the
        Placement Agent and the Company up to August 11, 2006, or any date prior
        thereto. Such period, as the same may be so extended, shall hereinafter be
        referred to as the “Offering Period.”
 
 (d)  Each
        prospective investor (“Prospective Investor”) who desires to purchase Securities
        shall deliver to the Placement Agent a fully executed Subscription Agreement,
        Investor Questionnaire ), and such other agreements as are required to be
        signed
        in connection with the Offering (together with the Memorandum, Subscription
        Agreement, Investor Questionnaire, and other exhibits thereto, the “Offering
        Documents”) along with payment in the form of immediately available funds in the
        amount necessary to purchase the number of Securities such Prospective Investor
        desires to purchase. Upon receipt of the executed Offering Documents, the
        Placement Agent shall forward such documents to the Company for review, keeping
        a copy of such documents for its records. The Placement Agent shall not have
        any
        obligation to independently verify the accuracy or completeness of any
        information contained in any Subscription Agreement or the authenticity,
        sufficiency, or validity of any check delivered by any Prospective Investor
        in
        payment for Securities.
 
 (e)  The
        Placement Agent shall deliver all subscription funds received from a Prospective
        Investor to Signature Bank for deposit in a segregated escrow account pursuant
        to an escrow deposit agreement among the Company, Placement Agent and Signature
        Bank, as escrow agent, and shall deliver the executed copies of the Subscription
        Agreement received from such Prospective Investor to the Company. All funds
        shall be held in the segregated non-interest-bearing account pending acceptance
        of the subscription and no funds shall be released without execution of a
        written notice by the Company and the Placement Agent. The Company shall
        notify
        the Placement Agent promptly of the acceptance or rejection or any
        subscription.
 
 (f)  Subject
        to the approval of the Company and the conditions set forth herein, which
        approval shall not be unreasonably withheld, First Montauk may engage other
        persons selected by First Montauk to assist First Montauk in the Offering
        (each
        such broker/dealers being hereinafter referred to as a “Selling Group Member”)
        and First Montauk may allow such Selling Group Member such part of the
        compensation and payment of expenses payable to First Montauk under Section
        5
        hereof as First Montauk shall determine. Any such Selling Group Member shall
        be
        a member firm in good standing as a broker-dealer under the rules of the
        NASD.
        The Company hereby agrees to make such representations and warranties to,
        and
        covenants and agreements with, any Selling Group Member (including an agreement
        to indemnify such Selling Group Member on terms substantially similar to
        Section
        12 hereof) as provided herein.
 
 3.
        Closings: Release of Funds.
 
 (a)  The
        date
        that the parties determine to hold an initial closing for acceptance of
        subscriptions by the Company and funds are released from the escrow account
        shall be deemed the “Initial Closing”. There is no minimum amount of securities
        which are required to be sold prior to the Initial Closing. At least one
        (1) day
        prior to the release of funds, the Company and the Placement Agent shall
        send
        written notice to each other, which notice shall state the amount of funds
        to be
        released, the name and address of each subscriber whose subscription has
        been
        accepted by the Company, and the amount of each subscription.
  2
  
 
 (b)  At
        any
        time prior to the expiration of the Offering Period following the Initial
        Closing and after acceptance by the Company of subscriptions for the sale
        of
        additional Securities up to the Maximum Offering, one or more closings (each
        an
        "Interim Closing") shall take place in the manner herein set forth with respect
        to the Initial Closing. The final Interim Closing to be held in accordance
        herewith shall be deemed the “Final Closing” and the date thereof shall be the
”Final Closing Date”. References herein to a "Closing" shall mean the Initial
        Closing, any Interim Closing or the Final Closing, as the context requires,
        and
        the date thereof shall be referred to as a ”Closing Date”. Prior to each
        Closing, Placement Agent will furnish to the Company appropriate records
        indicating the name and address of each person subscribing in the Offering
        and a
        copy of the executed Subscription Agreement for each subscriber. The Company
        shall have discretion as to whether or not to accept any Subscription Agreement; provided ,
        however
        any rejection of a subscription shall be in good faith on the basis of a
        reasonable business purpose
 
 4.  Representations
        and Warranties of the Placement Agent.
 
 The
        Placement Agent represents, warrants to and agrees with the Company as
        follows:
 
 (a)  The
        Placement Agent is duly incorporated and validly existing and in good standing
        under the laws of the State of New York.
 
 (b)  The
        Placement Agent is, and at the time of each Closing will be, duly registered
        as
        a broker/dealer pursuant to the Securities Exchange Act of 1934, as amended
        (the
“Exchange Act”) and a member in good standing of the NASD, and each of the
        Placement Agent's representatives is, and at the time of each Closing will
        be,
        registered as an agent or salesman of the Placement Agent and in good standing
        with the NASD.
 
 (c)  Sales
        of
        Securities by the Placement Agent will only be made in such jurisdictions
        in
        which the Placement Agent is a registered broker-dealer or where an applicable
        exemption from such registration exists.
 
 (d)  Offers
        and sales of Securities by the Placement Agent will be made only in accordance
        with this Agreement and in compliance with the provisions of Rule 506 of
        Regulation D (it being understood and agreed that the Placement Agent shall
        be
        entitled to rely upon the information and statements provided by the Prospective
        Investors in the Subscription Agreement and Investor Questionnaires), and
        the
        Placement Agent will furnish to each Prospective Investor a copy of the Offering
        Documents prior to the receipt thereby of any Subscription Agreement from
        such
        Prospective Investor.
 
 (e)  During
        the course of the Offering, the Placement Agent and its representatives will
        not
        make any untrue statement of a material fact or omit to state a material
        fact
        required to be stated, or necessary to make any statement made, by the Placement
        Agent or its representatives, not misleading concerning the Offering or any
        matters set forth in or contemplated by the Offering Documents (it being
        understood that the statements made in the Offering Documents are deemed
        to be
        made by the Company and not the Placement Agent, except for information set
        forth therein based upon written information provided by, or on behalf of,
        the
        Placement Agent or any of its representatives for inclusion
        therein).
 
 (f)  Neither
        the Placement Agent nor any of its representatives or affiliates, has engaged
        or
        will engage, directly or indirectly, in any act or activity that may jeopardize
        the status of the Offering and sale of the Securities as an exempt transaction
        under the Act or under all applicable federal and/or state securities or
        blue
        sky laws of any jurisdiction in which the Securities may be offered or
        sold.
  3
  
 
 5.
        Placement Agent Compensation; Future Financing.
 
 (a)  The
        Placement Agent shall be entitled, on each Closing Date, as compensation
        for its
        services as Placement Agent under this Agreement, to (i) selling commissions
        equal to 7% of the gross proceeds received by the Company from the sale of
        the
        Shares and (ii) a management fee of 3% of the gross proceeds received by
        the
        Company from the sale of the Shares. In addition, the Placement Agent will
        receive an advisory fee equal to 1% of the gross proceeds of the
        Offering **.** All
        payments hereunder shall be effected at each Closing in immediately available
        funds.
 
 (b)  In
        addition to the forgoing cash compensation, the Placement Agent will be entitled
        to receive Warrants to purchase a number of shares equal to 10% of the Shares
        sold by it in the Offering (the “Agent Warrants”). The Agent Warrants shall be
        on the same terms as the Investor Warrants.
 
 (c)  For
        a
        period of 18 months following the end of the Exclusive Period, the Company
        agrees to pay to Placement Agent at each closing of any other equity financing,
        convertible debt financing or any instrument convertible into Shares from
        any
        Source contacted by Placement Agent on the Company’s behalf and disclosed to the
        Company in writing or from any investor who purchases shares in the Offering
        (i)
        a cash transaction fee in the amount of 10% of the amount of the gross proceeds
        received by the Company from any such financing, (ii) a non-accountable expense
        allowance of 1% of the amount of gross proceeds received by the Company from
        any
        such financing and (iii) Agent Warrants. As
        used
        in this Agreement, the term “Source” shall be broadly interpreted to include,
        without limitation, any corporation, company, institution, partnership,
        individual and all of the Source’s affiliates that are directly or indirectly
        contacted by Placement Agent for the purpose of investing in the Offering.
        Placement Agent will periodically provide the Company with a written list
        of all
        Sources contacted by Placement Agent.
 
