Unassociated Document


    EXHIBIT
      10.48


    


    ACORN
      FACTOR, INC.

    PLACEMENT
      AGENT AGREEMENT

     

    Dated
      as
      of March 8, 2007

    


     

    First
      Montauk Securities Corp.

    Parkway
      109 Office Center

    328
      Newman Springs Road

    Red
      Bank,
      New Jersey 07701

    


    Re:
      Proposed Private Placement

    


    Ladies
      and Gentlemen:

     

    Acorn
      Factor, Inc., a Delaware corporation (the “Company” or “Acorn”), 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, convertible redeemable subordinated debentures
      (“Debentures”) convertible into shares of its Common Stock, par value $.01 per
      share (“Shares”) and (ii) warrants to purchase a number of share equal to 25% of
      the Shares issuable upon conversion of 100 % of the initial principal amount
      of
      the Debentures (“Warrants”). The Debentures and Warrants to be offered and sold
      are sometimes referred to herein as the “Securities”. The Offering is being
      conducted on a “best efforts, all or none” basis for a minimum of $2,000,000 of
      gross proceeds (the “Minimum Offering”)
      and up
      to $6,000,000 of gross proceeds (the “Maximum Offering”). The Maximum Offering
      is subject to an increase of 15%, or $950,000 upon the agreement of the Company
      and the Placement Agent (as defined below) for an aggregate Maximum Offering
      of
      $6,950,000 (the “Over-Allotment Amount.”) 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 Offering Period (as defined below).
      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 Debentures with an aggregate purchase price of $6,000,000, exclusive
      of
      the over-allotment option for an additional $950,000 of gross proceeds. The
      minimum subscription amount per purchaser shall be $25,000. Each Debenture
      will
      be convertible into Shares at a price of $3.80 per Share in accordance with
      the
      terms thereof. From the date of issuance to, and including, the first
      anniversary of the Final Closing Date (as defined below) (the “First Anniversary
      Date”) each Debenture shall be convertible as to the lesser of (i) 50% of the
      original principal amount stated on the face thereof on the date of issuance,
      or
      (ii) the principal amount of such Debenture then outstanding. Following the
      First Anniversary Date and up to and including the maturity thereof, each
      Debenture shall be convertible as to the principal amount then outstanding.
      The
      Debentures shall be subordinated to other debt of the Company and may be
      redeemed by the Company, respectively, in the manner described in the
      Memorandum. In addition, each purchaser in the Offering will receive Warrants
      equal to 25% of the Shares issuable upon conversion of 100 % of the initial
      principal amount of the Debentures (“Warrants”). The Warrants will have a term
      of five (5) years and will be exercisable at an exercise price of $4.50 per
      Share. The Warrants are callable at the option of the Company in the manner
      described therein. The investors shall be entitled to such “registration
      rights”, anti-dilution protection, 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 March 30, 2007; provided however, that if the Minimum Offering
      has
      not been deposited into escrow on or before March 30, 2007, the Company and
      Placement Agent may agree to extend the Offering until April 16, 2007, and
      provided further that if subscriptions representing the Minimum Offering have
      been deposited into escrow on or before March 30, 2007, or April 16, 2007,
      as
      the case may be, then the offering period may be extended at the option of
      the
      Placement Agent and the Company until May 30, 2007. 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 of the principal amount of the Debenture that 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.

    


    
      
        
        

      

      
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    (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 cleared funds representing the Minimum Offering together with completed
      subscription agreements are received by the parties (including the funds held
      in
      escrow), or reasonably soon thereafter, the parties shall hold an initial
      closing for acceptance of subscriptions by the Company and the release of funds
      from the escrow account (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.

    


    (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 (or the Over Allotment Amount,
      as the case may be), 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.

    


    
      
        
        

      

      
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    (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.

