DATA
      SYSTEMS & SOFTWARE INC. 

    


    SUBSCRIPTION
      AGREEMENT

    


    The
      undersigned (hereinafter “Subscriber”)
      hereby
      confirms its subscription for the purchase of shares of Common Stock, par value
      $.01 per share, of
      DATA SYSTEMS & SOFTWARE INC. (“Common
      Stock”), a Delaware corporation (the “Company”),
      and
      warrants exercisable for Common Stock (“Warrants”), on the terms described below


    


    Capitalized
      terms used and not otherwise defined herein shall have the meanings set forth
      for such terms in the Company’s Confidential Private Placement Memorandum, dated
      June 12, 2006 (as amended or supplemented, and together with all documents
      and
      exhibits thereto, the “Memorandum”).
      The
      Common Stock, Warrants and shares issuable upon exercise of the Warrants
      (“Warrant Shares”) are sometimes referred to collectively herein as the
“Securities.”

    


    In
      connection with this subscription, Subscriber and the Company agree as
      follows:

    


    1. Purchase
      and Sale of the Common Stock with Warrants.
      

    


         
(a) The
      Company hereby agrees to issue and to sell to Subscriber, and Subscriber hereby
      agrees to purchase from the Company, a number of shares of Common Stock at
      a
      price per Share equal to $2.65 (the “Share
      Price”)
      and
      for the aggregate subscription amount set forth on the signature page hereto.
      The Company further agrees to issue to Subscriber a Warrant exercisable for
      a
      term of five years from the date of the initial closing for an amount of Common
      Stock equal to 25% of that number of shares subscribed for by Subscriber in
      this
      Offering. The exercise price of the Warrants shall be equal to $2.78 per share
      (the “Exercise
      Price”).
      Upon
      acceptance of this Subscription Agreement by the Company, the Company shall
      issue and deliver to Subscriber a share certificate and a warrant certificate
      evidencing the applicable number of Shares and Warrants subscribed for against
      payment in U.S. Dollars of the Purchase Price (as defined below).

    


    (b) Subscriber
      has hereby delivered and paid concurrently herewith the aggregate purchase
      price
      (the “Purchase
      Price”)
      set
      forth on the signature page hereof required to purchase the Common Stock and
      Warrants subscribed for hereunder which amount has been paid in U.S. Dollars
      by
      cash, wire transfer or check of immediately available funds. The minimum
      purchase is $25,000.


    
      
         

      

      
         

        
          

        

      

      
         

      

    


    


    (c) Subscriber
      understands and acknowledges that this subscription is part of a proposed
      placement by the Company of Common Stock and Warrants, which offering is being
      made on a “best efforts” basis up to the maximum of $3,000,000 of Common Stock
      (the “Maximum
      Offering”).
      Subscriber understands that there is no minimum number of shares of Common
      Stock
      which must be sold prior to release of funds to the Company. During the period
      of the Offering, which period shall commence on June 12, 2006 and terminate
      at
      3:00 p.m. EDT on July 12, 2006, subject to the extension of such period by
      agreement between the Company and the Placement Agent for an additional period
      to end on August 11, 2006, or any date prior thereto (the “Offering
      Period”),
      funds
      will be held in an escrow account established by the Company and the Placement
      Agent with Signature Bank, and released at the discretion of the Company and
      the
      Placement Agent from time to time. If a subscription is not accepted, whether
      in
      whole or in part, the subscription funds held therein will be returned to the
      investor without interest or deduction.

    


    2. Covenants,
      Representations and Warranties of Subscriber.
      Subscriber covenants with, represents and warrants to, the Company and Placement
      Agent as follows:

    


    (a) Subscriber
      is an “accredited investor” as defined by Rule 501 under the Securities Act of
      1933, as amended (the “Act”),
      and
      Subscriber is capable of evaluating the merits and risks of Subscriber’s
      investment in the Company and has the capacity to protect Subscriber’s own
      interests.

    


    (b) Subscriber
      understands that the Securities are not presently registered, but Subscriber
      is
      entitled to certain rights with respect to the registration of the Shares and
      Warrant Shares (in accordance with Section 5 below). Subscriber further
      understands that the Warrants are redeemable by the Company upon the terms
      as
      described in the Memorandum, and that the redemption by the Company may occur
      at
      time when the subscriber may be unable, due to his own personal financial
      condition, to exercise the Warrants. 

    


    (c) Subscriber
      is purchasing the Securities for investment purposes and not with a view to
      distribution or resale, nor with the intention of selling, transferring or
      otherwise disposing of all or any part thereof for any particular price, or
      at
      any particular time, or upon the happening of any particular event or
      circumstances, except selling, transferring, or disposing the Securities in
      full
      compliance with the applicable provisions of the Act, the rules and regulations
      promulgated thereunder, and applicable state securities laws.

    


    (d) Subscriber
      acknowledges that the Securities must be held indefinitely unless subsequently
      registered under the Act or unless an exemption from such registration is
      available. Subscriber is aware of the provisions of Rule 144 promulgated under
      the Act which permit limited resale of common stock purchased in a private
      placement subject to the satisfaction of certain conditions, including, among
      other things, the existence of a public market for the common stock, the
      availability of certain current public information about the Company, the resale
      occurring not less than one year after a party has purchased and paid for the
      security to be sold, the sale being effected through a “broker’s transaction” or
      in transactions directly with a “market maker” and the number of shares of
      common stock being sold during any three-month period not exceeding specified
      limitations.


    
      
         

      

      
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    (e) Subscriber
      acknowledges that Subscriber has had the opportunity to ask questions of, and
      receive answers from the Company or any person acting on its behalf concerning
      the Company and its business and to obtain any additional information, to the
      extent possessed by the Company (or to the extent it could have been acquired
      by
      the Company without unreasonable effort or expense) necessary to verify the
      accuracy of the information received by Subscriber. In connection therewith,
      Subscriber acknowledges that Subscriber has had the opportunity to discuss
      the
      Company’s business, management and financial affairs with the Company’s
      management or any person acting on its behalf. Subscriber has received and
      reviewed the Memorandum, and all the information that it desires. Without
      limiting the generality of the foregoing, Subscriber has been furnished with
      or
      has had the opportunity to acquire, and to review: (i) copies of all of the
      Company’s publicly available documents, and (ii) all information that it desires
      with respect to the Company’s business, management, financial affairs and
      prospects. In determining whether to make this investment, Subscriber has relied
      solely on Subscriber’s own knowledge and understanding of the Company and its
      business based upon the Memorandum and any other information furnished to
      Subscriber in writing. Subscriber understands that no person has been authorized
      to give any information or to make any representations which were not furnished
      pursuant to this paragraph and Subscriber has not relied on any other
      representations or information.

    


    (f) Subscriber
      has all requisite legal and other power and authority to execute and deliver
      this Subscription Agreement and to carry out and perform Subscriber’s
      obligations under the terms of this Subscription Agreement. This Subscription
      Agreement constitutes a valid and legally binding obligation of Subscriber,
      enforceable in accordance with its terms, and subject to laws of general
      application relating to bankruptcy, insolvency and the relief of debtors and
      rules of law governing specific performance, injunctive relief or other general
      principals of equity, whether such enforcement is considered in a proceeding
      in
      equity or law.

    


    (g) Subscriber
      has carefully considered and has discussed with the Subscriber’s professional
      legal, tax, accounting and financial advisors, to the extent the Subscriber
      has
      deemed necessary, the suitability of this investment and the transactions
      contemplated by this Subscription Agreement for the Subscriber’s particular
      federal, state, local and foreign tax and financial situation and has determined
      that this investment and the transactions contemplated by this Subscription
      Agreement are suitable for the Subscriber. Subscriber relies solely on such
      advisors and not on any statements or representations of the Company or any
      of
      its agents. Subscriber understands that Subscriber (and not the Company) shall
      be responsible for Subscriber’s own tax liability that may arise as a result of
      this investment or the transactions contemplated by this Subscription
      Agreement.

    


    (h) The
      information provided by the Subscriber in the Confidential Purchaser
      Questionnaire accompanying this Subscription Agreement does not contain any
      untrue statement of a material fact or omit any material fact concerning
      Subscriber.