 (d)  The
        Placement Agent shall also be entitled to receive, during the term of the
        Warrants, a warrant solicitation fee (“Solicitation Fee”) equal to five percent
        (5%) of the exercise price of the Warrants, which fee shall be payable within
        five business days of receipt by the Company of the exercise price from a
        holder
        of the Warrants. The Solicitation Fee shall be payable in accordance with
        the
        applicable rules of the NASD and the form of warrants issuable to investors
        shall disclose shall include appropriate disclosure regarding the payment
        of the
        Solicitation Fee upon terms acceptable to the Placement Agent. The Company
        shall
        not hire any other broker dealer firm other than the Placement Agent to assist
        it in connection with the solicitation of the exercise of the
        Warrants.
 
 (e)  In
        the
        event that the Company enters into a merger, acquisition, or sale transaction
        with a Source, Placement Agent shall be entitled to receive a fee in accordance
        with industry standard terms to be agreed upon in good faith between the
        Company
        and Montauk.
 
  6.
        Representations and Warranties of the Company. The Company represents and
        warrants to, and agrees with, the Placement Agent that as of the date hereof
        and
        as of each Closing Date (except as disclosed in the Disclosure Statement
        or
        contemplated therein):
 
 (a)  Assuming
        the accuracy of the representations and warranties of the Prospective Investors
        set forth in the Subscription Agreement and Investor Questionnaire and the
        representations and warranties of the Placement Agent set forth herein, the
        Offering Documents (including, without limitation, the Company Documents
        as
        defined clause (c) below) (i) contain at all times during the period from
        the
        date hereof to and including each Closing Date, all information required
        to be
        contained therein, if any, pursuant to a private offering to all “accredited
        investors“ under Rule 506 of Regulation D and all applicable federal and/or
        state securities and blue sky laws, and (ii) do not, and during such period
        will
        not, contain any untrue statement of a material fact or omit to state any
        material fact necessary in order to make the statements made therein, in
        the
        light of the circumstances in which they were made, not misleading. Each
        contract, agreement, instrument, lease, license, or other document required
        to
        be described in the Offering Documents shall be, and have been, accurately
        described therein in all material respects.
  4
  
 
 (b)  The
        information provided by the Company to Prospective Investors pursuant to
        Section
        7(f) hereof (it being understood that neither the Company nor any of its
        officers or directors or employees shall provide any information to any
        Prospective Investor which is not contained or referred to in the Offering
        Documents) taken as a whole shall not contain any untrue statement of a material
        fact or omit to state any material fact necessary to make the statements
        made
        therein, in the light of the circumstances in which they were made, not
        misleading. Contracts to which the Company or any of its Controlled Subsidiaries
        (as defined below) is a party provided by the Company to Prospective Investors
        shall not be deemed to contain any untrue statement of a material fact or
        to
        omit to state any material fact if the contract so provided is a true, correct
        and complete copy of such contract, as amended or modified through the date
        it
        is so provided.
 
 (c)  The
        authorized capital stock of the Company consists of 20,000,000 Shares . As
        of
        the date hereof, 8,162,024 Shares are issued and outstanding, and all such
        Shares are, duly authorized, validly issued, fully paid and nonassessable
        and
        not subject to preemptive rights. In addition, there are (i) warrants
        outstanding to acquire an aggregate of approximately 190,000 Shares of common
        Stock, and (ii) options outstanding to acquire an aggregate of approximately
        1,988,665 Shares of Common Stock. The Shares, including Shares issuable upon
        exercise of the Warrants, when issued in accordance with the terms of the
        Offering, will be validly issued, fully paid and nonassessable and not subject
        to preemptive or any other similar rights and no personal liability will
        attach
        to the ownership thereof. The outstanding options, warrants and other
        convertible securities of the Company are as set forth in the Memorandum
        and the
        Company’s filings with the SEC under the Exchange Act (collectively, the
“Company Documents **).** Neither
        the Company nor any Subsidiary is a party to an agreement, instrument or
        understanding which calls for, and no securities of the Company or any
        Subsidiary contain provisions relating to, the
        resetting orrepricing
        of any debt or equity security instrument of the Company or any Subsidiary.
        The
        issuance of the Securities or the consummation of the Placement will not
        trigger
        any resetting or repricing of any debt or equity security instrument of the
        Company or any Subsidiary and will not result in any preemptive rights to
        acquire securities of the Company in favor of any third party.
 
 (d)  Each
        statute, regulation, legal and governmental proceeding, contract, agreement,
        instrument, lease, license, or other document required to be described in
        the
        Offering Documents has been accurately described therein in all material
        respects.
 
 (e)  All
        prior
        offerings of the Company’s securities complied in all respects with the Act and
        the rules and regulations promulgated thereunder and all applicable blue
        sky
        laws.
 
 (f)  The
        Company and its Controlled Subsidiaries, are (a) corporations duly organized,
        validly existing and in good standing under the laws of the respective state
        of
        their incorporation, each have full power and authority to own or lease all
        of
        the assets owned or leased by each of them and to conduct their respective
        business as described in the Offering Documents and (b) are duly qualified
        to do
        business and in good standing as a foreign corporation in all jurisdictions
        in
        which the nature of the activities conducted or the character of the assets
        owned or leased makes such qualification necessary, except where the failure
        to
        be so qualified would not have a material adverse effect on the Company's
        presently conducted business (taken as a whole with the business of the
        Controlled Subsidiaries). Complete and correct copies of the certificate
        of
        incorporation and of the by-laws of the Company and its Controlled Subsidiaries
        as in effect on the date hereof have been delivered to First Montauk, and
        no
        changes therein will be made on or subsequent to the date hereof and prior
        to
        the Final Closing Date except as may be disclosed in the Offering Documents
        or
        required pursuant to this Agreement. The term “Controlled Subsidiaries” means
        any corporation or other organization in which the Company owns, directly
        or
        indirectly, an equity or other ownership interest equal to or greater than
        50
        percent.
  5
  
 
 (g)  Since
        the
        dates as of which information is given in the Offering Documents, other than
        as
        set forth or contemplated therein, (A) there has not been any material adverse
        change in the business, prospects, properties, management, financial condition
        or results of operations of the Company or its Controlled Subsidiaries, (B)
        the
        Company has not and will not have paid or declared any dividends or other
        distributions on its capital stock and (C) there has not been any change
        in the
        capital stock of the Company or any material change in the short-term or
        long-term debt of the Company or its Controlled Subsidiaries.
 
 (h)  The
        consolidated financial statements, together with related notes and schedules
        of
        the Company and its Controlled Subsidiaries, included as part of the Offering
        Documents (including the financial statements contained in the company
        Documents), present fairly the financial position of the Company and its
        Controlled Subsidiaries in all material respects as of the respective dates
        and
        for the periods indicated therein. Audited financial statements, and related
        notes and schedules, have been prepared in conformity with United States
        generally accepted accounting principles applied on a consistent basis and
        the
        rules of the SEC through the entire period involved. Except as stated in
        the
        Offering Documents, the unaudited statements contained in the Offering Documents
        are consistent with, and have been prepared from the books and records kept
        by
        the Company in a manner consistent with past practice.
 
 (i)  Except
        as
        described in the Offering Documents, there is no action, suit, investigation
        or
        proceeding pending or, to the Company's knowledge, threatened before or by
        any
        Federal or state court, commission, regulatory body, administrative agency
        or
        other governmental body, domestic or foreign, or arbitrator to which the
        Company
        or its Controlled Subsidiaries is or may become a party or of which any property
        of the Company or its Controlled Subsidiaries is subject or affected that
        (i)
        might affect the consummation of the transactions contemplated under this
        Agreement, including the issuance or validity of the Shares offered hereby
        or
        (ii) would have a material adverse effect on the financial condition,
        properties, results of operations or businesses of the Company and its
        Controlled Subsidiaries, taken as a whole (“Material Adverse
        Effect”).
 