    


    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
      Debentures (ii) a management fee of 3% of the gross proceeds received by the
      Company from the sale of the Debentures and (iii) a non-accountable expense
      allowance equal to 2% of the gross proceeds received by the Company from the
      sale of the Debentures. 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 placement agent warrants to purchase a number of Shares equal 10%
      of
      the shares issuable upon the conversion of the original principal amount of
      Debentures based upon $3.80 per share (“Agent Warrants”). The Agent Warrants
      shall be on the same terms as the Investor Warrants except that the Agent
      Warrants shall contain provisions for “cashless exercise” on the same basis as
      available to investors and shall not be redeemable for a period equal to nine
      (9) months after effectiveness of the registration statement be filed by the
      Company on behalf of the investors in the Offering and provided the registration
      statement is effective at the time of redemption. The shares underlying the
      agent Warrants shall be included in the registration statement to be filed
      by
      the Company on behalf of the investors in the Offering. The Placement Agent
      shall have the right, at its option, to request that the Agent Warrants be
      issued in the names of its officers, employees and registered
      representatives.

    


    (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: (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) additional Agent
      Warrants (reflective of 10% of the equity securities issued or equity underlying
      any convertible securities) . 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.

    


    
      
        
        

      

      
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    (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) The
      Placement Agent shall not be entitled to additional compensation with respect
      to
      any investment in this Offering by investors in the private placement offering
      completed in July 31, 2006, it being understood and agreed that the sole
      compensation for an investment from these prior investors shall be determined
      in
      accordance with this Section 5. The Company hereby agrees that it shall not
      call
      for redemption the warrants held by the Placement Agent (and its associated
      persons) which were issued in connection with the private placement offering
      completed in July 2006 prior to June 20, 2006 

     

    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 Memorandum 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 in 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. 

    


    (b)
       The
      Offering Documents do not and 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. 

    


    
      
        
        

      

      
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    (c)
 The
      authorized capital stock of the Company consists of 20,000,000 Shares. As of
      the
      date hereof, 9,412,259 shares of Common Stock 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 614,039 shares
      of
      Common Stock and (ii) options outstanding to acquire an aggregate of
      approximately 2,049,035
      shares
      of Common Stock. The Securities, 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 Shares, when issued in accordance with the terms
      of the Debentures and/or Warrants, 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 attached as exhibits to the Memorandum (sometimes collectively
      referred to as the “Company Documents”).
      Except
      as set forth in the warrants issued, and subscription agreements entered into,
      in connection with Company’s offering completed on July 31, 2006 (the “Prior
      Offering”), neither the Company nor any Subsidiary is a party to an agreement,
      instrument or understanding which calls for, and no securities of the Company
      or
      any Subsidiary contain provisions relating to, the
      resetting or repricing
      of any debt or equity security instrument of the Company or any Subsidiary.
      The
      issuance of the Securities or the consummation of the Offering 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. There are no existing claims, to the knowledge of the Company, which
      would
      require the Company to rescind or offer to rescind and outstanding securities
      of
      the Company. 

    


    (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, (i) an equity or other ownership interest equal to or greater than
      50 % or (ii) the right to vote more than 50% of the outstanding voting stock
      or
      to elect or appoint a majority of the members of the board of
      directors.

    


    (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. 

    


    
      
        
        

      

      
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    (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. All audited financial statements, and related
      notes and schedules, of the Company 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 and fairly and
      accurately represent the financial condition of the Company.

    


    (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 Securities offered 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;

    


    (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;

    


    
      
        
        

      

      
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    (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. 

    


    (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.

    


    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    (o) The
      Company has all requisite power and authority to execute, deliver and perform
      its obligations under this Agreement, the Securities and the Subscription
      Agreement. This Agreement, the Debentures and Warrants and the Subscription
      Agreement have been or will be 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.

    


    (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.

    


    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    (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;

    


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

    


    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (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.
      

    


    (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. 

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    (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, , 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; provided that it is acknowledged that the Company
      may be determined to be a “transient investment company” under Rule 3a-2 of the
      1940 Act after the Final Closing Date. 

     

    (ee) 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.

     

    (ff) 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.

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    (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 cooperate with
      its counsel to make a Form 99 (if necessary) 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 related to the Offering. 

    


    (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.