    


    (i) There
      are
      no actions, suits, proceedings or investigations pending against Subscriber
      or
      Subscriber’s properties before any court or governmental agency (nor, to
      Subscriber’s knowledge, is there any threat thereof) which would impair in any
      way Subscriber’s ability to enter into and fully perform Subscriber’s
      commitments and obligations under this Subscription Agreement or the
      transactions contemplated hereby.


    
      
         

      

      
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    (j) The
      execution, delivery and performance of and compliance with this Subscription
      Agreement and the issuance of the Securities will not result in any material
      violation of, or conflict with, or constitute a material default under, any
      of
      Subscriber’s articles of incorporation or bylaws, if applicable, or any of
      Subscriber’s material agreements nor result in the creation of any mortgage,
      pledge, lien, encumbrance or charge against any of the assets or properties
      of
      Subscriber or the Securities.

    


    (k) Subscriber
      acknowledges that the Securities are speculative and involve a high degree
      of
      risk and that Subscriber can bear the economic risk of the purchase of the
      Securities, including a total loss of its investment.

    


    (l) Subscriber
      acknowledges that it has carefully reviewed the Memorandum and considered the
      risk factors discussed in the “Risk Factors” section prior to making an
      investment decision.

     

    (m) Subscriber
      recognizes that no federal, state or foreign agency has recommended or endorsed
      the purchase of the Securities. Subscriber is not being represented by counsel
      to the Company or the Placement Agent and has been instructed to obtain
      independent advice regarding the Offering and the making of this investment.
      

    


    (n) Subscriber
      is aware that the Securities when issued will be “restricted securities” as that
      term is defined in Rule 144 of the general rules and regulations under the
      Act.

    


    (o) Subscriber
      understands that any and all certificates representing the Securities and any
      and all securities issued in replacement thereof or in exchange therefore shall
      bear the following legend or one substantially similar thereto, which Subscriber
      has read and understands:

    


    “THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
      NOR
      ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
      DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
      ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH
      LAWS
      WHICH, IN THE OPINION OF COUNSEL FOR DATA SYSTEMS & SOFTWARE INC., IS
      AVAILABLE.”

    


     

    (p) Because
      of the restrictions imposed on resale, Subscriber understands that the Company
      shall have the right to note stop-transfer instructions in its stock transfer
      records, and that the Company intends to do so. Any sales, transfers, or any
      other dispositions of the Securities by Subscriber, if any, will be in
      compliance with the Act.


    
      
         

      

      
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    (q) Subscriber
      acknowledges that Subscriber has such knowledge and experience in financial
      and
      business matters that he is capable of evaluating the merits and risks of an
      investment in the Securities and of making an informed investment
      decision.

    


    (r) Subscriber
      represents that: (i) Subscriber is able to bear the economic risks of an
      investment in the Securities and to afford the complete loss of the investment,
      and (ii) (A) Subscriber could be reasonably assumed to have the capacity to
      protect its own interests in connection with this subscription; or (B)
      Subscriber has a pre-existing personal or business relationship with either
      the
      Company or any affiliate thereof of such duration and nature as would enable
      a
      reasonably prudent purchaser to be aware of the character, business acumen
      and
      general business and financial circumstances of the Company or such affiliate
      and is otherwise personally qualified to evaluate and assess the risks, nature
      and other aspects of this subscription.

    


    (s) Subscriber
      further represents that the address set forth below is its principal residence
      (or, if Subscriber is a company, partnership or other entity, the address of
      its
      principal place of business); that Subscriber is purchasing the Securities
      for
      Subscriber’s own account and not, in whole or in part, for the account of any
      other person; Subscriber is purchasing the Securities for investment and not
      with a view to resale or distribution; and that Subscriber has not formed any
      entity for the purpose of purchasing the Securities.

    


    (t) Subscriber
      understands that the Company and the Placement Agent shall have the
      unconditional right to accept or reject this subscription, in whole or in part,
      for any reason or without a specific reason, in the sole and absolute discretion
      of the Company (even after receipt and clearance of Subscriber’s funds). This
      Subscription Agreement is not binding upon the Company until accepted by an
      authorized officer of the Company. In the event that the subscription is
      rejected, Subscriber’s subscription funds will be returned without interest
      thereon or deduction therefrom.

    


    (u) In
      making
      its decision whether to make an investment in the Securities being offered
      in
      this Offering, Subscriber is not relying upon any information other than that
      contained in the Memorandum and Subscription Agreement, which Subscriber has
      carefully read, or other information provided in writing by the
      Company.

    


    (v) Subscriber
      represents that Subscriber is not subscribing for Securities in this Offering
      as
      a result of any advertisement, article, notice or other communication published
      in any newspaper, magazine or similar media or broadcast over the Internet,
      television or radio or presented at any seminar or meeting.

    


      (w) Subscriber
      has carefully read this Subscription Agreement and the Memorandum, and
      Subscriber has accurately completed the Confidential Purchaser Questionnaire
      which accompanies this Subscription Agreement.

    


    (x) No
      representations or warranties have been made to Subscriber by the Company,
      or
      any officer, employee, agent, affiliate or subsidiary of the Company, other
      than
      the representations of the Company contained herein, and in subscribing for
      the
      Securities the Subscriber is not relying upon any representations other than
      those contained in the Memorandum or in this Subscription
      Agreement.


    
      
         

      

      
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    (y) Subscriber
      represents and warrants, to the best of its knowledge, that other than the
      Placement Agent, no finder, broker, agent, financial advisor or other
      intermediary, nor any purchaser representative or any broker-dealer acting
      as a
      broker, is entitled to any compensation in connection with the transactions
      contemplated by this Subscription Agreement.

    


    (z) Subscriber
      (either directly or indirectly) : (i) has not distributed or reproduced the
      Memorandum, in whole or in part, at any time, without the prior written consent
      of the Company and the Placement Agent; and (ii) shall keep confidential the
      existence of the Memorandum and the information contained therein or made
      available in connection with any further investigation of the Company and not
      use the information about the Company (including the terms of the Offering)
      for
      any other purpose, including trading of the Company’s securities (including any
      short selling or other hedging transactions), until the terms of the Offering
      have been publicly disclosed. 

    


    3. Covenants,
      Representations and Warranties of the Company.
      The
      Company covenants with, represents and warrants to, Subscriber as
      follows:

    


    (a) The
      Company and its Controlled Subsidiaries, are (a) corporations duly organized,
      validly existing and in good standing under the laws of their respective states
      of 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 Memorandum 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). The term
      “Controlled Subsidiaries” means any corporation or other organization in which
      the Company owns, directly or indirectly, an equity or other ownership interest
      equal to or greater than 50 percent.

    


    (b) The
      Company has all such corporate power and authority to enter into, deliver and
      perform this Subscription Agreement.

    


    (c) All
      necessary corporate action has been duly and validly taken by the Company to
      authorize the execution, delivery and performance of this Subscription Agreement
      by the Company, and the issuance and sale of the Securities to be sold by the
      Company pursuant to this Subscription Agreement. This Subscription Agreement
      has
      been duly and validly authorized, executed and delivered by the Company and
      constitutes the legal, valid and binding obligation of the Company enforceable
      against the Company in accordance with its terms, except as the enforceability
      thereof may be limited by bankruptcy, insolvency, reorganization, moratorium
      or
      other similar laws affecting the enforcement of creditors’ rights generally and
      by general equitable principles.


    
      
         

      

      
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    (d) The
      Memorandum
      and/or
      information provided by the Company to the undersigned hereof, including,
      without limitation, all filings of the Company filed with the Securities and
      Exchange Commission under the Securities and Exchange Act of 1934, as amended
      (the “Exchange Act”), included therewith or filed prior to the completion of the
      Offering ( collectively, “SEC Reports”) do not contain any untrue statement of a
      material fact or omit to state any material fact required to be stated therein
      or necessary to make the statements therein not misleading. Except
      as
      may have been corrected or supplemented in a subsequent SEC Report, as of their
      respective dates, the SEC Reports complied in all material respects with the
      requirements of the Exchange Act and the rules and regulations of the Commission
      promulgated thereunder. The
      Company
      has established disclosure controls and procedures (as defined in Exchange
      Act
      Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
      controls and procedures to ensure that material information relating to the
      Company, including its Subsidiaries, is made known to the certifying officers
      by
      others within those entities, particularly during the period in which the
      Company’s most recently filed periodic report under the Exchange Act, as the
      case may be, is being prepared. The Company’s certifying officers have evaluated
      the effectiveness of the Company’s controls and procedures as of the date prior
      to the filing date of the most recently filed periodic report under the Exchange
      Act (such date, the “Evaluation Date”). 