 (j)  The
        Company and its Controlled Subsidiaries have all approvals, licenses,
        franchises, authorizations and permits (collectively, “permits”) necessary under
        all applicable statutes, codes, rules, regulations, orders and decrees of
        governments or governmental bodies (collectively, “laws”), which are material to
        the ownership, lease or use of their respective properties or the conduct
        of
        their respective businesses as described in the Offering Documents. Neither
        the
        Company nor its Controlled Subsidiaries has received notice of any proceedings
        relating to the revocation or modification of any such permits which, singly
        or
        in the aggregate, would have a Material Adverse Effect, and each of the Company
        and its Controlled Subsidiaries is in all material respects in compliance
        with
        such permits and laws.
 
 (k)  The
        Company and its Controlled Subsidiaries own or are licensed to use all patents,
        patent applications, inventions, trademarks, trade names, applications for
        registration of trademarks, copyrights, know-how, trade secrets, licenses
        and
        rights in any thereof (“Proprietary Rights”) which are material to the business
        of the Company and its Controlled Subsidiaries taken as a whole as now conducted
        and as proposed to be conducted, in each case as described in the Offering
        Documents. Except as described in the Offering Documents:
 
 (i)
        the
        Company and its Controlled Subsidiaries do not have any knowledge of, and
        the
        Company and its Controlled Subsidiaries have not given or received any notice
        of
        any pending conflict with or infringement of, the rights of others with respect
        to any Proprietary Rights or with respect to any license of Proprietary
        Rights;
  6
  
 
 (ii)
        no
        action, suit, arbitration, or legal, administrative or other proceeding,
        or
        domestic or foreign governmental investigation is pending or, to the best
        of the
        Company's knowledge, threatened, which involves any Proprietary Rights and
        would
        have a Material Adverse Effect;
 
 (iii)
        neither the Company nor its Controlled Subsidiaries is subject to any judgment,
        order, writ, injunction or decree of any court or any Federal, state, local,
        foreign or other governmental department, commission, board, bureau, agency
        or
        instrumentality, domestic or foreign, or any arbitrator, which restricts
        or
        impairs the use of any such Proprietary Rights in a manner which would have
        a
        Material Adverse Effect on the use of any of the Proprietary
        Rights;
 
 (iv)
        no
        Proprietary Rights used by the Company or its Controlled Subsidiaries and
        no
        services or products sold by the Company or its Controlled Subsidiaries,
        conflict with or infringe upon, to the knowledge of the Company and its
        Controlled Subsidiaries, any proprietary rights available to any third
        party;
 
 (v)
        neither the Company nor its Controlled Subsidiaries has entered into any
        consent, indemnification, forbearance to sue or settlement agreement with
        respect to Proprietary Rights other than in the ordinary course of
        business;
 
 (vi)
        to
        the best knowledge of the Company, no claims have been asserted by any person
        with respect to the validity of or the Company's or its Controlled Subsidiaries'
        ownership of or right to use the Proprietary Rights and, to the best knowledge
        of the Company, there is no reasonable basis for any such claim;
 
 (vii)
        to
        the best knowledge of the Company, the Proprietary Rights are valid and
        enforceable and no registration relating thereto has lapsed, expired or been
        abandoned or canceled or is the subject of cancellation or other adversarial
        proceedings which would have a Material Adverse Effect, and any applications
        therefore are pending and are in good standing;
 
 (viii)
        the Company and its Controlled Subsidiaries have complied, in all material
        respects, with their respective contractual obligations relating to the
        protection of the Proprietary Rights used pursuant to licenses; and
 
 (ix)
        to
        the best knowledge of the Company, no person is infringing on or violating
        the
        Proprietary Rights owned or used by the Company or its Controlled
        Subsidiaries.
 
 (l)  Except
        as
        described in the Offering Documents, there are no contracts, agreements or
        understandings between the Company and any person granting such person the
        right
        to require the Company to file a registration statement under the Act with
        respect to any securities of the Company owned or to be owned by such person
        or
        to require the Company to include such securities in the securities being
        registered pursuant to any registration statement filed by the Company under
        the
        Act.
 
 (m)  All
        offers and sales of securities of the Company issued during the three year
        period prior to the date hereof were at all relevant times duly registered
        or
        exempt from the registration requirements of the Act and the rules and
        regulations thereunder and were duly registered or the subject of an available
        exemption from the registration requirements of the applicable state securities
        or Blue Sky laws. The Company has not, directly or indirectly, solicited
        any
        offer to buy or offered to sell any securities during the twelve-month period
        ending on the date hereof which, to the knowledge of the Company, would be
        integrated with the Offering.
  7
  
 (n)  Neither
        the Company nor its Controlled Subsidiaries are (i) in violation of its
        certificate of incorporation or by-laws, (ii) to the best knowledge of the
        Company, in violation of any statute, law, rule, code, administrative
        regulation, ordinance, judgment, order or decree of any government, governmental
        instrumentality, court, domestic or foreign, or arbitration panel or other
        body
        applicable to it where such violation would have a Material Adverse Effect
        or
        (iii) to the best knowledge of the Company, in default in the performance
        or
        observance of any obligation, agreement, covenant or condition contained
        in any
        indenture, mortgage, deed of trust, voting agreement, voting trust agreement,
        loan agreement, bond, debenture, note or other evidence of indebtedness,
        lease,
        sublease, license agreement, contract or other agreement or instrument to
        which
        it is a party or by which it or any of its respective properties are bound
        or
        affected (“Contracts”), where such defaults, singly or in the aggregate, would
        have a Material Adverse Effect. To the knowledge of the Company, no other
        party
        under any Contract is in default in any material respect thereunder which
        affects the Company.
 
 (o)  The
        Company has all requisite power and authority to execute, deliver and perform
        its obligations under this Agreement and the Subscription Agreement. This
        Agreement and the Subscription Agreement have been duly and validly authorized,
        executed and delivered by the Company, and each such agreement constitutes
        a
        legal, valid and binding agreement of the Company enforceable against the
        Company in accordance with its respective terms, except as rights to indemnity
        and contribution hereunder and thereunder may be limited by the securities
        laws
        and public policy of the United States and except as such enforceability
        may be
        limited by bankruptcy, insolvency, reorganization or similar laws or equitable
        principles affecting the enforcement of creditors' rights
        generally;
 
 (p)  The
        issuance of the Securities and the execution, delivery and performance of
        this
        Agreement and the Subscription Agreement, and the consummation of the
        transactions contemplated hereby and thereby, do not and will not conflict
        with
        or result in a material breach or violation of any of the terms or provisions
        of, or constitute a material default under, or give rise to rights of
        termination under, or result in the acceleration of any obligation under,
        or
        result in the creation or imposition of any lien, charge or encumbrance upon
        any
        material property or assets of the Company or any of its Controlled Subsidiaries
        pursuant to the terms of any indenture, mortgage, deed of trust, voting
        agreement, voting trust agreement, loan agreement, bond, debenture, note
        or
        other evidence of indebtedness or result in a material breach or violation
        of
        any of the terms or provisions of, or constitute a material default under
        any
        lease, sublease, contract or other agreement or instrument to which the Company
        or any of its Controlled Subsidiaries are a party, or by which the Company,
        its
        Controlled Subsidiaries, or any of the Company’s or its Controlled
        Subsidiaries’respective properties or assets are bound or affected, nor will
        such action result in any violation of the provisions of the certificate
        of
        incorporation or by-laws of the Company or its Controlled Subsidiaries or
        a
        material violation of any applicable statute, law, rule, code, administrative
        regulation, ordinance, judgment, order or decree of any government, governmental
        instrumentality or court, domestic or foreign, or arbitration panel or other
        body, having jurisdiction over the Company, its Controlled Subsidiaries,
        or any
        of the Company’s or its Controlled Subsidiaries’ respective properties or
        obligations.
 