    


    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    (g) So
      long
      as the Debentures and the Warrants (including the Shares receivable upon the
      respective conversion or 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 Debentures and to each prospective purchaser (as designated by such
      holder) of Debentures upon the request of such holder or prospective holder,
      any
      information required to be provided by Rule 144A(d)(4) under the Securities
      Act.
      In addition, the Company shall cause to be provided, at its cost and expense,
      opinions of counsel necessary to allow for any transfers or sales of the
      Securities (including the Shares receivable upon the respective conversion
      or
      exercise thereof) pursuant to Rule 144 and the Company shall pay any and all
      transfer agent fees. 

    


    (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. 

    


    (k)
      Within 60 days of the date hereof, the Company shall obtain a “key man” life
      insurance policy upon the life of John Moore, with an insurance company rated
      at
      least B plus, in an amount equal to at least $3,000,000. The Company shall
      be
      the sole beneficiary of such policy and shall retain such policy for not less
      than two (2) years.

    


    (l)
      Within 30 days from the Initial Closing, the Company and John A. Moore shall
      execute an employment agreement regarding John A. Moore’s employment as Chief
      Executive Officer, on terms agreeable to both parties; provided, however, that
      such employment agreement shall be for a period of not less than three (3)
      years. 

    


    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    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; (v) Placement Agent's counsel
      fees for services rendered in connection with the Offering, in an amount equal
      to $35,000, of which $10,000 has previously been paid prior to the date hereof;
      (vi) the expense of the escrow account which expenses shall equal $3,500 and
      be
      payable to the escrow agent in advance; (vii) the filing fees payable to the
      NASD for any filings made pursuant to NASD Rule 2710 as well as the expenses
      of
      the Placement Agent’s counsel in the amount of $15,000 for review of the
      registration statement to be filed after the Offering and the required filing
      under NASD Rule 2710,which fees shall be paid prior to filing of the
      registration statement. 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. 

     

    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 Initial Closing and each additional Closing, the Placement Agent shall
      have
      received the favorable opinion ( or a bringdown opinion for subsequent closings)
      of Eilenberg Krause & Paul 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 Memorandum. To such counsel's knowledge, each of the issued
      and
      outstanding shares of the Company’s Common Stock is validly issued, fully paid,
      and nonassessable. Except as set forth in the Offering Documents, and in
      connection with the Prior Offering, 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;

    


    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (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;

    


    (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 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
      6,
      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.

    


    
      
        
        

      

      
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    (c)
      At
      the Initial 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)
      The
      Company shall file with the SEC, by 8:00 am eastern standard time on the trading
      day immediately following the Initial Closing and the final Closing, a Form
      8-K
      related to the Offering, including such disclosures in accordance with SEC
      Rule
      135(c), and in substance reasonably acceptable to the Placement
      Agent

    


    (f)
      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.

    


    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.

    


    
      
        
        

      

      
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    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.
      

    


    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. 

    


    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    (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.

    


    (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.

    


    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    13.
      Solicitation Prohibition. 

    


    The
      Company agrees that, for a period of 18 months from end of the Offering 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 and warrants to purchase
      shares of Common Stock equal to 10% of the equity (or securities convertible
      into equity) sold to such persons.

    


    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, in the event any Securities are sold, the provisions
      of Sections 5, 8, 11, 12, 13 and 14 shall survive termination of this Agreement
      and shall not be affected in any way by such election or termination or failure
      to carry out the terms of this Agreement or any part thereof.

    


    15.
      Notices.

    


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

    


    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    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.

    


    


    [remainder
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    [signature
      page to Placement Agent Agreement]

    


    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

    


    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, 

               

              ACORN
                FACTOR, INC.

            
	 
 	 
 	 
 
	Date: 	By:  	/s/ John
              A.
              Moore
	 	
              
                

              

              Name: John A. Moore

              Title: Chief Executive Officer

            
	 	 


    

    
 

     

    Accepted
      as of the date

    first
      above written:

    


    FIRST
      MONTAUK SECURITIES CORP.

    


    


    


    By: /s/
      Victor K. Kurylak 

    Name:
      Victor K. Kurylak

    Title:
      President/CEO

    


    
      
        
        

      

      
        22