    


    (e) As
      of the
      date hereof there is no litigation, arbitration, claim, governmental or other
      proceeding (formal or informal), or investigation pending or to the Company's
      knowledge threatened, with respect to the Company, or its respective operations,
      businesses, properties, or assets, except as properly described in the
      Memorandum or such as individually or in the aggregate do not now have and
      will
      not in the future have a material adverse effect upon the operations, business,
      properties, or assets of the Company. The Company is not, nor as of each closing
      date shall be, in violation of, or in default with respect to, any law, rule,
      regulation, order, judgment, or decree, except as properly described in the
      Memorandum or such as individually or in the aggregate do not have and will
      not
      in the future have a material adverse effect upon the operations, business,
      properties, or assets of the Company; nor is the Company required to take any
      action in order to avoid any such violation or default

    


    (f) To
      the
      best of its knowledge, the Company has not infringed, is not infringing, and
      has
      not received notice of infringement with respect to asserted intangibles of
      others. To the best knowledge of the Company, none of the patents, patent
      applications, trademarks, service marks, trade names and copyrights, and
      licenses and rights to the foregoing presently owned or held by the Company,
      materially infringe upon any like right of any other person or entity. The
      Company (i) owns or has the right to use, free and clear of all liens, charges,
      claims, encumbrances, pledges, security interests, defects or other restrictions
      of any kind whatsoever, sufficient patents, trademarks, service marks, trade
      names, copyrights, licenses and right with respect to the foregoing, to conduct
      its business as presently conducted except as set forth in the Memorandum,
      and
      (ii) except as set forth in the Memorandum, is not obligated or under any
      liability whatsoever to make any payments by way of royalties, fees or otherwise
      to any owner or licensee of, or other claimant to, any patent, trademark,
      service mark, trade name, copyright, know-how, technology or other intangible
      asset, with respect to the use thereof or in connection with the conduct of
      its
      business as now conducted or otherwise. The Company has direct ownership of
      title to all its intellectual property (including all United States and foreign
      patent applications and patents), other proprietary rights, confidential
      information and know-how; owns all the rights to its Intangibles as are
      currently used in or have potential for use in its business. 


    
      
         

      

      
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    (g) The
      shares of Common Stock and Warrants to be issued and sold to the undersigned
      as
      provided in the Memorandum have been duly authorized and when issued and
      delivered against payment therefor, will be validly issued, fully paid and
      non-assessable and will conform to the description thereof in the Memorandum.
      The Warrants are exercisable for Common Stock and the shares of Common Stock
      issuable upon exercise of the Warrants have been duly authorized and when issued
      and delivered upon exercise and due payment therefor will be validly issued,
      fully paid and non-assessable and will conform to the description thereof in
      the
      Memorandum; and there are no preemptive or other rights to subscribe for or
      to
      purchase, nor any restriction upon the voting or transfer of, any shares of
      the
      Common Stock issuable upon exercise of the Warrants pursuant to the Company's
      certificate of incorporation or by-laws or any agreement or other outstanding
      instrument to which the Company is a party or is otherwise known to the Company.
      The Company has reserved sufficient shares of Common Stock to be issued upon
      exercise of the Warrants.

    


    (h) The
      Company shall provide for the transfer, upon request of the Subscriber, or
      removal of any legends upon the Securities, all as may be allowed in accordance
      with SEC Rule 144, and provide any required opinions of counsel to the Company’s
      transfer agents, at no cost to the Subscriber. The Company shall make generally
      available such information as may be necessary under SEC Rule 144 to allow
      for
      the resale of Securities by the Subscriber for at least three (3) years after
      the final Closing of the Offering.

    


    (i) The
      Company’s capitalization prior to the Offering is as stated in the Memorandum,
      under the column titled “Actual” in the table under the caption
“Capitalization.”

    


    (j) The
      outstanding options, warrants and other convertible securities of the Company
      are as set forth in the Memorandum and the Company’s SEC Reports (collectively,
      the “Company
      Documents).
      Neither
      the Company nor any subsidiary is a party to an agreement, instrument or
      understanding which calls for, and no securities of the Company or any
      subsidiary contain provisions relating to, the
      resetting 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.


    
      
         

      

      
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    (k) Neither
      the Company nor any of its 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 or any subsidiary.

    


    (l)
      The
      Company and its 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.

    


    (m) 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.

    


    (n)
      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.

    


    


    4. Indemnification.
      Subscriber agrees to indemnify and hold harmless the Company, the Placement
      Agent, and their respective officers, directors, employees, shareholders, agents
      representatives and affiliates, and any person acting on behalf of the Company
      or Placement Agent, from and against any and all damage, loss, liability, cost
      and expense (including reasonable attorneys’ fees) which any of them may incur
      by reason of the failure by Subscriber to fulfill any of the terms and
      conditions of this Subscription Agreement, or by reason of any breach of the
      representations and warranties made by Subscriber herein, or in any other
      document provided by Subscriber to the Company. All representations, warranties
      and covenants of each of Subscriber and the Company contained herein shall
      survive the acceptance of this subscription.

    


    5. Registration
      Rights Granted to Subscriber.
      In
      consideration of the investment in the Company described in this Agreement
      and
      the Memorandum, the Company hereby grants to the Subscriber the registration
      rights set forth on Annex
      A
      attached
      hereto. 


    
      
         

      

      
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    6. Anti-Dilution
      Adjustments; Right of Participation.
      

    


    (a)
       The
      Company covenants and agrees that the Subscriber shall be entitled to additional
      shares of Common Stock and a reduction in the exercise price of the Warrants
      in
      the
      event that the Company issues any shares of its Common Stock (or securities
      convertible into Common Stock) at less than the Share Price. In
      the
      event that, during the term commencing on the Closing of this Offering and
      ending on a date which is 6 months after the effective date of the registration
      statement required to be filed by the Company in accordance with this
      Subscription Agreement (as described in Annex A), if the Company sells or issues
      additional shares of Common Stock, or securities (debt and/or equity)
      convertible into Common Stock, with a purchase, exercise or conversion price
      (the “Share Antidilution Price”) of less than the Share Price (as adjusted for
      stock splits, stock dividends and the like), with certain exceptions set forth
      in clause (b) below, the Company shall promptly issue to each Subscriber
      additional shares of Common Stock. 

     

    The
      number of additional shares of Common Stock issuable to each investor shall
      be
      such number as equals the excess of “A” over “B”, where :

    


    
      	
              A

            	
              =

            	
              (Number
                of Shares Purchased in this Offering X Share Issue
                Price)

            
	 	 	
              Share
                Anti-dilution Price

            
	 	 	
              And

            
	
              B

            	
              =

            	
              The
                number of Shares acquired by such investor in this Offering
                

            


    

    


    The
      exercise price of the Warrants shall be reduced to 105% of the Share
      Antidilution Price, as provided in the Warrants.

    


    (b) The
      adjustments to the number of Shares issuable to the Subscriber as provided
      in
      clause (a) above shall not be applicable in the following instances: (i) Common
      Stock issuable or issued to employees, consultants or directors of the Company
      directly or pursuant to a stock plan or other compensation arrangement which
      shall be approved by the Board of Directors of the Company, (ii) capital stock,
      debt instruments convertible into capital stock or warrants or options to
      purchase capital stock issued in connection with bona fide acquisitions,
      mergers, technology licenses or purchases, corporate partnering agreements,
      joint ventures or similar transactions, the terms of which are approved by
      the
      Board of Directors of the Company, and (ii) Common Stock issued or issuable
      upon
      conversion of the Warrants or any other securities exercisable or exchangeable
      for, or convertible into shares of Common Stock outstanding as of June 7, 2006.
      