 (q)  No
        consent, approval, authorization, license or order of or from, or registration,
        qualification, declaration or filing with, federal, state, local, foreign
        or
        other governmental authority or any person or court, administrative agency,
        or
        other body is required for the consummation of the transactions contemplated
        in
        this Agreement, or the Offering Documents, except as may have been made,
        are
        required to be made prior to the Initial Closing, or may be required to be
        obtained under any state securities or blue sky laws or pursuant to Regulation
        D.
  8
  
 (r)  The
        Company is in compliance in all material respects with all applicable federal,
        state and local environmental laws and regulations (collectively, the
“Environmental Laws”), except for any material noncompliance as may be described
        in the Offering Documents, and to the best of the Company's knowledge, there
        are
        no circumstances that would prevent, interfere with, or materially increase
        the
        cost of such compliance in the future. Except as set forth in the Offering
        Documents, there is no claim under any Environmental Law, including common
        law
        (“Environmental Claim”), pending or, to the knowledge of the Company, threatened
        against or affecting the Company or its Controlled Subsidiaries and, to the
        best
        of the Company's knowledge, there are no past or present actions, activities,
        circumstances, events or incidents, including, without limitation, releases
        of
        any material into the environment, that could form the basis of any
        Environmental Claim against or affecting the Company or its Controlled
        Subsidiaries.
 
 (s)  Each
        of
        the Company and its Controlled Subsidiaries has good and marketable title
        to all
        property owned by it, in each case free and clear of all liens, charges,
        encumbrances or restrictions except as described in the Offering Documents
        or
        such as do not materially affect the value of such property and do not interfere
        with the use made and proposed to be made of such property by the Company.
        Except as described in the Offering Documents, all material Contracts to
        which
        the Company or its Controlled Subsidiaries is a party or by which the Company
        or
        its Controlled Subsidiaries or any of their respective properties or assets
        are
        bound are valid, subsisting and enforceable and are in full force and
        effect.
 
 (t)  The
        Company and its Controlled Subsidiaries (A) has paid all federal, state,
        local
        and foreign taxes for which it is liable and has furnished all information
        returns it is required to furnish pursuant to the Internal Revenue Code of
        1986,
        as amended, (B) has established adequate reserves for such taxes which are
        not
        due and payable and (C) does not have any tax deficiency or claims outstanding,
        proposed or assessed against it.
 
 (u)  The
        Company and its Controlled Subsidiaries maintain insurance of the types and
        in
        amounts which it deems adequate for its business taken as a whole, all of
        which
        are in full force and effect.
 
 (v)  Other
        than as set forth herein or in the Offering Documents, there are no claims,
        payments, issuances, arrangements or understandings, whether oral or written,
        for services in the nature of a finder's or origination fee with respect
        to the
        sale of the Securities.
 
 (w)  Neither
        the Company nor its Controlled Subsidiaries, nor to the best of the Company’s
        knowledge any of the Company’s officers, employees, agents or any other person
        acting on behalf of, at the direction of or for the benefit of the Company
        has,
        directly or indirectly, given or agreed to give any money, gift or similar
        benefit (other than legal price concessions to customers in the ordinary
        course
        of business) to any customer, supplier, employee or agent of a customer or
        supplier, or official or employee of any governmental agency (domestic or
        foreign) or instrumentality of any government (domestic or foreign) or any
        political party or candidate for office (domestic or foreign) or other person
        who was, is, or may be in a position to help or hinder the business of the
        Company (or assist the Company in connection with any actual or proposed
        transaction) which (a) might subject the Company or any other such person
        to any
        damage or penalty in any civil, criminal or governmental litigation or
        proceeding (domestic or foreign), (b) if not given in the past, might have
        had a
        Material Adverse Effect or (c) if not continued in the future, might result
        in a
        Material Adverse Effect. The Company's internal accounting controls are
        sufficient to cause the Company to comply with the Foreign Corrupt Practices
        Act
        of 1977, as amended.
 
 (x)  To
        the
        best knowledge of the Company, during the past five years, none of the current
        officers or directors of the Company have been:
 
 (i)  The
        subject of a petition under the federal bankruptcy laws or any state insolvency
        law filed by or against them, or by a receiver, fiscal agent or similar officer
        appointed by a court for their business or property, or any partnership in
        which
        any or them was a general partner at or within two years before the time
        of such
        filing, or any corporation or business association of which any of them was
        an
        executive officer at or within two years before the time of such
        filing;
  9
  
 
 (ii)  Convicted
        in a criminal proceeding or a named subject of a pending criminal proceeding
        (excluding traffic violations and other minor offenses);
 
 (iii)  The
        subject of any order, judgment, or decree not subsequently reversed, suspended
        or vacated, of any court of competent jurisdiction, permanently or temporarily
        enjoining any of them from, or otherwise limiting, any of the following
        activities:
 
 (iv)  acting
        as
        a futures commission merchant, introducing broker, commodity trading advisor,
        commodity pool operator, floor broker, leverage transaction merchant, any
        other
        person regulated by the Commodity Futures Trading Commission, or an associated
        person of any of the foregoing, or as an investment adviser, underwriter,
        broker
        or dealer in securities, or as an affiliated person, director or employee
        of any
        investment company, bank, savings and loan association or insurance company,
        or
        engaging in or continuing any conduct or practice in connection with any
        such
        activity;
 
 (v)  engaging
        in any type of business practice; or
 
 (vi)  engaging
        in any activity in connection with the purchase or sale of any security or
        commodity or in connection with any violation of federal or state securities
        law
        or federal commodity laws.
 
 (vii)  the
        subject of any order, judgment or decree, not subsequently reversed, suspended
        or vacated of any federal or state authority barring, suspending or otherwise
        limiting for more than sixty (60) days their right to engage in any activity
        described in paragraph (c)(i) above, or be associated with persons engaged
        in
        any such activity;
 
 (viii)  found
        by
        any court of competent jurisdiction in a civil action or by the Securities
        and
        Exchange Commission to have violated any federal or state securities law,
        and
        the judgment in such civil action or finding by the Commission has not been
        subsequently reversed, suspended or vacated; or
 
 (ix)  found
        by
        a court of competent jurisdiction in a civil action or by the Commodity Futures
        Trading Commission to have violated any federal commodities law, and the
        judgment in such civil action or finding by the Commodity Futures Trading
        Commission has not been subsequently reversed, suspended or
        vacated.
 
 (x)  found
        by
        a court or an administrative agency to have or is alleged to have violated
        any
        foreign securities laws.
 
 (y)  Neither
        the Company nor, to the knowledge of the Company, any of its affiliates has,
        directly or through any agent, sold, offered for sale or solicited offers
        to buy
        any security of the Company, nor will any of the foregoing directly buy any
        security of the Company.
 
 (z)  Neither
        the Company nor any of its officers, directors, or affiliates, has engaged
        or
        will engage, directly or indirectly, in any act or activity that may jeopardize
        the status of the Offering and sale of the Securities as an exempt transaction
        under the Act or under all applicable federal and/or state securities or
        blue
        sky laws of any jurisdiction in which the Securities may be offered or sold.
  10
  
 (aa)  The
        Company and the Subsidiaries maintain a system of internal accounting and
        other
        controls sufficient to provide reasonable assurances that: (i) transactions
        are
        executed in accordance with management’s general or specific authorizations,
        (ii) transactions are recorded as necessary to permit preparation of reliable
        financial statements in conformity with United States generally accepted
        accounting principles and to maintain accountability for assets, (iii) access
        to
        assets is permitted only in accordance with management’s general or specific
        authorization, and (iv) the recorded accounting for assets is compared with
        existing assets at reasonable intervals and appropriate action is taken with
        respect to any material differences.
 
 (bb)  Neither
        the Company nor any of its Subsidiaries has violated or is currently in
        violation of any provisions of: (a) any federal or state environmental law,
        (b)
        Employee Retirement Income Security Act of 1974, as amended, including the
        regulations and published interpretations thereunder (“ERISA”), (c) the Bank
        Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as
        amended, (e) the Foreign Corrupt Practices Act, or (f) the Uniting and
        Strengthening of America by Providing Appropriate Tools Required to Intercept
        and Obstruct Terrorism (“USA Patriot Act”) Act of 2001, and the rules and
        regulations promulgated under any such law, or any successor law, except
        for
        such violations which, singly or in the aggregate, would not have a Material
        Adverse Effect.
 
 (cc)  So
        long
        as the Common Stock and the Warrants (including the Common Stock receivable
        upon
        the exercise thereof) are “restricted securities” within the meaning of Rule
        144(a)(3) under the Securities Act, the Company, during any period in which
        it
        is not subject to and in compliance with Section 13 or 15(d) of the Exchange
        Act, or is not exempt from such reporting requirements pursuant to and in
        compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
        of
        Common Stock and to each prospective purchaser (as designated by such holder)
        of
        Common Stock upon the request of such holder or prospective holder, any
        information required to be provided by Rule 144A(d)(4) under the Securities
        Act.
  (dd)  The
        Company is not and, at all times up to and including consummation of the
        transactions contemplated by this Agreement, and after giving effect to
        application of the net proceeds of the Placement, will not be, subject to
        registration as an “investment company” under the Investment Company Act of
        1940, as amended (the “ **1940
        Act** ”),
        and
        is not and will not be an entity “controlled” by an “investment company” within
        the meaning of the 1940 Act. The Company will: (i) utilize the proceeds of
        the
        Placement in accordance with the “Use of Proceeds” section of the Memorandum and
        (ii) initially utilize the proceeds of the Placement and all other funds
        of the
        Company in such a manner so as to cause the Company not to be subject to
        the
        1940 Act, and will thereafter use its best efforts to avoid the Company’s
        becoming subject to the 1940 Act.
  (ee)  The
        Company is in compliance with applicable requirements of the Sarbanes-Oxley
        Act
        of 2002 and applicable rules and regulations promulgated by the Commission
        thereunder in effect as of the date of this Agreement, except where such
        noncompliance could not be reasonably expected to have, individually or in
        the aggregate, a material adverse effect upon the Company.
  7.  Covenants
        of the Company.
 
 The
        Company covenants that it will:
 
 (a)
        Notify First Montauk immediately, and confirm such notice in writing, (i)
        when
        any event shall have occurred during the period commencing on the date hereof
        and ending on the Final Closing Date, as a result of which the Offering
        Documents would include any untrue statement of a material fact or omit to
        state
        any material fact necessary to make the statements made therein, in the light
        of
        the circumstances under which they were made, not misleading, and (ii) of
        the
        receipt of any notification with respect to the modification, rescission,
        withdrawal, or suspension of the qualification or registration of the
        Securities, or of an exemption from such registration or qualification, in
        any
        jurisdiction. The Company will use its reasonable best efforts to prevent
        the
        issuance of any such modification, rescission, withdrawal, or suspension,
        and at
        Placement Agent's request, to use reasonable best efforts to obtain the lifting
        thereof as promptly as possible.
  11
  
 
 (b)
        Not
        make any supplement or amendment to the Offering Documents unless such
        supplement or amendment complies with the requirements of the Act and Regulation
        D and the applicable federal and/or state securities and blue sky laws and
        unless the Placement Agent shall have approved of such supplement or amendment.
        If, at any time during the period commencing on the date hereof and ending
        on
        the Final Closing Date, any event shall have occurred as a result of which
        the
        Offering Documents contain any untrue statement of a material fact or omit
        to
        state any material fact necessary to make the statements made therein, in
        the
        light of the circumstances in which they were made, not misleading, or if,
        in
        the reasonable opinion of counsel to the Company or counsel to the Placement
        Agent, it is necessary at any time to supplement or amend the Offering Documents
        to comply with the Act, Regulation D, or any applicable securities or blue
        sky
        laws, the Company will promptly prepare an appropriate supplement or amendment
        (in form and substance satisfactory to the Placement Agent) which will correct
        such statement or omission or which will effect such compliance.
 
 (c)
        Deliver without charge to the Placement Agent such number of copies of the
        Offering Documents and any supplement or amendment thereto as may reasonably
        be
        requested by the Placement Agent.
 
 (d)
        Not,
        directly or indirectly, solicit any offer to buy from, or offer to sell to
        any
        person any Securities, or any other securities (whether debt or equity) of
        the
        Company except through the Placement Agent.
 
 (e)
        Use
        its best efforts to establish an exemption from qualification and registration
        under the securities or blue sky laws of the jurisdictions as may be required
        by
        the Placement Agent in connection with the offer and sale of the Securities
        and
        retain counsel in making any required filings; provided, however, that the
        Company will not be obligated to qualify to do business or register as a
        dealer
        in securities, or otherwise subject itself to general service of process,
        in any
        jurisdiction in which it is not so qualified. The Company shall make a Form
        99
        and State Notice filing with the State of New York prior to the commencement
        of
        the Offering and timely file a Form D and such other required notice with
        all
        state blue sky authorities and the SEC.
 
 (f)
        At
        all times during the period commencing on the date hereof and ending on the
        Final Closing Date, provide to each Prospective Investor or his Purchaser
        Representative (as defined in Regulation D), if any, on request, such
        information (in addition to that contained in the Offering Documents) concerning
        the Offering, the Company and any other relevant matters, as it possesses
        or can
        acquire without unreasonable effort or expense, and to extend to each
        Prospective Investor or his Purchaser Representative, if any, the opportunity
        to
        ask questions of, and receive answers from, the President or other executive
        officers of the Company concerning the terms and conditions of the Offering
        and
        the business of the Company and to obtain any other additional information,
        to
        the extent it possesses the same or can acquire it with reasonable effort
        or
        expense, and in conformity with existing laws and regulations of federal
        and
        state and other regulatory bodies and agencies as such Prospective Investor
        or
        Purchaser Representative may consider necessary in making an informed investment
        decision or in order to verify the accuracy of the information furnished
        to such
        Prospective Investor or Purchaser Representative, as the case may be.
        Notwithstanding, anything in this Section 7(f) to the contrary, the Prospective
        Investor and/or his Purchaser Representative, as the case may be, shall only
        rely on such information in making an investment decision, to the extent
        it has
        been provided to them in the Offering Documents or otherwise provided by
        the
        Company in writing.
  12
  
 
 (g)  So
        long
        as the Shares and the Warrants (including the Shares receivable upon the
        exercise thereof) are “restricted securities” within the meaning of Rule
        144(a)(3) under the Securities Act, the Company, during any period in which
        it
        is not subject to and in compliance with Section 13 or 15(d) of the Exchange
        Act, or is not exempt from such reporting requirements pursuant to and in
        compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
        of
        Shares and to each prospective purchaser (as designated by such holder) of
        Shares upon the request of such holder or prospective holder, any information
        required to be provided by Rule 144A(d)(4) under the Securities
        Act.
 
 (h)
        Not,
        directly or indirectly, engage in any act or activity which may jeopardize
        the
        status of the offering and sale of the Securities as exempt transactions
        under
        the Act or under the securities or blue sky laws of any jurisdiction in which
        the Offering maybe made. Without limiting the generality of the foregoing,
        and
        notwithstanding anything contained herein to the contrary, the Company shall
        not, directly or indirectly, engage in any offering of securities which,
        if
        integrated with the Offering in the manner prescribed by Rule 502(a) of
        Regulation D and applicable releases of the Commission, may jeopardize the
        status of the offering and sale of the Securities as exempt transactions
        under
        Regulation D.
 
 (i)
        Apply
        the net proceeds from the sale of the Securities in a manner consistent with,
        in
        all material respects, the description as set forth in the Offering Documents.
 
 (j)
        Not,
        during the period commencing on the date hereof and ending on the Final Closing
        Date, issue any press release or other communication, or hold any press
        conference with respect to the Company, its financial condition, results
        of
        operations, business, properties, assets, or liabilities, or the Offering,
        without First Montauk prior written consent, not to be unreasonably withheld,
        except as required by applicable securities laws and except as may be related
        to
        the marketing and sale of its products in the normal course of business.
        The
        foregoing shall not prohibit the Company from holding informational meetings
        with accredited investors who have a pre-existing relationship with the Company
        during which the materials and information disseminated will be limited to
        the
        information contained in the Offering Documents or from making disclosures
        required by law.
 