    


    (c) The
      Company hereby agrees that until the effectiveness of the registration statement
      required to be filed in connection herewith, as described in Annex A hereto,
      notwithstanding anything else to the contrary contained in this Subscription
      Agreement, other than with respect to issuances provided for under clause (b)
      above, it shall not issue or agree to issue any shares of its Common Stock
      or
      securities (whether debt or equity) convertible into shares of Common Stock
      with
      a issue, purchase or conversion price of less than the Share Price without
      the
      written consent of Subscribers holding 75% of the then outstanding Common Stock
      issued in the Offering; provided, however, this right shall terminate on the
      date that the Subscribers no longer hold 75% of the Common Stock and Warrants
      sold in the Offering.


    
      
         

      

      
        10

        
          

        

      

      
         

      

    


    


    


    (d) The
      Company hereby agrees that during the period commencing on the date of the
      Memorandum and ending 12 months after the final Closing of the Offering, the
      Subscriber shall have the right to participate, on a pro rata basis, in any
      financing (other than public offerings of securities registered under the Act)
      undertaken by the Company during such period (a “Subsequent
      Financing”).
      The
      Company shall provide to the Subscriber a written summary of each Subsequent
      Financing at least 15 days in advance (“Financing Notice”) of the proposed
      closing date of the Subsequent Financing, including the proposed terms of the
      securities to be issued and purchase price, the anticipated capitalization
      of
      the Company following the Subsequent Financing and the proposed closing of
      such
      Subsequent Financing. Subscriber shall have 10 days from the date of mailing
      by
      the Company of the Financing Notice to advise the Company in writing that he
      intends to participate in the Subsequent Financing. 

     

    7. Patriot
      Act Compliance

    


    To
      induce
      the Company to accept the undersigned’s investment, the undersigned hereby makes
      the following representations, warranties and covenants to the
      Company:

     

    (a)  The
      undersigned represents and warrants that no holder of any beneficial interest
      in
      the undersigned’s equity securities of the Company (each a “Beneficial
      Interest Holder”)
      and,
      no Related Person (in the case the undersigned is an entity) is or will
      be:

     

    	(1)  	
            A
              person or entity whose name appears on the list of specially designated
              nationals and blocked persons maintained by the Office of Foreign Asset
              Control from time to time;

          


     

    	(2)  	
            A
              Foreign Shell Bank; or

          


     

    	(3)  	
            A
              person or entity resident in or whose subscription funds are transferred
              from or through an account in a Non-Cooperative Jurisdiction.
              

          


     

    (b)  The
      undersigned represents that the bank or other financial institution (the
“Wiring
      Institution”)
      from
      which the undersigned’s funds will be wired is located in a FATF
      Country.

     

    (c)  The
      undersigned represents that:

     

    	(1)  	
            Neither
              it, any Beneficial Interest Holder nor any Related Person (in the case
              of
              the undersigned is an entity) is a Senior Foreign Political Figure,
              any
              member of a Senior Foreign Political Figure’s Immediate Family or any
              Close Associate of a Senior Foreign Political Figure;
              or

          


     


    
      
         

      

      
        11

        
          

        

      

      
         

      

    


    


     

    	(2)  	
            Neither
              it, any Beneficial Interest Holder nor any Related Person (in the case
              the
              undersigned is an entity) is resident in, or organized or chartered
              under
              the laws of, a jurisdiction that has been designated by the Secretary
              of
              the Treasury under Section 311 or 312 of the USA PATRIOT Act as warranting
              special measures due to money laundering
              concerns.

          


     

    	(3)  	
            Its
              investment funds do not originate from, nor will they be routed through,
              an account maintained at a Foreign Shell Bank, an “offshore bank,” or a
              bank organized or chartered under the laws of a Non-Cooperative
              Jurisdiction. 

          


     

    (d) Form
      purposes of this Section 7, the following definitions shall apply;

     

    Close
      Associate:
      With
      respect to a Senior Foreign Political Figure, a person who is widely and
      publicly known internationally to maintain an unusually close relationship
      with
      the Senior Foreign Political Figure, and includes a person who is in a position
      to conduct substantial domestic and international financial transactions on
      behalf of the Senior Foreign Political Figure.

     

    FATF:
      The
      Financial Action Task Force on Money Laundering.

     

    FATF
      Country:
      A
      country that is a member of FATF. As of September 1, 2003, the countries which
      are members of FATF are: Argentina; Australia; Austria; Belgium; Brazil; Canada;
      Denmark; Finland; France; Germany; Greece; Hong Kong; Iceland; Ireland; Italy;
      Japan; Luxembourg; Mexico; Kingdom of the Netherlands; New Zealand; Norway;
      Portugal; Singapore; South Africa; Spain; Sweden; Switzerland; Turkey; United
      Kingdom and United States. For a current list of FATF members see
      http://www1.oecd.org/fatf/Members_en.htm.

     

    Foreign
      Bank:
      An
      organization that (i) is organized under the laws of a country outside the
      United States; (ii) engages in the business of banking; (iii) is recognized
      as a
      bank by the bank supervisory or monetary authority of the country of its
      organization or principal banking operations; (iv) receives deposits to a
      substantial extent in the regular course of its business; and (v) has the power
      to accept demand deposits, but does not include the U.S. branches or agencies
      of
      a foreign bank.

     

    Foreign
      Shell Bank:
      A
      Foreign Bank without a Physical Presence in any country, but does not include
      a
      Regulated Affiliate.

     

    Government
      Entity:
      Any
      government or any state, department or other political subdivision thereof,
      or
      any governmental body, agency, authority or instrumentality in any jurisdiction
      exercising executive, legislative, regulatory or administrative functions of
      or
      pertaining to government.

     

    Immediate
      Family:
      With
      respect to a Senior Foreign Political Figure, typically includes the political
      figure’s parents, siblings, spouse, children and in-laws.

     


    
      
         

      

      
        12

        
          

        

      

      
         

      

    


     

     

    Non-Cooperative
      Jurisdiction:
      Any
      foreign country or territory that has been designated as non-cooperative with
      international anti-money laundering principles or procedures by an
      intergovernmental group or organization, such as FATF, of which the United
      States is a member and with which designation the United States representative
      to the group or organization continues to concur. See
      http://www1.oecd.org/fatf/NCCT_en.htm for FATF’s list of non-cooperative
      countries and territories.

     

    Physical
      Presence:
      A place
      of business that is maintained by a Foreign Bank and is located at a fixed
      address, other than solely a post office box or an electronic address, in a
      country in which the Foreign Bank is authorized to conduct banking activities,
      at which location the Foreign Bank: (a) employs one or more individuals on
      a
      full-time basis; (b) maintains operating records related to its banking
      activities; and (c) is subject to inspection by the banking authority that
      licensed the Foreign Bank to conduct banking activities.

     

    Publicly
      Traded Company:
      An
      entity whose securities are listed on a recognized securities exchange or quoted
      on an automated quotation system in the U.S. or country other than a
      Non-Cooperative Jurisdiction or a wholly-owned subsidiary of such an
      entity.

     

    Qualified
      Plan:
      A tax
      qualified pension or retirement plan in which at least 100 employees participate
      that is maintained by an employer that is organized in the U.S. or is a U.S.
      Government Entity.

     

    Regulated
      Affiliate:
      A
      Foreign Shell Bank that: (a) is an affiliate of a depository institution, credit
      union, or Foreign Bank that maintains a Physical Presence in the U.S. or a
      foreign country, as applicable; and (b) is subject to supervision by a banking
      authority in the country regulating such affiliated depository institution,
      credit union, or Foreign Bank.

     

    Related
      Person:
      With
      respect to any entity, any interest holder, director, senior officer, trustee,
      beneficiary or grantor of such entity; provided that in the case of an entity
      that is a Publicly Traded Company or a Qualified Plan, the term “Related Person”
shall exclude any interest holder holding less than 5% of any class of
      securities of such Publicly Traded Company and beneficiaries of such Qualified
      Plan.

     

    Senior
      Foreign Political Figure:
      A
      senior official in the executive, legislative, administrative, military or
      judicial branches of a non-U.S. government (whether elected or not), a senior
      official of a major non-U.S. political party, or a senior executive of a
      non-U.S. government-owned corporation. In addition, a Senior Foreign Political
      Figure includes any corporation, business or other entity that has been formed
      by, or for the benefit of, a Senior Foreign Political Figure.

     

    USA
      PATRIOT Act:
      The
      Uniting and Strengthening America by Providing Appropriate Tools Required to
      Intercept and Obstruct Terrorism (USA PATRIOT Act) Act of 2001 (Pub. L.
      No. 107-56).

     


    
      
         

      

      
        13

        
          

        

      

      
         

      

    


    8. Miscellaneous.

    


    (a) Subscriber
      agrees not to transfer or assign this Subscription Agreement or any of
      Subscriber’s interest herein and further agrees that the transfer or assignment
      of the Securities acquired pursuant hereto shall be made only in accordance
      with
      all applicable laws.

    


    (b) Subscriber
      agrees that Subscriber cannot cancel, terminate, or revoke this Subscription
      Agreement or any agreement of Subscriber made hereunder, and this Subscription
      Agreement shall survive the death or legal disability of Subscriber and shall
      be
      binding upon Subscriber’s heirs, executors, administrators, successors, and
      permitted assigns.

    


    (c) This
      Subscription Agreement constitutes the entire agreement among the parties hereto
      with respect to the subject matter hereof and may be amended only by a written
      execution by all parties.

    


    (d) Subscriber
      acknowledges that it has been advised to consult with its own attorney regarding
      this subscription and Subscriber has done so to the extent that Subscriber
      deems
      appropriate. Subscriber understands and agrees that Subscriber has not been
      represented in this transaction by counsel to the Company or the Placement
      Agent.

    


    (e) Any
      notice or other document required or permitted to be given or delivered to
      the
      Subscriber shall be in writing and sent: (i) by registered or certified mail
      with return receipt requested (postage prepaid) or (ii) by a recognized
      overnight delivery service (with charges prepaid). 

    


    If
      to the
      Company, at:

    


    200
      Route
      17

    Mahwah,
      NJ 07430

    Attn.:
      John A. Moore, Chief Executive Officer 

    


    If
      to the
      Subscriber, at its address set forth on the signature page to this Subscription
      Agreement, or such other address as it shall have specified to the Company
      in
      writing, with a copy (which shall not constitute notice) to each of the
      following: 

    


    If
      to
      First Montauk Securities Corp. at:

    


    Parkway
      109 Office Center

    Red
      Bank,
      New Jersey 07701

    Tel
      No.:
      732-842-4700

    Attn:
      Chief Compliance Officer 

    


    (f) Failure
      of the Company to exercise any right or remedy under this Subscription Agreement
      or any other agreement between the Company and the Subscriber, or otherwise,
      or
      delay by the Company in exercising such right or remedy, will not operate as
      a
      waiver thereof. No waiver by the Company will be effective unless and until
      it
      is in writing and signed by the Company.


    
      
         

      

      
        14

        
          

        

      

      
         

      

    


    


    


    (g) This
      Subscription Agreement shall be enforced, governed and construed in all respects
      in accordance with the laws of the State of New York, as such laws are applied
      by the New York courts except with respect to the conflicts of law provisions
      thereof, and shall be binding upon the Subscriber, the Subscriber’s heirs,
      estate, legal representatives, successors and assigns and shall inure to the
      benefit of the Company, its successors and assigns.

    


    (h) Any
      legal
      suit, action or proceeding arising out of or relating to this Subscription
      Agreement or the transactions contemplated hereby shall be instituted
      exclusively in New York, New York, or in the United States District Court for
      the Southern District of New York (the “New York Courts”). The parties hereto
      hereby: (i) waives any objection which they may now have or hereafter have
      to
      the venue of any such suit, action or proceeding, and (ii) irrevocably consents
      to the jurisdiction of the New York Courts in any such suit, action or
      proceeding. The parties further agree to accept and acknowledge service of
      any
      and all process which may be served in any such suit, action or proceeding
      in
      the New York Courts and agree that service of process upon a party mailed by
      certified mail to such party’s address shall be deemed in every respect
      effective service of process upon such party in any such suit, action or
      proceeding.

    


    (i) If
      any
      provision of this Subscription Agreement is held to be invalid or unenforceable
      under any applicable statute or rule of law, then such provision shall be deemed
      modified to conform to such statute or rule of law. Any provision hereof that
      may prove invalid or unenforceable under any law shall not affect the validity
      or enforceability of any other provisions hereof.

    


    (j)
       The
      parties understand and agree that money damages would not be a sufficient remedy
      for any breach of the Subscription Agreement by the Company or the Subscriber
      and that the party against which such breach is committed shall be entitled
      to
      equitable relief, including injunction and specific performance, as a remedy
      for
      any such breach. Such remedies shall not be deemed to be the exclusive remedies
      for a breach by either party of the Subscription Agreement but shall be in
      addition to all other remedies available at law or equity to the party against
      which such breach is committed.

    


    (k) All
      pronouns and any variations thereof used herein shall be deemed to refer to
      the
      masculine, feminine, singular or plural, as identity of the person or persons
      may require. 

    


    (l) This
      Subscription Agreement may be executed in counterparts and by facsimile, each
      of
      which shall be deemed an original, but all of which shall constitute one and
      the
      same instrument.

    


    


    


    [Signature
      Pages Follow]

    


    


    
      
         

      

      
        15

        
          

        

      

      
         

      

    


    Signature
      Page for Individuals:

    


    IN
      WITNESS WHEREOF, Subscriber has caused this Subscription Agreement to be
      executed as of the date indicated below.

    


     

      
        	
                $

              	 
	
                Purchase
                  Price

              	
                Number
                  of Shares

              
	 	 
	
                Print
                  or Type Name

              	
                Print
                  or Type Name (Joint-owner)

              
	 	 
	
                Signature

              	
                Signature
                  (Joint-owner)

              
	 	 
	
                Date

              	
                Date
                  (Joint-owner)

              
	 	 
	
                Social
                  Security Number

              	
                Social
                  Security Number (Joint-owner)

              
	 	 
	 	 
	
                Address

              	
                Address
                  (Joint-owner)

              


      

    

     

    


    _______
      Joint Tenancy   ______
      Tenants in Common

    


    


    Wiring
      Instructions:

    


    


    
      	
              Bank
                Name:

            	 	
              Signature
                Bank

            
	
              ABA
                #:

            	 	
              0260135176

            
	
              Tel
                Number

            	 	
              646-822-1361

            
	
              Address

            	 	
              261
                Madison Avenue, New York, New York 10016

            
	
              Acct
                #:

            	 	
              1500768270

            
	
              Acct.
                Name: 

            	 	
              Signature
                Bank as Escrow Agent for Data Systems & Software
                Inc.

            
	
              Reference

            	 	 


    

    


    


    



    
      
         

      

      
        16

        
          

        

      

      
         

      

    


    Signature
      Page for Partnerships, Corporations or Other Entities:

    


    IN
      WITNESS WHEREOF, Subscriber has caused this Subscription Agreement to be
      executed as of the date indicated below.

    


    


    $
      ______________________    __________________________

    Total
      Purchase Price    Number
      of
      Shares

    


    _____________________________________________________________________________

    Print
      or
      Type Name of Entity

    


    ______________________________________________________________________________

    Address

    


    ____________________________________ 
____________________________________

    Taxpayer
      I.D. No. (if applicable)    Date

    


    


    By:
      ____________________________________ ____________________________________

    Signature:
      Name:         Print
      or
      Type Name and Indicate

     
        Title:          Title
      or
      Position with Entity  

    


    


    ____________________________________ ____________________________________

    Signature
      (other authorized signatory)      Print
      or Type
      Name and Indicate

     
                    Title
      or Position with Entity  

    


    All
      subscriptions from partnerships, corporations, trusts or limited liability
      companies must be accompanied by resolutions of the appropriate corporate
      authority (board of directors, trustee or managing partner or members, as
      applicable) and trust documents evidencing the authorization and power to make
      the subscription.

    


    Wiring
      Instructions:

    


    
      	
              Bank
                Name:

            	 	
              Signature
                Bank

            
	
              ABA
                #:

            	 	
              0260135176

            
	
              Tel
                Number

            	 	
              646-822-1361

            
	
              Address

            	 	
              261
                Madison Avenue, New York, New York 10016

            
	
              Acct
                #:

            	 	
              1500768270

            
	
              Acct.
                Name: 

            	 	
              Signature
                Bank as Escrow Agent for Data Systems & Software
                Inc.

            
	
              Reference

            	 	 


    

    



    
      
         

      

      
        17

        
          

        

      

      
         

        
          


        

      

    



    SUBSCRIPTION
      SIGNATURE PAGE AND ACCEPTANCE BY DATA SYSTEMS & SOFTWARE INC.