 8.
        Payment of Expenses. The Company hereby agrees to pay all fees, charges,
        and
        expenses incident to the performance by the Company of its obligations
        hereunder, including, without limitation, all fees, charges, and expenses
        in
        connection with: (i) the preparation, printing, copying and mailing of the
        Offering Documents; (ii) the purchase, sale, and delivery of the Securities,
        and
        any supplements or amendments thereto; (iii) the issuance, sale, transfer,
        and
        delivery of the Securities, including any transfer or other taxes payable
        thereon and the fees of any transfer agent or registrar; (iv) the filing
        fees
        for the offer and sale under the securities laws of such states and other
        jurisdictions as Placement Agent may designate (including without limitation,
        all disbursements of Company counsel incurred in connection with such filings);
        (v) Placement Agent's documented counsel fees for services rendered in
        connection with the Offering, up to an amount of $25,000, of which $10,000
        has
        previously been paid; and (vi) the expense of the escrow account which expenses
        shall equal $2,500 and be payable to the escrow agent in advance. To the
        extent
        that Placement Agent wishes to incur any such costs or fees on the Company’s
        behalf, with the exception of NASD Rule 2710, blue sky filing fees, and counsel
        fees as provided for in the preceding sentence, all such expenses must be
        approved by Company prior to their incurrence.
   13
  
 9.  Conditions
        of Placement Agent's Obligations.
 
 The
        obligations of the Placement Agent pursuant to this Agreement shall be subject,
        in its discretion, to the continuing accuracy in all material respects of
        the
        representations and warranties of the Company contained herein and in each
        certificate and document contemplated under this Agreement to be delivered
        to
        the Placement Agent, as of the date hereof and as of each Closing Date, with
        respect to the performance in all material respects by the Company of its
        obligations hereunder, and to the following conditions:
 
 (a)
        At
        the First Closing and the Final Closing, the Placement Agent shall have received
        the favorable opinion of Eilenberg & Krause LLP, counsel for the Company,
        dated each Closing Date, addressed to the Placement Agent, and in form and
        scope
        reasonably satisfactory to counsel for the Placement Agent, substantially
        to the
        effect that:
 
 (i)
        the
        Company is a corporation duly organized, validly existing, and in good standing
        under the laws of the State of Delaware, with the requisite corporate power
        to
        own and operate its properties and assets, and to carry on its business as
        described in the Offering Documents and is duly qualified to do business
        and is
        in good standing as a foreign corporation in those jurisdictions where the
        failure to so qualify would have a Material Adverse Effect on the business
        of
        the Company;
 
 (ii)
        the
        Company has, as of the date hereof, an authorized, and, to such counsel's
        knowledge based on the records of the Company, outstanding, capitalization
        as
        set forth in the Disclosure Statement. To such counsel's knowledge, each
        of the
        issued and outstanding Shares is validly issued, fully paid, and nonassessable.
        Except as set forth in the Disclosure Statement, to such counsel's knowledge,
        there are no preemptive rights, options or warrants or other conversion
        privileges or rights presently outstanding to purchase any of the authorized
        but
        unissued stock of the Company;
 
 (iii)
        to
        such counsel's knowledge there is no litigation, arbitration, claim,
        governmental or other proceeding (formal or informal), or investigation pending
        or threatened with respect to the Company or any of its operations, businesses,
        properties, or assets except as described in the Offering Documents or such
        as
        individually or in the aggregate have, or could reasonably be expected to
        have a
        material adverse effect upon the operations, business, properties, or assets
        of
        the Company or which could materially adversely affect the transactions or
        other
        acts contemplated by this Agreement or the validity or enforceability of
        this
        Agreement;
 
 (iv)
        the
        Company has all requisite corporate power and authority to execute, deliver,
        and
        perform this Agreement, and to consummate the transactions contemplated hereby.
        All necessary corporate proceedings of the Company have been taken to authorize
        the execution, delivery, and performance by the Company of this Agreement,
        and
        the consummation of the transactions contemplated hereby. This Agreement
        has
        been duly authorized, executed, and delivered by the Company, is the legal,
        valid, and binding obligation of the Company, and is enforceable against
        the
        Company in accordance with its terms, except as such enforceability may be
        limited by applicable bankruptcy, insolvency, reorganization, moratorium
        and
        other laws of general application now or hereafter in effect relating to
        or
        affecting the enforcement of creditors' right generally and the application
        of
        general equitable principles in any action, legal or equitable and then except,
        as to those provisions relating to indemnity or contribution, such opinion
        shall
        be limited as effected by any Federal or state securities laws regarding
        indemnity and/or contribution;
 
 (v)
        upon
        receipt of payment therefore in accordance with the Offering Documents, the
        Securities shall be validly authorized, validly issued, fully paid, and
        nonassessable;
  14
  
 
 (vi)
        assuming that (i) the Offering was made in the manner and by the means
        contemplated by the Offering Documents, (ii) a proper Form D is filed in
        accordance with Rule 503 of Regulation D, (iii) that the offer and sale of
        the
        Securities by the Placement Agent was made in accordance with Regulation
        D and
        the Offering Documents including, but not limited to, only accredited investors
        in compliance with Rule 506 of Regulation D without any advertising and/or
        general solicitation, (iv) the Placement Agent's representations, warranties
        and
        covenants set forth herein are true and correct, (v) the Company's
        representations, warranties and covenants set forth herein are true and correct,
        and (vi) the representations of the Prospective Investors in the Subscription
        Agreements and Investors Questionnaire signed by them are true and correct
        (which facts will not be independently verified by such counsel), the sale
        of
        Securities in the Offering is exempt from registration under the
        Act.
 
 (vii)
        the
        execution and delivery of this Agreement, the consummation of the transactions
        contemplated hereunder and the issuance of the Securities will not result
        in any
        material violation of, or material conflict with, or constitute a material
        default under (i) the certificate of incorporation or by-laws of the Company,
        (ii) to such counsel's knowledge, any material contract, instrument, agreement
        or document to which the Company is a party, or by which the assets or
        properties of the Company are bound; or (iii) to such counsel's knowledge,
        any
        statute, rule or regulation of Delaware or New York corporate law, or any
        judgment or order to which the Company is a party.
 
 In
        rendering such opinion, counsel for the Company may (A) base such opinions
        on
        such assumptions, qualifications, limitations and conditions as required
        by the
        opinion committee of such counsel, (B) rely as to matters of fact, on
        certificates of responsible officers of the Company; (C) to the extent they
        deem
        proper, upon written statements or certificates of officers of departments
        of
        various jurisdictions having custody of documents respecting the corporate
        existence or good standing of the Company, provided that copies of any such
        statements or certificates shall be delivered to counsel for the Placement
        Agent; and (D) rely upon such other opinions of other counsel to the Company
        as
        it deems necessary.
 
 (b)
        On or
        prior to the Initial Closing Date the Placement Agent shall have been furnished
        such information, documents, certificates, and opinions as it may reasonably
        require for the purpose of enabling it to review the matters referred to
        in
        Section 8(a), and in order to evidence the accuracy, completeness, or
        satisfaction of any of the representations, warranties, covenants, agreements,
        or conditions herein contained, or as it may otherwise reasonably
        request.
 
 (c)
        At
        the First Closing and at each additional Closing, the Placement Agent shall
        have
        received one or more certificates of the chief executive officer and of the
        chief financial officer of the Company, dated the applicable Closing Date
        to the
        effect that, as of the date of this Agreement and as of the applicable Closing
        Date the representations and warranties of the Company contained herein were
        and
        are accurate, and that as of the Closing Date the obligations to be performed
        by
        the Company hereunder on or prior thereto have been fully performed. In
        addition, the parties shall deliver such other certificates or closing documents
        as are customarily used by the Placement Agent in offerings of this
        nature.
 
 (d)
        All
        proceedings taken in connection with the issuance, sale, and delivery of
        the
        Securities shall be satisfactory in form and substance to First Montauk and
        First Montauk’s counsel.
 