    


    IN
      WIITNESS WHEREOF, the Company has caused this Subscription Agreement to be
      executed, and the foregoing subscription accepted, as of the date indicated
      below.

    


    


    DATA
      SYSTEMS & SOFTWARE, INC.

    


    


    By:
      __________________________________

    Name:

    Title:

    


    


    


    Date:
      __________________________, 2006

    


    


    


    
      	 	 	 
	
              Name
                of Subscriber

            	 	 
	
               

              $

            	 	 
	
              Total
                Purchase Price

            	 	
              Number
                of Shares

            


    

    



    
      
         

      

      
        18

        
          

        

      

      
         

        
          


        

      

    



    Annex
      A

    


    Registration
      Rights

    


    DATA
      SYSTEMS & SOFTWARE INC. (the “Company”) hereby grants to the Subscriber the
      following registration rights. 

    


    1. Definitions.

    


    Capitalized
      terms used herein without definition shall have the respective meanings given
      such terms as set forth in the Subscription Agreement between DATA
      SYSTEMS & SOFTWARE INC. and
      the
      subscriber signatory thereto (the “Subscription
      Agreement”)
      or in
      the Company’s Confidential Private Placement Memorandum, dated as of June 12,
      2006 (as amended or supplemented, and together with all documents and exhibits
      attached thereto, the “Memorandum”).
      As
      used herein, the following terms shall have the following meanings:

    


    Business
      Day:
      Any day
      other than a day on which banks are authorized or required to be closed in
      the
      State of New York.

    


    Commission:
      The
      United States Securities and Exchange Commission.

    


    Common
      Stock:
      The
      Common Stock, par value $.01 per share, of the Company.

    


    Exchange
      Act:
      The
      Securities Exchange Act of 1934, as amended, and the rules and regulations
      of
      the Commission promulgated thereunder.

    


    Holder
      or
Holders:
      Any
      holder of the Registrable Securities.

    


    Offering:
      means
      the private placement offering of securities by the Company as described in
      the
      Memorandum. 

    


    Person:
      Any
      individual, corporation, partnership, joint venture, association, joint -stock
      company, trust, unincorporated organization or government or other agency or
      political subdivision thereof.

    


    Prospectus:
      The
      prospectus included in any Registration Statement (including, without
      limitation, a prospectus that discloses information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by such Registration Statement,
      and all other amendments and supplements to the prospectus, including
      post-effective amendments, and all material incorporated by reference or deemed
      to be incorporated by reference in such prospectus.

    


    Questionnaire:
      A
      questionnaire prepared by the Company to be completed by each Holder providing
      the information required by Sections 507 and 508 of Regulation S-K, as
      promulgated under the Securities Act and the Exchange Act, for inclusion in
      a
      Registration Statement, including identification of all beneficial owners of
      Registrable Securities.


    
      
         

      

      
        A-2

        
          

        

      

      
         

      

    


    


    Registrable
      Securities:
      The
      Shares and the Warrant Shares, until such time as (1) a Registration Statement
      covering such Registrable Securities has been declared effective by the
      Commission or (2) such Registrable Securities are saleable pursuant to Rule
      144
      (or any similar provision then in force) under the Securities Act, without
      any
      restriction, whichever is earlier.

    


    Registration
      Statement:
      Any
      registration statement of the Company that covers any of the Registrable
      Securities pursuant to the provisions of this Agreement, including the
      Prospectus, amendments and supplements to such registration statements,
      including post effective amendments, all exhibits, and all material incorporated
      by reference or deemed to be incorporated by reference in such registration
      statement.

    


    Securities
      Act:
      The
      Securities Act of 1933, as amended, and the rules and regulations of the
      Commission promulgated thereunder.

    


    


    Warrants:
      The
      warrant to purchase Common Stock included in the Offering, such shares to be
      referred to as “Warrant Shares.”

    


    2. Registration
      Rights.

    


    (a) Required
      Registration Within
      30
      days following the final Closing of the Offering, the Company shall prepare
      and
      file with the Commission a Registration Statement on appropriate form as
      determined under the regulations of the Commission for the purpose of
      registering for public resale: (i) the Common Stock and the Warrant Shares
      sold
      in the Offering, and (ii) the shares underlying warrants issuable to the
      Placement Agent in connection with the Offering. The Company shall use its
      best
      efforts to ensure that such Registration Statement is declared effective within
      120 days of the final Closing. In the event that: (i) such Registration
      Statement is not filed within 30 days of the final Closing or (ii) the
      Registration Statement (of either type) is not declared effective by the
      Commission within 120 days of the final Closing or, thereafter, the Registration
      Statement does not stay effective for 30 consecutive days for any reason during
      the two year period commencing after its effectiveness, then Holder shall be
      entitled to liquidated damages equal to one and one-quarter percent (1.25%)
      of
      the Holder’s original subscription price in the Offering for each 30 day period,
      pro rated on a daily basis; provided, however, that such damages shall not
      exceed 11.25% of such Holder’s original subscription payment. The Company will
      agree to take all actions as are necessary to keep the Registration Statement
      effective until the later of: (i) the first anniversary of the first date on
      which no Warrants remain unexercised or unexpired or (ii) the date all
      Securities underlying the Units may be sold without any restrictions under
      Rule
      144 during any 90-day period in accordance with all rules and regulations
      regarding sales of securities pursuant to Rule 144(k). The Company shall bear
      all expenses of the Registration Statement, including fees and expenses of
      counsel or other advisors to the investors in the Placement and the Placement
      Agent, (which counsel fees shall be the sum of $15,000 and payable in advance
      at
      the final closing of the Offering) as well as any filing fees payable in
      connection with any required NASD filings by the Placement Agent.

    


    (b) Withdrawal.
      If a
      registration pursuant to this Section 2 involves an underwritten public
      offering, any Holder requesting to be included in such registration may elect,
      in writing prior to the effective date of the registration statement filed
      in
      connection with such registration, not to register the Holder’s securities in
      connection with such registration. The foregoing provisions notwithstanding,
      the
      Company may withdraw any registration statement referred to in this Section
      2
      without thereby incurring any liability to the Holders.


    
      
         

      

      
        A-3

        
          

        

      

      
         

      

    


    


    (c) Holdback
      Agreements.
      If any
      registration of Registrable Securities shall be in connection with an
      underwritten public offering, each Holder agrees, provided that all other
      security holders of the Company whose securities are included in the
      Registration Statement similarly agree, not to effect any public sale or
      distribution, including any sale pursuant to Rule 144 under the Securities
      Act,
      of any Registrable Securities, and not to effect any transfer, sale, assignment
      or pledge of any securities of the Company beneficially owned by the Holder
      during the thirty (30) days prior to, and continuing for the 180 days following
      the effective date of such Registration Statement (except as part of such
      registration).

    


    (d) Exceptions.
      Notwithstanding the foregoing, the Company may delay the registration of
      Registrable Securities pursuant to Section 2 hereof for the time periods
      described in Section 2(e) hereof upon the occurrence of any of the
      following:

    


    (i) The
      Company shall have previously entered into an agreement or letter of intent
      contemplating an underwritten public offering on a firm commitment basis of
      Common Stock or securities convertible into or exchangeable for Common Stock
      and
      the managing underwriter of such proposed public offering advises the Company
      in
      writing that in its opinion such proposed underwritten offering would be
      materially and adversely affected by a concurrent registered offering of
      Registrable Securities (such opinion to state the reasons
      therefore);

    


    (ii) The
      Company shall have entered into an agreement or letter of intent, which has
      not
      expired or otherwise terminated, contemplating a material business acquisition
      by the Company or its subsidiaries whether by way of merger, consolidation,
      acquisition of assets, acquisition of securities or otherwise;

    


    (iii) The
      Company is in possession of material nonpublic information that the Company
      would be required to disclose in the Registration Statement and that is not,
      but
      for the registration, otherwise required to be disclosed at the time of such
      registration, the disclosure of which, in its good faith judgment, would have
      a
      material adverse effect on the business, operations, prospects or competitive
      position of the Company;

    


    


    (e)
       Period
      of Delay.
      If an
      event described in clauses (i) through (iii) of Section 2(d) shall occur, the
      Company may, by written notice to the Holders, delay the filing of a
      Registration Statement with respect to the Registrable Securities to be covered
      thereby for a period of time not exceeding 60 days. 

    


    (f) Inclusion
      in Registration Statement.
      Within
      three (3) days following the final Closing of this Offering, the Company shall
      deliver a Questionnaire to each Holder. Each Holder agrees, by acquisition
      of
      the Registrable Securities, that it shall not be entitled to be named as a
      selling securityholder in a Registration Statement or use the Prospectus for
      offers and resales of Registrable Securities at any time, unless such Holder
      has
      returned to the Company a completed and signed Questionnaire on or prior to
      the
      15th day following the final Closing of this Offering. If a Holder of
      Registrable Securities returns a Questionnaire after the deadline specified
      in
      the previous sentence, the Company shall use its best efforts to take such
      actions as are required to name such Holder as a selling security holder in
      the
      Registration Statement or any pre-effective or post-effective amendment thereto
      and to include (to the extent not theretofore included) in the Registration
      Statement the Registrable Securities identified in such late Questionnaire,
      provided that the Company will take such action on or prior to the 45th day
      following receipt of the applicable Questionnaire.


    
      
         

      

      
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    3. Registration
      Procedures.

    


    In
      connection with the registration obligations of the Company pursuant to the
      terms and conditions of this Agreement, the Company shall:

    


    (a) prior
      to
      filing a Registration Statement or Prospectus or any amendments or supplements
      thereto, including documents incorporated by reference after the initial filing
      of the Registration Statement, the Company will furnish to the Holders covered
      by such Registration Statement (the “Selling
      Holders”),
      Holders’ legal counsel and the underwriters, if any, draft copies of all such
      documents proposed to be filed at least three (3) Business Days prior thereto,
      which documents will be subject to the review of such Holders’ legal counsel and
      the underwriters, if any. Any such review by Holder’s legal counsel and the
      underwriters, if any, shall toll the 30 day time period described in Section
      2(a) until such review has been completed and the filing has been approved
      by
      each of Holder’s legal counsel and the underwriters as applicable. The Company
      will notify each Selling Holder of any stop order issued or threatened by the
      Commission in connection therewith and take all reasonable actions required
      to
      prevent the entry of such stop order or to remove it if entered;

    


    (b) as
      promptly as practicable prepare and file with the Commission such amendments
      and
      post-effective amendments to the Registration Statement as may be necessary
      to
      keep such Registration Statement effective for the period required pursuant
      to
      Section 2; cause the Prospectus to be supplemented by any required Prospectus
      supplement, and, as so supplemented, to be filed pursuant to Rule 424 under
      the
      Securities Act; and comply with the provisions of the Securities Act applicable
      to it with respect to the disposition of all Registrable Securities covered
      by
      such Registration Statement during the applicable period in accordance with
      the
      intended methods of disposition by the Selling Holders set forth in such
      Registration Statement or supplement to the Prospectus;

    


    (c) as
      promptly as practicable furnish to any Selling Holder and the underwriters,
      if
      any, without charge, such number or conformed copies of such Registration
      Statement and any post-effective amendment thereto and such number of copies
      of
      the Prospectus (including each preliminary Prospectus) and any amendments or
      supplements thereto, and any documents incorporated by reference therein, as
      such Selling Holder or underwriter may reasonably request in order to facilitate
      the disposition of the Registrable Securities being sold by such Selling Holder
      (it being understood that the Company consents to the use of the Prospectus
      and
      any amendment or supplement thereto by each Selling Holder and the underwriters,
      if any, in connection with the offering and sale of the Registrable Securities
      covered by the Prospectus or any amendment or supplement thereto);



    
      
         

      

      
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    (d) on
      or
      prior to the date on which the Registration Statement is declared effective,
      register or qualify such Registrable Securities under such other securities
      or
      blue sky laws of such jurisdictions as any Selling Holder or underwriter
      reasonably requests and do any and all other acts and things which may be
      necessary or advisable to enable such Selling Holder to consummate the
      disposition in such jurisdictions of such Registrable Securities owned by such
      Selling Holder; keep each such registration or qualification (or exemption
      therefrom) effective during the period which the Registration Statement is
      required to be kept effective; and do any and all other acts or things
      reasonably necessary or advisable to enable the disposition in such
      jurisdictions of the Registrable Securities covered by the applicable
      Registration Statement; provided
      that the
      Company shall not be required to (i) qualify to do business as a foreign
      corporation or as a broker-dealer in any jurisdiction where it is not then
      so
      qualified or (ii) take any action which would subject it to general service
      of
      process or to taxation in any jurisdiction where it is not then so
      subject;

    


    (e) cause
      the
      Registrable Securities covered by such Registration Statement to be registered
      with or approved by such other governmental agencies or authorities as may
      be
      necessary by virtue of the business and operations of the Company to enable
      the
      Selling Holders to consummate the disposition of such Registrable
      Securities;

    


    (f) as
      promptly as practicable notify each Selling Holder and any underwriter and
      (if
      requested by any such Person) confirm such notice in writing, (i) when a
      Prospectus or any Prospectus supplement or post-effective amendment has been
      filed and, with respect to a Registration Statement or any post-effective
      amendment, when the same has become effective, (ii) of the issuance by the
      Commission of any stop order suspending the effectiveness of a Registration
      Statement or the initiation or threatening of any proceedings for that purpose,
      (iii) of the issuance by any state securities commission or other regulatory
      authority of any order suspending the qualification or exemption from
      qualification of any of the Registrable Securities under state securities or
      blue sky laws or the initiation of any proceedings for that purpose and (iv)
      of
      the happening of any event which makes any statement made in a Registration
      Statement or related Prospectus or any document incorporated or deemed to be
      incorporated by reference therein untrue or which requires the making of any
      changes in such Registration Statement, Prospectus or documents so that they
      will not contain any untrue statement of a material fact or omit to state any
      material fact required to be stated therein or necessary to make the statements
      therein not misleading; and, as promptly as practicable thereafter, prepare
      and
      file with the Commission and furnish a supplement or amendment to such
      Prospectus so that, as thereafter deliverable to the purchasers of such
      Registrable Securities, such Prospectus will not contain any untrue statement
      of
      a material fact or omit to state a material fact necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading;

    


    (g) use
      its
      reasonable efforts to prevent the issuance of any order suspending the
      effectiveness of a Registration Statement, and, if one is issued, to obtain
      the
      withdrawal of any order suspending the effectiveness of a Registration Statement
      at the earliest possible moment;

    


    


    Each
      Selling Holder, upon receipt of any notice from the Company of the happening
      of
      any event of the kind described in subsection (f) of this Section 3, shall
      forthwith discontinue disposition of the Registrable Securities until such
      Selling Holder’s receipt of the copies of the supplemented or amended Prospectus
      contemplated by subsection (f) of this Section 3 or until it is advised in
      writing (the “Advice”)
      by the
      Company that the use of the Prospectus may be resumed, and has received copies
      of any additional or supplemental filings which are incorporated by reference
      in
      the Prospectus, and, if so directed by the Company, such Selling Holder will,
      or
      will request the managing underwriter or underwriters, if any, to, deliver
      to
      the Company (at the Company’s expense) all copies, other than permanent file
      copies then in such Selling Holder’s possession, of the Prospectus covering such
      Registrable Securities current at the time of receipt of such notice.



    
      
         

      

      
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    4. Registration
      Expenses.

    


    (a) All
      expenses incident to the Company’s performance of, or compliance with, the
      provisions hereof, including without limitation, all Commission and securities
      exchange or NASD registration and filing fees, fees and expenses of compliance
      with securities or blue sky laws (including fees and disbursements of counsel
      in
      connection with blue sky qualifications of the Registrable Securities), printing
      expenses, messenger and delivery expenses, internal expenses (including, without
      limitation, all salaries and expenses of the Company’s officers and employees
      performing legal or accounting duties), fees and expenses incurred in connection
      with the listing of the securities to be registered, if any, on each securities
      exchange on which similar securities issued by the Company are then listed,
      fees
      and disbursements of counsel for the Company and its independent certified
      public accountants (including the expense of any special audit or “cold comfort”
letters required by, or incident to, such performance), Securities Act liability
      insurance (if the Company elects to obtain such insurance), reasonable fees
      and
      expenses of any special experts retained by the Company in connection with
      such
      registration, fees and expenses of other Persons retained by the Company in
      connection with each registration hereunder (but not including the fees and
      expense of legal counsel retained by a Holder or Holders, or any underwriting
      fees, discounts or commissions attributable to the sale of Registrable
      Securities) are herein called “Registration Expenses.”

    


    (b) The
      Company will pay all Registration Expenses in connection with the Registration
      Statement filed pursuant to Section 2 except as otherwise set forth therein.
      Other than as specifically provided for in Section 2(a) hereto, all expenses
      to
      be borne by the Holders in connection with any Registration Statement filed
      pursuant to Section 2 (including, without limitation, all underwriting fees,
      discounts or commissions attributable to such sale of Registrable Securities)
      shall be borne by the participating Holders pro rata in relation to the number
      of Registrable Securities to be registered by each Holder. In addition, the
      Company shall bear the costs and expenses of any required legal opinion or
      transfer agent fees in connection with any transfer of Registrable Securities
      pursuant to Rule 144. 

    


    5. Indemnification;
      Contribution.

    


    (a) Indemnification
      by the Company.
      The
      Company agrees to indemnify and hold harmless, to the full extent permitted
      by
      law, each Holder, its officers, directors and each Person who controls such
      Holder (within the meaning of the Securities Act), and any agent or investment
      adviser thereof, against all losses, claims, damages, liabilities and expenses
      (including reasonable attorneys’ fees and costs of investigation) arising out of
      or based upon any untrue or alleged untrue statement of material fact contained
      in any Registration Statement, any amendment or supplement thereto, any
      Prospectus or preliminary Prospectus or any omission or alleged omission to
      state therein a material fact required to be stated therein or necessary to
      make
      the statements therein not misleading, except insofar as the same arise out
      of
      or are based upon any such untrue statement or omission based upon information
      with respect to such Holder furnished in writing to the Company by or on behalf
      of such Holder expressly for use therein; provided
      that, in
      the event that the Prospectus shall have been amended or supplemented and copies
      thereof as so amended or supplemented, shall have been furnished to a Holder
      prior to the confirmation of any sales of Registrable Securities, such indemnity
      with respect to the Prospectus shall not inure to the benefit of such Holder
      if
      the Person asserting such loss, claim, damage or liability and who purchased
      the
      Registrable Securities from such holder did not, at or prior to the confirmation
      of the sale of the Registrable Securities to such Person, receive a copy of
      the
      Prospectus as so amended or supplemented and the untrue statement or omission
      of
      a material fact contained in the Prospectus was corrected in the Prospectus
      as
      so amended or supplemented.


    
      
         

      

      
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    (b) Indemnification
      by Holders of Registrable Securities.
      In
      connection with any Registration Statement in which a Holder is participating,
      each such Holder will furnish to the Company in writing such information with
      respect to the name and address of such Holder and such other information as
      may
      be reasonably required for use in connection with any such Registration
      Statement or Prospectus and agrees to indemnify, to the full extent permitted
      by
      law, the Company, its directors and officers and each Person who controls the
      Company (within the meaning of the Securities Act) against any losses, claims,
      damages, liabilities and expenses resulting from any untrue statement of a
      material fact in the Registration Statement or Prospectus or any amendment
      thereof or supplement thereto or necessary to make the statements therein not
      misleading, to the extent, but only to the extent, that such untrue or alleged
      untrue statement relates to any information with respect to such Holder so
      furnished in writing by such Holder specifically for inclusion in any Prospectus
      or Registration Statement; provided,
      however,
      that
      such Holder shall not be liable in any such case to the extent that prior to
      the
      filing of any such Registration Statement or Prospectus or amendment thereof
      or
      supplement thereto, such Holder has furnished in writing to the Company
      information expressly for use in such Registration Statement or Prospectus
      or
      any amendment thereof or supplement thereto which corrected or made not
      misleading information previously furnished to the Company. In no event shall
      the liability of any Selling Holder hereunder be greater in amount than the
      dollar amount of the proceeds received by such Selling Holder upon the sale
      of
      the Registrable Securities giving rise to such indemnification
      obligation.

    


    (c) Conduct
      of Indemnification Proceedings.
      Any
      Person entitled to indemnification hereunder agrees to give prompt written
      notice to the indemnifying party after the receipt by such Person of any written
      notice of the commencement of any action, suit, proceeding or investigation
      or
      threat thereof made in writing for which such Person will claim indemnification
      or contribution pursuant to the provisions hereof and, unless in the judgment
      of
      counsel of such indemnified party a conflict of interest may exist between
      such
      indemnified party and the indemnifying party with respect to such claim, permit
      the indemnifying party to assume the defense of such claim. Whether or not
      such
      defense is assumed by the indemnifying party, the indemnifying party will not
      be
      subject to any liability for any settlement made without its consent (but such
      consent will not be unreasonably withheld). No indemnifying party will consent
      to entry of any judgment or enter into any settlement which does not include
      as
      an unconditional term thereof the giving by the claimant or plaintiff to such
      indemnified party of a release from all liability in respect of such claim
      or
      litigation. If the indemnifying party is not entitled to, or elects not to,
      assume the defense of a claim, it will not be obligated to pay the fees and
      expenses of more than one counsel (plus such local counsel, if any, as may
      be
      reasonably required in other jurisdictions) with respect to such claim, unless
      in the judgment of any indemnified party a conflict of interest may exist
      between such indemnified party and any other of such indemnified parties with
      respect to such claim, in which event the indemnifying party shall be obligated
      to pay the fees and expenses of such additional counsel or counsels. For the
      purposes of this Section 5(c), the term “conflict of interest” shall mean that
      there are one or more legal defenses available to the indemnified party that
      are
      different from or additional to those available to the indemnifying party or
      such other indemnified parties, as applicable, which different or additional
      defenses make joint representation inappropriate.


    
      
         

      

      
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    (d) Contribution.
      If the
      indemnification from the indemnifying party provided for in this Section 5
      is
      unavailable to an indemnified party hereunder in respect of any losses, claims,
      damages, liabilities or expenses referred to therein, then the indemnifying
      party, in lieu of indemnifying such indemnified party, shall contribute to
      the
      amount paid or payable by such indemnified party as a result of such losses,
      claims, damages, liabilities or expenses in such proportion as is appropriate
      to
      reflect the relative fault of the indemnifying party and indemnified parties
      in
      connection with the actions which resulted in such losses, claims, damages,
      liabilities or expenses, as well as any other relevant equitable considerations.
      The relative fault of such indemnifying party and indemnified parties shall
      be
      determined by reference to, among other things, whether any action in question,
      including any untrue or alleged untrue statement of a material fact, has been
      made by, or relates to information supplied by, such indemnifying party or
      indemnified parties, and the parties intent, knowledge, access to information
      and opportunity to correct or prevent such action. The amount paid or payable
      by
      a party as a result of the losses, claims, damages, liabilities and expenses
      referred to above shall be deemed to include, subject to the limitations set
      forth in Section 5(c), any reasonable legal or other fees or expenses reasonably
      incurred by such party in connection with any investigation or proceeding.
      No
      Person guilty of fraudulent misrepresentation (within the meaning of Section
      11(f) of the Securities Act) shall be entitled to contribution from any person
      who was not guilty of such fraudulent misrepresentation.

    


    (e) If
      indemnification is available under this Section 5, the indemnifying parties
      shall indemnity each indemnified party to the full extent provided in Sections
      5(a) and (b) without regard to the relative fault of said indemnifying party
      or
      indemnified party or any other equitable consideration provided for in this
      Section 5.

    


    6. Transfer
      of Rights.

    


    The
      rights to cause the Company to register Registrable Securities granted pursuant
      to the provisions hereof may be transferred or assigned by any Holder to a
      transferee or assignee; provided;
      however,
      that
      the transferee or assignee of such rights assumes the obligations of such
      transferor or assignor, as the case may be, hereunder.

    


    7. Amendment

    


    Except
      as
      otherwise provided herein, the provisions hereof may not be amended, modified
      or
      supplemented, and waivers or consents to departures from the provisions hereof
      may not be given unless the Company has obtained the written consent of Holders
      of at least a majority of the aggregate number of the Registrable Securities
      then outstanding.