 (e)
        Any
        certificate or other document signed by any officer of the Company and delivered
        to First Montauk or to First Montauk counsel at a Closing shall be deemed
        a
        representation and warranty by the Company hereunder as to the statements
        made
        therein. If any condition to First Montauk obligations hereunder has not
        been
        fulfilled as and when required to be so fulfilled, First Montauk may terminate
        this Agreement or, if First Montauk so elects, in writing waive any such
        conditions which have not been fulfilled or extend the time for their
        fulfillment. In the event that First Montauk elects to terminate this Agreement,
        First Montauk shall notify the Company of such election in writing. Upon
        such
        termination, neither party shall have any further liability or obligation
        to the
        other except as provided in Section 11 hereof.
  15
  
 10.  Conditions
        of Company's Obligations.
 
 The
        obligations of the Company pursuant to this Agreement shall be subject, in
        its
        discretion in good faith, to the performance by the Placement Agent in all
        material respects of its obligations hereunder.
 
 11.  Termination.
 
 If
        subscriptions for the Offering are not received into escrow during the Offering
        Period, or Placement Agent has committed a material breach of this Agreement,
        the Company may terminate the Agreement and the agency relationship created
        hereby upon prior written notice to First Montauk. First Montauk may terminate
        this Agreement and the agency created hereby for any reason upon written
        notice
        to the Company. In either case, neither party shall have any liability or
        continuing obligation to the other except that, regardless of which party
        elects
        to terminate, (i) the Company agrees to reimburse First Montauk for, or
        otherwise pay and bear, the expenses and fees to be paid and borne by the
        Company as provided for in Section 8 above and, subject to the Company's
        pre-approval for any expenses in excess of $350 individually, to reimburse
        First
        Montauk for the full amount of its actual out-of-pocket expenses (which shall
        include, without limitation, the fees and disbursements of First Montauk's
        counsel (up to the limits set forth in Section 8), travel and lodging expenses,
        mailing, printing and reproduction expenses, less amounts previously paid
        to
        First Montauk in reimbursement for such expenses, and (ii) the provisions
        of
        paragraph 8 and the Indemnification Provisions in Section 12 shall remain
        in
        full force and effect. Upon any such termination, the Company agrees to cease
        to
        use any Offering materials that represent First Montauk as placement agent.
        In
        the event that any Securities are sold, Sections 5, 8, 12, 13 and 14 shall
        survive the termination of this Agreement. Furthermore, notwithstanding anything
        to the contrary in this Agreement, in the event that the Company refuses
        to
        accept subscriptions during the Offering Period without a reasonable basis
        related to the subscriber or to the Offering generally, or otherwise refuses
        to
        complete the Offering without any failure of the condition set forth in Section
        10, then First Montauk shall be entitled to a fee of $200,000 which shall
        be
        deemed liquidated damages.
 
 12.  Indemnification
        and Contribution.
 
 (a)
        The
        Company agrees to indemnify and hold harmless the Placement Agent, its officers,
        directors, partners, employees, agents, and counsel, and each person, if
        any,
        who controls the Placement Agent within the meaning of Section 15 of the
        Act or
        Section 20(a) of the Exchange Act , against any and all loss, liability,
        claim,
        damage, and expense whatsoever (which shall include, for all purposes of
        this
        Section 12, but not be limited to, reasonable attorneys' fees and any and
        all
        reasonable expense whatsoever incurred in investigating, preparing, or defending
        against any litigation, commenced or threatened, or any claim whatsoever
        and any
        and all amounts paid in settlement of any claim or litigation) as and when
        incurred arising out of, based upon, or in connection with (i) any untrue
        statement or alleged untrue statement of a material fact contained in the
        Offering Documents or in any document delivered or written statement made
        pursuant to Section 7(f), or in any application or other document or
        communication (it being understood that neither the Company nor any officer,
        director or employee shall provide any information to any Prospective Investor
        which is not contained or referred to in the Offering Documents) (in this
        Section 12 collectively called an "application") executed by or on behalf
        of the
        Company or based upon written information furnished by or on behalf of the
        Company filed in any jurisdiction in order to register or qualify the Securities
        under the blue sky or securities laws thereof or in order to secure an exemption
        from such registration or qualification or filed with the Commission; or
        any
        omission or alleged omission to state a material fact necessary to make the
        statements made therein, in the light of the circumstances in which they
        were
        made, not misleading, unless such statement or omission was made in reliance
        upon and in conformity with written information furnished to the Company
        as
        stated in Section 12(b) with respect to the Placement Agent expressly for
        inclusion in the Offering Documents or in any application, as the case may
        be;
        and (ii) any breach of any representation, warranty, covenant, or agreement
        of
        the Company contained in this Agreement .
        The
        foregoing agreement to indemnify shall be in addition to any liability the
        Company may otherwise have, including liabilities arising under this Agreement.
  16
  
 
 If
        any
        action is brought against the Placement Agent or any of its officers, directors,
        partners, employees, agent, or counsel, or any controlling persons of the
        Placement Agent (an "indemnified party"), in respect of which indemnify may
        be
        sought against the Company pursuant to the foregoing paragraph, such indemnified
        party or parties shall promptly notify the Company (the "indemnifying party")
        in
        writing of the institution of such action (but the failure so to notify shall
        not relieve the indemnifying party from any liability it may have unless
        the
        indemnifying party is prejudiced by such failure) and the indemnifying party
        shall promptly assume the defense of such action, including the employment
        of
        counsel (reasonably satisfactory to such indemnified party or parties) and
        payment of expenses. Such indemnified party shall have the right to employ
        its
        own counsel in any such case, but the fees and expense of such counsel shall
        be
        at the expense of such indemnified party unless the employment of such counsel
        shall have been authorized in writing by the indemnifying party in connection
        with the defense of such action, in which event such fees and expenses shall
        be
        borne by the indemnifying party. Anything in this paragraph to the contrary
        notwithstanding, the indemnifying party shall not be liable for any settlement
        of any such claim or action effected without its written consent. The Company
        agrees promptly to notify the Placement Agent of the commencement of any
        litigation or proceedings against the Company or any of its officers or
        directors in connection with the sale of the Securities, the Offering Documents,
        or any application.
 
 (b)
        The
        Placement Agent agrees to indemnify and hold harmless the Company, its officers,
        directors, employees, agents, and counsel, and each other person, if any,
        who
        controls the Company within the meaning of Section 15 of the Act or Section
        20(a) of the Exchange Act, to the same extent as the foregoing indemnity
        from
        the Company to the Placement Agent in Section 12(a), with respect to any
        and all
        loss, liability, claim, damage, and expense whatsoever (which shall include,
        for
        all purposes of this Section 12, but not be limited to, attorneys' fees and
        any
        and all expense whatsoever incurred in investigating, preparing, or defending
        against any litigation, commenced or threatened, or any claim whatsoever
        and any
        and all amounts paid in settlement of any claim or litigation) as and when
        incurred arising out of, based upon, or in connection with (i) statements
        or
        omissions, if any, made in the Offering Documents in reliance upon and in
        conformity with written information furnished to the Company by or on behalf
        of
        Placement Agent expressly for inclusion in the Offering Documents; (ii) the
        failure of the Placement Agent or its representatives to comply with the
        provisions of Section 4(c) hereof or with the federal, blue sky or securities
        laws of the jurisdictions in which the Placement Agent solicits offers to
        buy or
        offers to sell any Securities; or (iii) any breach of any representation,
        warranty, covenant or agreement of the Placement Agent contained in this
        Agreement. If any action shall be brought against the Company or any other
        person indemnified under this Section 12(b) in respect of which indemnity
        may be
        sought against the Placement Agent pursuant to this Section 12, the Placement
        Agent shall have the rights and duties given to the indemnifying party, and
        the
        Company and each other person so indemnified shall have the rights and duties
        given to the indemnified parties, by the provisions of Section 12(a)
        hereof.
  17
  
 
 (c)
        To
        provide for just and equitable contribution, if (i) an indemnified party
        makes a
        claim for indemnification pursuant to Section 12(a) or 12(b) hereof but it
        is
        found in a final judicial determination, not subject to further appeal, that
        such indemnification may not be enforced in such case, even though this
        Agreement expressly provides for indemnification in such case, or (ii) any
        indemnified or indemnifying party seeks contribution under the Act, the Exchange
        Act, or otherwise, then the Company (including for this purpose any contribution
        made by or on behalf of any officer, director, employee, agent, or counsel
        of
        the Company, or any controlling person of the Company), on the one hand,
        and the
        Placement Agent (including for this purpose any contribution by or on behalf
        of
        an indemnified party), on the other hand, shall contribute to the losses,
        liabilities, claims, damages, and expenses whatsoever to which any of them
        may
        be subject, in such proportions as are appropriate to reflect the relative
        benefits received by the Company, on the one hand, and the Placement Agent,
        on
        the other hand; provided, however, that if applicable law does not permit
        such
        allocation, then other relevant equitable considerations such as the relative
        fault of the Company and the Placement Agent in connection with the facts
        which
        resulted in such losses, liabilities, claims, damages, and expenses shall
        also
        be considered. The relative benefits received by the Company, on the one
        hand,
        and the Placement Agent, on the other hand, shall be deemed to be in the
        same
        proportion as (x) the total proceeds from the Offering (net of compensation
        payable to the Placement Agent pursuant to Section 5 hereof but before deducting
        expenses) received by the Company, and (y) the compensation received by the
        Placement Agent pursuant to Section 5 (a) hereof.
 
 The
        relative fault, in the case of an untrue statement, alleged untrue statement,
        omission, or alleged omission, shall be determined by, among other things,
        whether such statement, alleged statement, omission, or alleged omission
        relates
        to information supplied by the Company or by the Placement Agent, and the
        parties' relative intent, knowledge, access to information, and opportunity
        to
        correct or prevent such statement, alleged statement, omission, or alleged
        omission. The Company and the Placement Agent agree that it would be unjust
        and
        inequitable if the respective obligations of the Company and the Placement
        Agent
        for contribution were determined by pro rata or per capita allocation of
        the
        aggregate losses, liabilities, claims, damages, and expenses or by any other
        method of allocation that does not reflect the equitable considerations referred
        to in this Section 12(c). In no case shall the Placement Agent be responsible
        for a portion of the contribution obligation in excess of the compensation
        received by it pursuant to Section 5 hereof. No person guilty of a fraudulent
        misrepresentation shall be entitled to contribution from any person who is
        not
        guilty of such fraudulent misrepresentation. For purposes of this Section
        12(c),
        each person, if any, who controls the Placement Agent within the meaning
        of
        Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
        director, partners, employee, agent, and counsel of the Placement Agent,
        shall
        have the same rights to contribution as the Placement Agent, and each person,
        if
        any, who controls the Company within the meaning of Section 15 of the Act
        or
        Section 20(a) of the Exchange Act and each officer, director, partner, employee,
        agent, and counsel of the Company, shall have the same rights to contribution
        as
        the Company, subject in each case to the provisions of this Section 12(c).
        Anything in this Section 12(c) to the contrary notwithstanding, no party
        shall
        be liable for contribution with respect to the settlement of any claim or
        action
        effected without its written consent. This Section 12(c) is intended to
        supersede any right to contribution under the Act, the Exchange Act, or
        otherwise.
 
 13.
        Solicitation Prohibition.
 
 The
        Company agrees that, for a period of 18 months from end of the Exclusive
        Period,
        it shall not, directly or indirectly, (A) solicit offers to buy or sell any
        securities of the Company or any other entity from or to any person first
        introduced to the Company by First Montauk who purchases Securities in
        connection with the Offering, or (B) provide the name of any such person
        to any
        other securities broker or dealer or selling agent, without paying to First
        Montauk an amount equal to 10% of the aggregate purchase price of the securities
        so purchased or consideration received by such person.
  18
  
 
 14.
        Representations and Agreements to Survive Delivery.
 
 All
        representations, warranties, covenants, and agreements contained in this
        Agreement shall be deemed to be representations, warranties, covenants, and
        agreements at the Closing Date and, such representations, warranties, covenants,
        and agreements, including the indemnification and contribution agreements
        contained in Section 12, shall remain operative and in full force and effect
        regardless of any investigation made by or on behalf of the Placement Agent
        or
        any indemnified person, or by or on behalf of the Company or any person or
        entity which is entitled to be indemnified under Section 12(b), and shall
        survive termination of this Agreement or the issuance, sale, and delivery
        of the
        Securities. In addition, notwithstanding any election hereunder or any
        termination of this Agreement, and whether or not the terms of this Agreement
        are otherwise carried out, the provisions of Sections 5, 8, 11, 12, 13 and
        14
        shall survive termination of this Agreement and shall not be affected in
        any way
        by such election or termination or failure to carry out the terms of this
        Agreement or any part thereof.
 
 15.
        Notices.
 
 All
        communications hereunder, except as may be otherwise specifically provided
        herein, shall be in writing and, if sent to the Placement Agent, shall be
        mailed
        by certified mail, hand delivered, or sent by overnight courier service,
        to
        First Montauk Securities Corp., Parkway 109 Office Center, 328 Newman Springs
        Road, Red Bank, New Jersey 07701 Attention: Ernest Pellegrino, with a copy
        to
        Ellenoff Grossman & Schole LLP, 370 Lexington Avenue, 19 th Floor,
        New York, New York 10017, Attention: Brian C. Daughney, Esq.; or if sent
        to the
        Company to Data Systems & Software Inc., 200 Route 17, Mahwah, NJ 07430,
        Attention: John A. Moore, Chief Executive Officer, with a copy to Eilenberg
        & Krause LLP, 17 East 44th Street, New York, NY 10017, Attention: Sheldon
        Krause, Esq. All notices hereunder shall be effective upon delivery to the
        party
        to which it is addressed.
 
 16.
        Parties.
 
 This
        Agreement shall inure solely to the benefit of, and shall be binding upon,
        the
        Placement Agent and the Company and the persons and entities referred to
        in
        Section 12 who are entitled to indemnification or contribution, and their
        respective successors, legal representatives, and assigns (which shall not
        include any purchaser, as such, of Securities), and no other person shall
        have
        or be construed to have any legal or equitable right remedy, or claim under
        or
        in respect of or by virtue of this Agreement or any provision herein contained.
        The engagement dated as of May 2, 2006 between First Montauk and the Company
        (the “Engagement Letter”) shall remain in effect, except as superseded by this
        Agreement. In the event of a conflict between the terms of this Agreement
        and
        those of the Engagement Letter, the terms of this Agreement will
        control.
 
 17.
        Governing Law. Submission to Jurisdiction.
 
 The
        validity and interpretation of this Agreement shall be governed by the laws
        of
        the State of New York applicable to agreements made and to be fully performed
        therein. Each of First Montauk and the Company (a) agrees that any legal
        suit,
        action or proceeding arising out of or relating to this Agreement shall be
        instituted exclusively in New York State Supreme Court, County of New York,
        or
        in the United States District Court for the Southern District of New York,
        (b)
        waives any objection which the Company may have now or hereafter to the venue
        of
        any such suit, action or proceeding, and (c) irrevocably consents to the
        jurisdiction of the foregoing named courts in any such suit, action or
        procedure. Each of the Company and First Montauk further agrees to accept
        and
        acknowledge service of any and all process which may be served in any suit,
        action or proceeding in the foregoing courts, and agrees that service of
        process
        upon the Company or First Montauk mailed by certified mail to the address
        set
        forth in Section 16 hereof shall be deemed in every respect effective service
        of
        process upon the Company in any such suit, action or proceeding. In the event
        of
        litigation between the parties arising hereunder, the prevailing party shall
        be
        entitled to costs and reasonable attorney's fees.
 
 18.
        Counterparts.
 
 This
        Agreement may be executed in counterparts, each of which shall constitute
        an
        original and all of which, when taken together, shall constitute one agreement. The
        parties hereto agree to accept a facsimile transmission copy of their respective
        actual signatures as evidence of their actual signatures to this
        Agreement
  19
  If
        the
        foregoing correctly sets forth the understanding between us, please so indicate
        in the space provided below for that purpose, whereupon this letter shall
        constitute a binding agreement among us.
 
 Very
        truly yours,
 
 DATA
        SYSTEMS & SOFTWARE INC.
 
 
 By:
        ________________________________
 Name:
        John A. Moore
 Title:
        Chief Executive Officer
 Accepted
        as of the date
 first
        above written:
 
 FIRST
        MONTAUK SECURITIES CORP.
 
 
 
 By: _______________________________
 Name:
 Title: