Document:

Exhibit 10.2

Equity Line Of Credit Agreement between Company and Cornell Capital Partners,
L.P, dated August 16, 2001.

                         EQUITY LINE OF CREDIT AGEEMENT

AGREEMENT dated as of the ___ day of August 2001, (the "Agreement") between
CORNELL CAPITAL PARTNERS, L.P., a limited partnership (the "Investor") and
VERTICAL COMPUTER SYSTEMS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Company").

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase from the Company up to
Ten Million ($10,000,000) Dollars of the Company's common stock, par value
$0.00001 per share (the "Common Stock"), for a total purchase price of Ten
Million ($10,000,000) Dollars; and

WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the
regulations promulgated there under (the "Securities Act"), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder;
and

WHEREAS, the Investor is a limited partnership and the business affairs of the
Investor are managed by Yorkville Advisors, LLC ("Yorkville Advisors"), a
Delaware limited liability company.

NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I.
                               Certain Definitions

      Section 1.1. "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.

      Section 1.2. "Advance Date" shall mean the date Butler Gonzalez LLP/First
Union Escrow Account is in receipt of the funds from the Investor and Butler
Gonzalez LLP, as the Investor's Counsel, is in possession of free trading shares
from the Company and therefore an Advance by the Investor to the Company can be
made and Butler Gonzalez LLP can release the free trading shares to the
Investor. No Advance Date shall be less than seven (7) Trading Days after an
Advance Notice Date.

      Section 1.3. "Advance Notice" shall mean a written notice to the Investor
setting forth the Advance amount that the Company requests from the Investor and
the Advance Date.

      Section 1.4. "Advance Notice Date" shall mean each date the Company
delivers to the Investor an Advance Notice requiring the Investor to advance
funds to the Company, subject to the terms of this Agreement. No Advance Notice
Date shall be less than five (5) Trading Days after the prior Advance Notice
Date.

      Section 1.5. "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or
if the Common Stock is not traded on

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a Principal Market, the highest reported bid price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc.

      Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.

      Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to
Ten Million Dollars ($10,000,000) which the Investor has agreed to provide to
the Company in order to purchase the Company's Common Stock pursuant to the
terms and conditions of this Agreement.

      Section 1.8. "Commitment Period" shall mean the period commencing on the
earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the Investor may mutually agree in writing, and expiring on the
earliest to occur of (x) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of Ten Million
Dollars ($10,000,000), (y) the date this Agreement is terminated pursuant to
Section 2.5, or (z) the date occurring thirty six (36) months after the
Effective Date.

      Section 1.9. "Common Stock" shall mean the Company's common stock, par
value $0.00001 per share.

      Section 1.10. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2.

      Section 1.11. "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).

      Section 1.12. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).

      Section 1.13. "Escrow Agreement" shall mean the escrow agreement among the
Company, the Investor, the Investor's Counsel and First Union National Bank
dated the date hereof.

      Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated there under.

      Section 1.15. "Material Adverse Effect" shall mean any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement in any material
respect.

      Section 1.16. "Market Price" shall mean the lowest closing Bid Price of
the Common Stock during the Pricing Period.

      Section 1.17. "Maximum Advance Amount" shall be equal to seventy-five
percent (75%) of the average daily volume of the Company's Common Stock during
the forty (40) Trading Days immediately preceding the Advance Notice Date
multiplied by the Purchase Price.

      Section 1.18. "NASD" shall mean the National Association of Securities
Dealers, Inc.

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      Section 1.19. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.

      Section 1.20. "Pricing Period" shall mean the five (5) consecutive Trading
Days after the Advance Notice Date.

      Section 1.21. "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for
the Common Stock.

      Section 1.22. "Purchase Price" shall be set at ninety five percent (95%)
of the Market Price during the Pricing Period.

      Section 1.23. "Registrable Securities" shall mean the shares of Common
Stock (i) in respect of which the Registration Statement has not been declared
effective by the SEC, (ii) which have not been sold under circumstances meeting
all of the applicable conditions of Rule 144 (or any similar provision then in
force) under the Securities Act ("Rule 144") or (iii) which have not been
otherwise transferred to a holder who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive
legend.

      Section 1.24. "Registration Rights Agreement" shall mean the Registration
Rights Agreement dated the date hereof, regarding the filing of the Registration
Statement for the resale of the Registrable Securities, entered into between the
Company and the Investor.

      Section 1.25. "Registration Statement" shall mean a registration statement
on Form S-1, SB-2 or Form S-3 (if use of such form is then available to the
Company pursuant to the rules of the SEC and, if not, on such other form
promulgated by the SEC for which the Company then qualifies and which counsel
for the Company shall deem appropriate, and which form shall be available for
the resale of the Registrable Securities to be registered there under in
accordance with the provisions of this Agreement and the Registration Rights
Agreement, and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.

      Section 1.26. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.

      Section 1.27. "SEC" shall mean the Securities and Exchange Commission.

      Section 1.28. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.

      Section 1.29. "SEC Documents" shall mean Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-KSB and Proxy
Statements of the Company as supplemented to the date hereof, filed by the
Company for a period of at least twelve (12) months immediately preceding the
date hereof or the Advance Date, as the case may be, until such time as the
Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.

      Section 1.30. "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.

<PAGE>

                                   ARTICLE II.
                                    Advances

      Section 2.1. Investments.

(a) Advances. Upon the terms and conditions set forth herein (including, without
limitation, the provisions of Article VII hereof), on any Advance Notice Date
the Company may request an Advance by the Investor by the delivery of an Advance
Notice. The number of shares of Common Stock that the Investor shall receive for
each Advance shall be determined by dividing the amount of the Advance by the
Purchase Price. No fractional shares shall be issued. Fractional shares shall be
rounded to the next higher whole number of shares. The aggregate maximum amount
of all Advances that the Investor shall be obligated to make under this
Agreement shall not exceed the Commitment Amount.

(b) Notwithstanding the foregoing the Company shall only be entitled to an
Advance if the Closing Bid Price of the Company's Common Stock on the Advance
Date is equal to or greater than the Purchase Price.

      Section 2.2. Mechanics.

(a) Advance Notice. At any time during the Commitment Period, the Company may
deliver an Advance Notice to the Investor, subject to the conditions set forth
in Section 7.2; provided, however, the amount for each Advance as designated by
the Company in the applicable Advance Notice shall not be more than the Maximum
Advance Amount. The aggregate amount of the Advances pursuant to this Agreement
shall not exceed the Commitment Amount, unless otherwise agreed by the Investor
in the Investor's sole and absolute discretion. There will be a minimum of five
(5) Trading Days between each Advance Notice Date.

(b) Date of Delivery of Advance Notice. An Advance Notice shall be deemed
delivered on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii)
the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered, on a day
that is not a Trading Day.

      Section 2.3. Closings. On each Advance Date, which shall be seven (7)
Trading Days after an Advance Notice Date, (i) the Company shall deliver to the
Investor's Counsel, as defined pursuant to the Escrow Agreement, shares of the
Company's Common Stock, representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein, registered in the name of the Investor which
shall be delivered to the Investor, or otherwise in accordance with the Escrow
Agreement and (ii) the Investor shall deliver to First Union National Bank (the
"Escrow Agent") the amount of the Advance specified in the Advance Notice by
wire transfer of immediately available funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement. In addition, on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other through the Investor's Counsel all documents, instruments and
writings required to be delivered or reasonably requested by either of them
pursuant to this Agreement in order to implement and effect the transactions
contemplated herein. Payment of funds to the Company and delivery of the
Company's Common Stock to the Investor shall occur in accordance with the
conditions set forth above and those contained in the Escrow Agreement;
provided, however, that to the extent the Company has not paid the fees,
expenses, and disbursements of the Investor or its Investor's counsel in
accordance with Section 12.4, the amount of such fees, expenses, and
disbursements may be deducted by the Investor (and shall be paid to the relevant
party) from the amount of the Advance with no reduction in the amount of shares
of the Company's Common Stock to be delivered on such Advance Date.

<PAGE>

      Section 2.4. Termination of Investment. The obligation of the Investor to
make an Advance to the Company pursuant to this Agreement shall terminate
permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension
of the effectiveness of the Registration Statement for an aggregate of fifty
(50) Trading Days, other than due to the acts of the Investor, during the
Commitment Period, or (ii) the Company shall at any time fail materially to
comply with the requirements of Section 6.3, 6.4 or 6.7; provided, however, that
this termination provision shall not apply to any period commencing upon the
filing of a post-effective amendment to such Registration Statement and ending
upon the date on which such post effective amendment is declared effective by
the SEC.

      Section 2.5. Agreement to Advance Funds.

(a) The Investor agrees to advance the amount specified in the Advance Notice to
the Company after the completion of each of the following conditions and the
other conditions set forth in this Agreement:

      (i) the execution and delivery by the Company, and the Investor, of this
      Agreement, and the Exhibits hereto;

      (ii) Investor's Counsel shall have received the shares of Common Stock
      applicable to the Advance;

      (iii) the Company's Registration Statement with respect to the resale of
      the Registrable Securities in accordance with the terms of the
      Registration Rights Agreement shall have been declared effective by the
      SEC;

      (iv) the Company shall have obtained all material permits and
      qualifications required by any applicable state for the offer and sale of
      the Registrable Securities, or shall have the availability of exemptions
      there from. The sale and issuance of the Registrable Securities shall be
      legally permitted by all laws and regulations to which the Company is
      subject;

      (v) the Company shall have filed with the Commission in a timely manner
      all reports, notices and other documents required of a "reporting company"
      under the Exchange Act and applicable Commission regulations;

      (vi) the fees as set forth in Section 12.4 below shall have been paid or
      can be withheld as provided in Section 2.3; and

      (vii) the conditions set forth in Section 7.2 shall have been satisfied.

      Section 2.6. Lock Up Period.

(i) During the term of this Agreement, the Company shall not, without the prior
consent of the Investor, issue or sell (i) any Common Stock without
consideration or for a consideration per share less than the Bid Price on the
date of issuance or (ii) issue or sell any warrant, option, right, contract,
call, or other security or instrument granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than the Bid Price on the date of issuance.

(ii) On the date hereof, the Company shall obtain from each officer and director
a lock-up agreement, as defined below, in the form annexed hereto as Schedule
2.6(b) agreeing to only sell in compliance with the volume limitation of Rule
144.

<PAGE>

                                  ARTICLE III.
                   Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that
the following are true and as of the date hereof and as of each Advance Date:

      Section 3.1. Organization and Authorization. The Investor is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority to
purchase and hold the securities issuable hereunder. The decision to invest and
the execution and delivery of this Agreement by such Investor, the performance
by such Investor of its obligations hereunder and the consummation by such
Investor of the transactions contemplated hereby have been duly authorized and
requires no other proceedings on the part of the Investor. The undersigned has
the right, power and authority to execute and deliver this Agreement and all
other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.

      Section 3.2. Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be capable of evaluating
the merits and risks of, and bearing the economic risks entailed by, an
investment in the Company and of protecting its interests in connection with
this transaction. It recognizes that its investment in the Company involves a
high degree of risk.

      Section 3.3. No Legal Advice From the Company. The Investor acknowledges
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. The Investor is relying solely on such counsel and advisors
and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.

      Section 3.4. Investment Purpose. The securities are being purchased by the
Investor for its own account, for investment and without any view to the
distribution, assignment or resale to others or fractionalization in whole or in
part. The Investor agrees not to assign or in any way transfer the Investor's
rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in
accordance with applicable Federal and state securities laws. No other person
has or will have a direct or indirect beneficial interest in the securities. The
Investor agrees not to sell, hypothecate or otherwise transfer the Investor's
securities unless the securities are registered under Federal and applicable
state securities laws or unless, in the opinion of counsel satisfactory to the
Company, an exemption from such laws is available.

      Section 3.5. Accredited Investor. Investor is an "Accredited Investor" as
that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

      Section 3.6. Information. The Investor and its advisors (and its counsel),
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and information it deemed material to
making an informed investment decision. The Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement. The Investor
understands that its investment involves a high degree of risk. The Investor is
in a position regarding the Company, which,

<PAGE>

based upon employment, family relationship or economic bargaining power, enabled
and enables such Investor to obtain information from the Company in order to
evaluate the merits and risks of this investment. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary to make an
informed investment decision with respect to this transaction.

      Section 3.7. Receipt of Documents. The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants;
(iii) the Company's Form 10-KSB for the year ended year ended December 31, 2000
and Form 10-QSB for the periods ended March 31, 2001 and June 30, 2001; and (v)
answers to all questions the Investor submitted to the Company regarding an
investment in the Company; and the Investor has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.

      Section 3.8. Registration Rights Agreement and Escrow Agreement. The
parties have entered into the Registration Rights Agreement and the Escrow
Agreement, each dated the date hereof.

      Section 3.9. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the shares of Common Stock offered hereby.

      Section 3.10. Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with the Company or any
"Affiliate" of the Company (as that term is defined in Rule 405 of the
Securities Act). Neither the Investor nor its Affiliates has an open short
position in the Common Stock of the Investor, and the Investor agrees that it
will not, and that it will cause its Affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company acknowledges and agrees that upon receipt of an Advance Notice the
Investor will sell the Shares to be issued to the Investor pursuant to the
Advance Notice, even if the Shares have not been delivered to the Investor.

                                   ARTICLE IV.
                  Representations and Warranties of the Company

Except as stated below or on the disclosure schedules attached hereto, the
Company hereby represents and warrants to, and covenants with, the Investor that
the following are true and correct as of the date hereof:

      Section 4.1. Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the jurisdiction of its
incorporation or organization and has all requisite power and authority
corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.

      Section 4.2. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement and any
related agreements, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Escrow

<PAGE>

Agreement and any related agreements by the Company and the consummation by it
of the transactions contemplated hereby and thereby, have been duly authorized
by the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders, (iii) this
Agreement, the Registration Rights Agreement, the Escrow Agreement and any
related agreements have been duly executed and delivered by the Company, (iv)
this Agreement, the Registration Rights Agreement, the Escrow Agreement and
assuming the execution and delivery thereof and acceptance by the Investor and
any related agreements constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.

      Section 4.3. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 1,000,000,000 shares of Common Stock, par value
$0.00001 per share, of which 579,723,956 shares are issued and outstanding and
2,050,000 shares of preferred stock par value $.001 of which 82,200 shares are
issued and outstanding. All of such outstanding shares have been validly issued
and are fully paid and nonassessable. Except as disclosed in the SEC Documents
(as defined in Section 4.5 hereof), no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in the SEC Documents,
as of the date hereof, (i) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the Securities Act (except pursuant to the Registration
Rights Agreement). There are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by this Agreement or
any related agreement or the consummation of the transactions described herein
or therein.. The Company has furnished to the Investor true and correct copies
of the Company's Certificate of Incorporation, as amended and as in effect on
the date hereof (the "Certificate of Incorporation"), and the Company's By-laws,
as in effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.

      Section 4.4. No Conflict. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the
Company or any of its subsidiaries is bound or affected and which would cause a
Material Adverse Effect. Except as disclosed in the SEC Documents, neither the
Company nor its subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation or By-laws or their organizational charter or
by-laws, respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiaries.

<PAGE>

The business of the Company and its subsidiaries is not being conducted in
violation of any material law, ordinance, regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its subsidiaries are unaware of any fact or circumstance which might
give rise to any of the foregoing.

      Section 4.5. SEC Documents; Financial Statements. Since January 1, 2001,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the Exchange Act (all
of the foregoing filed prior to the date hereof and all amendments thereto and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to as
the "SEC Documents"). The Company has delivered to the Investor or its
representatives, or made available through the SEC's website at
http://www.sec.gov, true and complete copies of the SEC Documents. As of their
respective dates, the financial statements of the Company disclosed in the SEC
Documents (the "Financial Statements") complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Investor which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

      Section 4.6. 10b-5. The SEC Documents do not include any untrue statements
of material fact, nor do they omit to state any material fact required to be
stated therein necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.

      Section 4.7. No Default. Except as disclosed in Section 4.4 or the SEC
Documents, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company
of its obligations under this Agreement or any of the exhibits or attachments
hereto will conflict with or result in the breach or violation of any of the
terms or provisions of, or constitute a default or result in the creation or
imposition of any lien or charge on any assets or properties of the Company
under its Certificate of Incorporation, By-Laws, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound, or any
statute, or any decree, judgment, order, rules or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, in each case which default, lien or charge is likely to cause a
Material Adverse Effect on the Company's business or financial condition.

<PAGE>

      Section 4.8. Absence of Events of Default. Except for matters described in
the SEC Documents and/or this Agreement, no Event of Default, as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing, which would have a
Material Adverse Effect on the Company's business, properties, prospects,
financial condition or results of operations.

      Section 4.9. Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all material
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. The Company and its subsidiaries do not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, and, to the knowledge of the Company, there
is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

      Section 4.10. Employee Relations Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.

      Section 4.11. Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable material foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.

      Section 4.12. Title. Except as set forth in the SEC Documents, the Company
has good and marketable title to its properties and material assets owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than such as are not material to the business of the
Company. Any real property and facilities held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.

      Section 4.13. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.

<PAGE>

      Section 4.14. Regulatory Permits. The Company and its subsidiaries possess
all material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

      Section 4.15. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

      Section 4.16. No Material Adverse Breaches, etc. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is subject to
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries. Neither the Company nor any of its
subsidiaries is in breach of any contract or agreement which breach, in the
judgment of the Company's officers, has or is expected to have a Material
Adverse Effect on the business, properties, operations, financial condition,
results of operations or prospects of the Company or its subsidiaries.

      Section 4.17. Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a Material Adverse Effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.

      Section 4.18. Subsidiaries. Except as disclosed in the SEC Documents, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.

      Section 4.19. Tax Status. The Company and each of its subsidiaries has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and (unless
and only to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

<PAGE>

      Section 4.20. Certain Transactions. Except as set forth in the SEC
Documents, none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

      Section 4.21. Fees and Rights of First Refusal. Except as set forth in the
SEC Documents, the Company is not obligated to offer the securities offered
hereunder on a right of first refusal basis or otherwise to any third parties
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.

      Section 4.22. Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for working capital purposes. However,
in no event shall the net proceeds from this offering be used by the Company for
the payment (or loaned to any such person for the payment) of any judgment, or
other liability, incurred by any executive officer, officer, director, or
employee of the Company.

      Section 4.23. Further Representation and Warranties of the Company. For so
long as any securities issuable hereunder held by the Investor remain
outstanding, the Company acknowledges, represents, warrants and agrees that it
will use commercially reasonable efforts to maintain the listing of its Common
Stock on the Principal Market

      Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter
from Kirkpatrick & Lockhart LLP, counsel to the Company (updated where
applicable) on the date hereof.

      Section 4.25. Opinion of Counsel. The Company will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably required in order to sell the securities issuable hereunder without
restriction.

      Section 4.26. Dilution. The Company is aware and acknowledges that
issuance of shares of the Company's Common Stock could cause dilution to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.

                                   ARTICLE V.
                                 Indemnification

The Investor and the Company represent to the other the following with respect
to itself:

Section 5.1. Indemnification.

(a) In consideration of the Investor's execution and delivery of this Agreement,
and in addition to all of the Company's other obligations under this Agreement,
the Company shall defend, protect, indemnify and hold harmless the Investor, and
all of its officers, directors, partners, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Investor Indemnitees") from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Investor Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the

<PAGE>

"Indemnified Liabilities"), incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, or (c) any cause of action, suit or claim
brought or made against such Investor Indemnitee not arising out of any action
or inaction of an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Investor Indemnitees. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities, which is permissible under applicable law.

(b) In consideration of the Company's execution and delivery of this Agreement,
and in addition to all of the Investor's other obligations under this Agreement,
the Investor shall defend, protect, indemnify and hold harmless the Company and
all of its officers, directors, shareholders, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Investor in this Agreement, the Registration Rights Agreement, or any instrument
or document contemplated hereby or thereby executed by the Investor, (b) any
breach of any covenant, agreement or obligation of the Investor(s) contained in
this Agreement, the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby executed by the Investor,
or (c) any cause of action, suit or claim brought or made against such Company
Indemnitee based on misrepresentations or due to a breach by the Investor and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Company Indemnitees. To the extent that
the foregoing undertaking by the Investor may be unenforceable for any reason,
the Investor shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities, which is permissible under applicable
law.

                                   ARTICLE VI.
                            Covenants of the Company

      Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.

      Section 6.2. Listing of Common Stock. The Company shall maintain the
Common Stock's authorization for quotation on the National Association of
Securities Dealers Over the Counter Bulletin Board.

      Section 6.3. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(g) of the Exchange Act, will
file in a timely manner all reports and other documents required of it as a
reporting company under the Exchange Act and will not take any action or file
any document (whether or not permitted by Exchange Act or the rules there under
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under said Exchange Act.

      Section 6.4. Transfer Agent Instructions. Upon each Closing and the
effectiveness of the Registration Statement and resale of the Common Stock by
the Investor, the Company will deliver instructions to its transfer agent to
issue shares of Common Stock free of restrictive legends.

<PAGE>

      Section 6.5. Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.

      Section 6.6. Notice of Certain Events Affecting Registration; Suspension
of Right to Make an Advance. The Company will immediately notify the Investor
upon its becoming aware of the occurrence of any of the following events in
respect of a registration statement or related prospectus relating to an
offering of Registrable Securities: (i) receipt of any request for additional
information by the SEC or any other Federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the registration statement or related prospectus; (ii) the
issuance by the SEC or any other Federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
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 that in the case of the related prospectus, it 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, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement or amendment to
the related prospectus. The Company shall not deliver to the Investor any
Advance Notice during the continuation of any of the foregoing events.

      Section 6.7. Expectations Regarding Advance Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor, in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Advance
Notices. Such notification shall constitute only the Company's good faith
estimate and shall in no way obligate the Company to raise such amount, or any
amount, or otherwise limit its ability to deliver Advance Notices. The failure
by the Company to comply with this provision can be cured by the Company's
notifying the Investor, in writing, at any time as to its reasonable
expectations with respect to the current calendar quarter.

      Section 6.8. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all the assets of the Company to
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investor is entitled to receive pursuant to this Agreement.

      Section 6.9. Issuance of the Company's Common Stock. The sale of the
shares of Common Stock shall be made in accordance with the provisions and
requirements of Regulation D and any applicable state securities law.

<PAGE>

                                  ARTICLE VII.
                Conditions for Advance and Conditions to Closing

      Section 7.1. Conditions Precedent to the Obligations of the Company. The
obligation hereunder of the Company to issue and sell the shares of Common Stock
to the Investor incident to each Closing is subject to the satisfaction, or
waiver by the Company, at or before each such Closing, of each of the conditions
set forth below.

(a) Accuracy of the Investor's Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects.

(b) Performance by the Investor. The Investor shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Investor at or prior to such
Closing.

      Section 7.2. Conditions Precedent to the Right of the Company to Deliver
an Advance Notice and the Obligation of the Investor to Purchase Shares of
Common Stock. The right of the Company to deliver an Advance Notice and the
obligation of the Investor hereunder to acquire and pay for shares of the
Company's Common Stock incident to a Closing is subject to the satisfaction or
waiver by the Investor, on (i) the date of delivery of such Advance Notice and
(ii) the applicable Advance Date (each a "Condition Satisfaction Date"), of each
of the following conditions:

(a) Registration of the Common Stock with the SEC. The Company shall have filed
with the SEC a Registration Statement with respect to the resale of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement. As set forth in the Registration Rights Agreement, the Registration
Statement shall have previously become effective and shall remain effective on
each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop
order with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no
other suspension of the use or withdrawal of the effectiveness of the
Registration Statement or related prospectus shall exist. The Registration
Statement must have been declared effective by the SEC prior to the first
Advance Notice Date.

(b) Authority. The Company shall have obtained all permits and qualifications
required by any applicable state in accordance with the Registration Rights
Agreement for the offer and sale of the shares of Common Stock, or shall have
the availability of exemptions there from. The sale and issuance of the shares
of Common Stock shall be legally permitted by all laws and regulations to which
the Company is subject.

(c) Fundamental Changes. There shall not exist any fundamental changes to the
information set forth in the Registration Statement which would require the
Company to file a post-effective amendment to the Registration Statement.

(d) Performance by the Company. The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement and the Registration Rights Agreement to be
performed, satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.

<PAGE>

(e) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.

(f) No Suspension of Trading in or Delisting of Common Stock. The trading of the
Common Stock is not suspended by the SEC or the Principal Market (if the Common
Stock is traded on a Principal Market). The issuance of shares of Common Stock
with respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market (if the Common Stock
is traded on a Principal market). The Company shall not have received any notice
threatening the continued listing of the Common Stock on the Principal Market
(if the Common Stock is traded on a Principal Market).

(g) Maximum Advance Amount. The amount of the advance requested by the Company
does not exceed the Maximum Advance Amount.

(h) No Knowledge. The Company has no knowledge of any event more likely than not
to have the effect of causing such Registration Statement to be suspended or
otherwise ineffective.

(i) Other. On each Condition Satisfaction Date, the Investor shall have received
and been reasonably satisfied with such other certificates and documents as
shall have been reasonably requested by the Investor in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in this
Section 7.2, including, without limitation, a certificate executed by an
executive officer of the Company and to the effect that all the conditions to
such Closing shall have been satisfied as at the date of each such certificate
substantially in the form annexed hereto on Exhibit A.

                                  ARTICLE VIII.
         Due Diligence Review; Non-Disclosure of Non-Public Information

      Section 8.1. Due Diligence Review. Prior to the filing of the Registration
Statement the Company shall make available for inspection and review by the
Investor, advisors to and representatives of the Investor, any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investor pursuant to the Registration Statement, any such registration statement
or amendment or supplement thereto or any blue sky, NASD or other filing, all
financial and other records, all SEC Documents and other filings with the SEC,
and all other corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the Company's
officers, directors and employees to supply all such information reasonably
requested by the Investor or any such representative, advisor or underwriter in
connection with such Registration Statement (including, without limitation, in
response to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and effectiveness
of the Registration Statement for the sole purpose of enabling the Investor and
such representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.

      Section 8.2. Non-Disclosure of Non-Public Information.

(a) The Company shall not disclose non-public information to the Investor,
advisors to or representatives of the Investor unless prior to disclosure of
such information the Company identifies such information as being non-public
information and provides the Investor, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. The Company

<PAGE>

may, as a condition to disclosing any non-public information hereunder, require
the Investor's advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investor.

(b) Nothing herein shall require the Company to disclose non-public information
to the Investor or its advisors or representatives, and the Company represents
that it does not disseminate non-public information to any investors who
purchase stock in the Company in a public offering, to money managers or to
securities analysts, provided, however, that notwithstanding anything herein to
the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting
non-public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration Statement
would cause such prospectus to include a material misstatement or to omit a
material fact required to be stated therein in order to make the statements,
therein, in light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 8.2 shall be construed to mean that such
persons or entities other than the Investor (without the written consent of the
Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.

                                   ARTICLE IX.
                           Choice of Law/Jurisdiction

      Section 9.1. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in New York City, New York, and expressly consent to
the jurisdiction and venue of the Supreme Court of New York and the United
States District Court for the Southern District of New York for the adjudication
of any civil action asserted pursuant to this paragraph.

                                   ARTICLE X.
                             Assignment; Termination

      Section 10.1. Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.

      Section 10.2. Termination. The obligations of the Investor to make
Advances under Article II hereof shall terminate thirty six (36) months after
the Effective Date.

                                   ARTICLE XI.
                                     Notices

      Section 11.1. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

<PAGE>

If to the Company, to:         Vertical Computer Systems, Inc.
                               6336 Wilshire Blvd.
                               Los Angeles, CA 90048
                               Attention: Richard Wade
                                          President
                               Telephone: (323) 658-4211
                               Facsimile: (323) 658-4223

with a copy to:                Kirkpatrick & Lockhart, LLP
                               Miami Center- 20th Floor
                               201 South Biscayne Boulevard
                               Miami, FL 33131-2399
                               Telephone: (305) 539-3300
                               Facsimile: (305) 358-7095

If to the Investor(s):         Cornell Capital Partners, L.P.
                               One World Trade Center, Suite 7705
                               New York, NY 10048
                               Attention: Mark Angelo
                                          Managing Director
                               Telephone: (212) 488-4485
                               Facsimile: (212) 775-8166

Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.

                                  ARTICLE XII.
                                  Miscellaneous

      Section 12.1. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof

      Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

      Section 12.3. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement shall
be Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.

      Section 12.4. Fees and Expenses. The Company hereby agrees to pay the
following fees:

<PAGE>

(a) Legal Fees. Each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged
by such party) in connection with this Agreement and the transactions
contemplated hereby, except that the Company will pay the sum of Fifteen
Thousand Dollars ($15,000), to Butler Gonzalez LLP for legal, administrative,
and escrow fees, directly from the gross proceeds held in escrow of the
convertible debenture transaction pursuant to the Securities Purchase Agreement
dated the date hereof. Subsequently on each advance date, the Company will pay
Butler Gonzalez LLP, the sum of Five Hundred Dollars ($500) for legal,
administrative and escrow fees.

(b) Commitment Fees. On each Advance Date the Company shall pay to the Investor,
directly from the gross proceeds held in escrow, an amount equal to four percent
(4%) of the amount of each Advance. The Company hereby agrees that if such
payment, as is described above, is not made by the Company on the Advance Date,
such payment will be made at the direction of the Investor as outlined and
mandated by Section 2.3 of this Agreement. Furthermore, the Company shall issue
and deliver to the Investor shares (the "Investor's Shares") of the Company's
Common Stock in an amount equal to Four Hundred Thousand Dollars ($400,000) (the
"Fee") calculated as follows:

      (i) Initial Installment. The initial installment of the Fee shall be paid
on the Closing Date and the number of shares to be delivered to the Investor
shall be equal to the quotient of $200,000 divided by the Closing Bid Price on
the Closing Date.

      (ii) Second Installment. The second installment of the Fee shall be paid
(the "Payment Date") on the earlier of (x) the effective date of the
Registration Statement registering the shares underlying this Agreement or (y)
six (6) months after the date of this Agreement and the number of shares to be
delivered to the Investor shall be equal to the quotient of $200,000 divided by
the Closing Bid Price on the Payment Date.

      (iii) Fully Earned. Any Investor's Shares delivered to the Investor in
connection with either the first or the second installment shall be deemed fully
earned upon delivery to the Investor.

      (iv) Registration Rights. The Investor's Shares will have demand and
"piggy-back" registration rights.

      Section 12.5. Brokerage. Each of the parties hereto represents that it has
had no dealings in connection with this transaction with any finder or broker
who will demand payment of any fee or commission from the other party. The
Company on the one hand, and the Investor, on the other hand, agree to indemnify
the other against and hold the other harmless from any and all liabilities to
any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the indemnifying party in
connection with this Agreement or the transactions contemplated hereby.

      Section 12.6. Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.

                                        COMPANY:
                                        VERTICAL COMPUTER SYSTEMS, INC.

                                        By:_____________________________________
                                        Name:  Richard Wade
                                        Title: President

                                        INVESTOR:
                                        CORNELL CAPITAL PARTNERS, L.P.

                                        By:   Yorkville Advisors, LLC
                                        It's: General Partner

                                              By:_______________________________
                                              Name: Mark Angelo
                                              Title: Portfolio Manager

<PAGE>

                                    EXHIBIT A

                      ADVANCE NOTICE/COMPLIANCE CERTIFICATE

                         VERTICAL COMPUTER SYSTEMS, INC.

The undersigned, ________________________________ hereby certifies, with respect
to the sale of shares of Common Stock of Vertical Computer Systems, Inc., (the
"Company") issuable in connection with this Advance Notice and Compliance
Certificate dated ___________________ (the "Notice"), delivered pursuant to the
Equity Line of Credit Agreement (the "Agreement"), as follows:

1. The undersigned is the duly elected President of the Company.

2. There are no fundamental changes to the information set forth in the
Registration Statement which would require the Company to file a post effective
amendment to the Registration Statement.

3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Advance Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in the Agreement.

4. The Advance requested is _____________________.

The undersigned has executed this Certificate this ____ day of _______________.

                                        VERTICAL COMPUTER SYSTEMS, INC.

                                        By:__________________________________
                                        Name:________________________________
                                        Title:_______________________________

<PAGE>

                                SCHEDULED 2.6(b)

                         VERTICAL COMPUTER SYSTEMS, INC.

The undersigned hereby agrees that for a period commencing on the date hereof
and expiring on the termination of the Agreement dated ________________ between
Vertical Computer Systems, Inc., (the "Company") and Cornell Capital Partners,
L.P., (the "Investor") (the "Lock-up Period"), he, she or it will not, directly
or indirectly, without the prior written consent of the Investor, issue, offer,
agree or offer to sell, sell, grant an option for the purchase or sale of,
transfer, pledge, assign, hypothecate, distribute or otherwise encumber or
dispose of except pursuant to Rule 144 of the General Rules and Regulations
under the Securities Act of 1933, any securities of the Company, including
common stock or options, rights, warrants or other securities underlying,
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the undersigned), or any beneficial interest therein (collectively, the
"Securities").

In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company's securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned's investment in
the Company.

Dated: _______________, 2001

                                        Signature

                                        ________________________________________
                                        Address:________________________________
                                        City, State, Zip Code:__________________

                                        ________________________________________
                                        Print Social Security Number
                                        or Taxpayer I.D. NumberExhibit 10.3

Securities Purchase Agreement between Company and third party buyers for
$250,000 of Convertible Debentures, dated August 16, 2001

                          SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August ___,
2001, by and among VERTICAL COMPUTER SYSTEMS, INC., a Delaware corporation, with
headquarters located at 6336 Wilshire Boulevard, Los Angeles, California 90048
(the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").

                                   WITNESSETH:

WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Buyer(s), as provided
herein, and the Buyer(s) shall purchase Two Hundred and Fifty Thousand Dollars
($250,000) of convertible debentures (the "Convertible Debentures"), which shall
be convertible into shares of the Company's common stock, (the "Common Stock")
(as converted, the "Conversion Shares"), for a total purchase price of Two
Hundred and Fifty Thousand Dollars ($250,000) (the "Purchase Price") in the
respective amounts set forth opposite each Buyer(s) name on Schedule I ( the
"Subscription Amount"); and

WHEREAS, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (the "Investor
Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated there under, and applicable state securities laws; and

WHEREAS, the aggregate proceeds of the sale of the Convertible Debentures
contemplated hereby shall be held in escrow pursuant to the terms of an escrow
agreement substantially in the form of the Escrow Agreement attached hereto as
Exhibit B.

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Buyer(s)hereby agree as follows:

                  PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of
the terms and conditions of this Agreement, each Buyer agrees, severally and not
jointly, to purchase at Closing (as defined herein below) and the Company agrees
to sell and issue to each Buyer, severally and not jointly, at Closing,
Convertible Debentures in amounts corresponding with the Subscription Amount set
forth opposite each

<PAGE>

Buyer's name on Schedule I hereto. Upon execution hereof by a Buyer, the Buyer
shall wire transfer the Subscription Amount set forth opposite his name on
Schedule I in same-day funds or a check payable to "First Union National Bank,
as Escrow Agent for Vertical Computer Systems, Inc. / Cornell Capital Partners,
LP", which Subscription Amount shall be held in escrow pursuant to the terms of
the Escrow Agreement (as hereinafter defined) and disbursed in accordance
therewith. Notwithstanding the foregoing, a Buyer may withdraw his Subscription
Amount and terminate this Agreement as to such Buyer at any time after the
execution hereof and prior to Closing (as hereinafter defined).

Closing Date. The closing of the purchase and sale of the Convertible Debentures
(the "Closing") shall take place at 10:00 a.m. Eastern Standard Time on the
fifth business day ("Closing Date") following the date hereof, subject to
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company and the Buyers). The Closing shall occur on the Closing Date at the
offices of Butler Gonzalez, LLP, 1000 Stuyvesant Avenue, Suite 6, Union, NJ
07083 (or such other place as is mutually agreed to by the Company and the
Buyers).

Escrow Arrangements; Form of Payment. Upon execution hereof by Buyer(s) and
pending Closing, the aggregate proceeds of the sale of the Convertible
Debentures to Buyer(s) pursuant hereto, plus the fees and expenses of the
Yorkville Advisors Management, LLC (the "Consultant"), shall be deposited in a
non-interest bearing escrow account with First Union National Bank, as escrow
agent ("Escrow Agent"), pursuant to the terms of an escrow agreement between the
Company, the Consultant and the Escrow Agent in the form attached hereto as
Exhibit B (the "Escrow Agreement"). Subject to the satisfaction of the terms and
conditions of this Agreement, on the Closing Date, (i) the Escrow Agent shall
deliver to the Company in accordance with the terms of the Escrow Agreement such
aggregate gross proceeds for the Convertible Debentures to be issued and sold to
such Buyer(s) at the Closing minus the fees and expenses of the Consultant, by
wire transfer of immediately available funds in accordance with the Company's
written wire instructions, and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer's name on Schedule I, duly executed on behalf of the
Company.

                     BUYER'S REPRESENTATIONS AND WARRANTEES.

Each Buyer represents and warrants, severally and not jointly, that:

Investment Purpose. Each Buyer is acquiring the Convertible Debentures and, upon
conversion of Convertible Debentures, the Buyer will acquire the Conversion
Shares then issuable, for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, such Buyer
reserves the right to dispose of the Conversion Shares at any time in accordance
with or pursuant to an effective registration statement covering such Conversion
Shares or an available exemption under the 1933 Act.

Accredited Investor Status. Each Buyer is an "Accredited Investor" as that term
is defined in Rule 501(a)(3) of Regulation D.

Reliance on Exemptions. Each Buyer understands that the Convertible Debentures
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.

<PAGE>

Information. Each Buyer and its advisors (and his or, its counsel), if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and information he deemed material to making an
informed investment decision regarding his purchase of the Convertible
Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company and its management. Neither such inquiries nor any
other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer's right to
rely on the Company's representations and warranties contained in Section 3
below. Each Buyer understands that its investment in the Convertible Debentures
and the Conversion Shares involves a high degree of risk. Each Buyer is in a
position regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.

No Governmental Review. Each Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Convertible Debentures or the
Conversion Shares, or the fairness or suitability of the investment in the
Convertible Debentures or the Conversion Shares, nor have such authorities
passed upon or endorsed the merits of the offering of the Convertible Debentures
or the Conversion Shares.

Transfer or Resale. Each Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Convertible Debentures have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, or (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration requirements;
(ii) any sale of such securities made in reliance on Rule 144 under the 1933 Act
(or a successor rule thereto) ("Rule 144") may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC there under; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption there under. The Company reserves
the right to place stop transfer instructions against the shares and
certificates for the Conversion Shares.

Legends. Each Buyer understands that the certificates or other instruments
representing the Convertible Debentures and or the Conversion Shares shall bear
a restrictive legend in substantially the following form (and a stop transfer
order may be placed against transfer of such stock certificates):

      THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
      SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT
      PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BE OFFERED FOR
      SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
      1933, AS AMENDED, OR

<PAGE>

      APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
      ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
      APPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Conversion Shares upon
which it is stamped, if, unless otherwise required by state securities laws, (i)
in connection with a sale transaction, provided the Conversion Shares are
registered under the 1933 Act or (ii) in connection with a sale transaction,
such holder provides the Company with an opinion of counsel, in form acceptable
to the Company and its counsel, to the effect that a public sale, assignment or
transfer of the Conversion Shares may be made without registration under the
1933 Act.

Authorization, Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Buyer and is a valid and binding
agreement of such Buyer enforceable in accordance with its terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.

Receipt of Documents. Each Buyer and his or its counsel has received and read in
their entirety: (i) this Agreement and each representation, warranty and
covenant set forth herein, the Investor Registration Rights Agreement, and the
Escrow Agreement; (ii) all due diligence and other information necessary to
verify the accuracy and completeness of such representations, warranties and
covenants; (iii) the Company's Form 10-KSB for the fiscal year ended December
31, 2000; (iv) the Company's Form 10-QSB for the fiscal quarter ended March 2001
and June 2001; and (v) answers to all questions the Buyer submitted to the
Company regarding an investment in the Company; and the Buyer has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.

Due Formation of Corporate and Other Buyers. If the Buyer(s) is a corporation,
trust, partnership or other entity that is not an individual person, it has been
formed and validly exists and has not been organized for the specific purpose of
purchasing the Convertible Debentures and is not prohibited from doing so.

Due Authorization of Fiduciary Buyers. If the Buyer(s) is purchasing the
Convertible Debentures in a fiduciary capacity for another person or entity,
including, without limitation, a corporation, partnership, trust or any other
entity, the Buyer(s) has been duly authorized and empowered to execute this
Agreement and such other person fulfills all the requirements for purchase of
the Convertible Debentures and agrees to be bound by the obligations,
representations, warranties, and covenants contained herein. Upon request of the
Company, the Buyer(s) will provide true, complete and current copies of all
relevant documents creating the Buyers, authorizing its investment in the
Company and/or evidencing the satisfaction of the foregoing.

Further Representations by Foreign Buyers. If the Buyer(s) is not a U.S. Person
(as defined below), such Buyer hereby represents that such Buyer(s) is satisfied
as to full observance of the laws of such Buyer's jurisdiction in connection
with any invitation to subscribe for the securities or any use of this
Agreement, including: (i) the legal requirements of such Buyer's jurisdiction
for the purchase of the securities, (ii) any foreign exchange restrictions
applicable to such purchase, (iii) any governmental or other consents that may
need to be obtained, and (iv) the income tax and other tax consequences, if any,
which may be relevant to the purchase, holding, redemption, sale, or transfer of
the securities. Such Buyer's subscription and payment for, and such Buyer's
continued beneficial ownership of, the securities will not

<PAGE>

violate any applicable securities or other laws of such Buyer's jurisdiction.
The term "U.S. Person" as used herein shall mean any person who is a citizen or
resident of the United States or Canada, or any state, territory or possession
thereof, including, but not limited to, any estate of any such person, or any
corporation, partnership, trust or other entity created or existing under the
laws thereof, or any entity controlled or owned by any of the foregoing.

No Legal Advice From the Company. Each Buyer acknowledges, that it had the
opportunity to review this Agreement and the transactions contemplated by this
Agreement with his or its own legal counsel and investment and tax advisors.
Each Buyer is relying solely on such counsel and advisors and not on any
statements or representations of the Company or any of its representatives or
agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to each of the Buyers that:

Organization and Qualification. The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.

Authorization, Enforcement, Compliance with Other Instruments. (i) The Company
has the requisite corporate power and authority to enter into and perform this
Agreement, the Investor Registration Rights Agreement and any related
agreements, and to issue the Convertible Debentures and the Conversion Shares in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and any related agreements by
the Company and the consummation by it of the transactions contemplated hereby
and thereby, including, without limitation, the issuance of the Convertible
Debentures the Conversion Shares and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion or exercise thereof,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its stockholders, (iii) this Agreement and the Investor Registration Rights
Agreement and any related agreements have been duly executed and delivered by
the Company, (iv) this Agreement, the Investor Registration Rights Agreement and
any related agreements constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.

Capitalization. The authorized capital stock of the Company consists of
1,000,000,000 shares of Common Stock, $0.00001 par value, and 2,050,000 shares
of Preferred Stock, $0.001 par value. As of August 1, 2001, the Company had
579,723,956 shares of Common Stock and 82,200 shares of Preferred Stock issued
and outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in the SEC Documents (as
defined in Section 3(f)) as amended, no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in the SEC Documents,
as of the date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to,

<PAGE>

calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any of
its subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except pursuant
to the Registration Rights Agreement). There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Convertible Debentures as described in this Agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto other than stock options issued to employees and
consultants.

Issuance of Securities. The Convertible Debentures are duly authorized and, upon
issuance in accordance with the terms hereof, shall be duly issued, fully paid
and nonassessable, are free from all taxes, liens and charges with respect to
the issue thereof. The Conversion Shares issuable upon conversion of the
Convertible Debentures have been duly authorized and reserved for issuance. Upon
conversion or exercise in accordance with the Convertible Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.

No Conflicts. Except as disclosed in SEC Documents, the execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not (i) result in a violation of
the Certificate of Incorporation, any certificate of designations of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Nasdaq Stock Market Inc.'s OTC Bulletin Board on
which the Common Stock is quoted) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Except as disclosed in the SEC Documents,
neither the Company nor its subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in the SEC Documents, all consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its subsidiaries are unaware of any facts or
circumstance, which might give rise to any of the foregoing.

<PAGE>

SEC Documents: Financial Statements. Since January 1, 2001, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by it with the SEC under of the Securities Exchange Act of 1934, as
amended (the "1934 Act") (all of the foregoing filed prior to the date hereof or
amended after the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by reference
therein, being hereinafter referred to as the "SEC Documents"). The Company has
delivered to the Buyers or their representatives, or made available through the
SEC's website at http://www.sec.gov., true and complete copies of the SEC
Documents. As of their respective dates, the financial statements of the Company
disclosed in the SEC Documents (the "Financial Statements") complied as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such Financial Statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) and (i) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

10(b)-5. The SEC Documents do not include any untrue statements of material
fact, nor do they omit to state any material fact required to be stated therein
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading.

Absence of Litigation. Except as disclosed in the SEC Documents, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
against or affecting the Company, the Common Stock or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have
a material adverse effect on the transactions contemplated hereby (ii) adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents, have a material adverse effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.

Acknowledgment Regarding Buyer's Purchase of the Convertible Debentures. The
Company acknowledges and agrees that the Buyer(s) is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the
Buyer(s) is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer(s) or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such Buyer's purchase
of the Convertible Debentures or the Conversion Shares. The Company further
represents to the Buyer that the Company's decision to enter into this Agreement
has been based solely on the independent evaluation by the Company and its
representatives.

No General Solicitation. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of

<PAGE>

Regulation D under the 1933 Act) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.

No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Convertible
Debentures or the Conversion Shares under the 1933 Act or cause this offering of
the Convertible Debentures or the Conversion Shares to be integrated with prior
offerings by the Company for purposes of the 1933 Act.

Employee Relations. Neither the Company nor any of its subsidiaries is involved
in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries, is any such dispute threatened. None of the Company's or its
subsidiaries' employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees are good.

Intellectual Property Rights. The Company and its subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights necessary to conduct their respective businesses as now conducted. The
Company and its subsidiaries do not have any knowledge of any infringement by
the Company or its subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
mark registrations, trade secret or other similar rights of others, and, to the
knowledge of the Company there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.

Environmental Laws. The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval.

Title. Any real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries.

Insurance. The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in the
businesses in which the Company and its subsidiaries are engaged. Neither the
Company nor any such subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.

<PAGE>

Regulatory Permits. The Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

Internal Accounting Controls. The Company and each of its subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, and (iii)
the recorded amounts for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

No Material Adverse Breaches, etc. Except as set forth in the SEC Documents,
neither the Company nor any of its subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company's officers has or is expected in
the future to have a material adverse effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries. Neither the Company nor any of its subsidiaries is
in breach of any contract or agreement which breach, in the judgment of the
Company's officers, has or is expected to have a material adverse effect on the
business, properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries.

Tax Status. The Company and each of its subsidiaries has made or filed all
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject and (unless and only to the
extent that the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.

Certain Transactions. Except as set forth in the SEC Documents and except for
arm's length transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options disclosed in
the SEC Documents, none of the officers, directors, or employees of the Company
is presently a party to any transaction with the Company (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

Fees and Rights of First Refusal. The Company is not obligated to offer the
securities offered hereunder on a right of first refusal basis or otherwise to
any third parties including, but not limited to, current or former shareholders
of the Company, underwriters, brokers, agents or other third parties.

<PAGE>

                                   COVENANTS.

Best Efforts. Each party shall use its best efforts timely to satisfy each of
the conditions to be satisfied by it as provided in Sections 6 and 7 of this
Agreement.

Form D. The Company agrees to file a Form D with respect to the Conversion
Shares as required under Regulation D and to provide a copy thereof to each
Buyer promptly after such filing. The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary to
qualify the Conversion Shares, or obtain an exemption for the Conversion Shares
for sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date.

Reporting Status. Until the earlier of (i) the date as of which the Investor(s)
(as that term is defined in the Registration Rights Agreement) may sell all of
the Conversion Shares without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto), or (ii) the date on which (A) the
Buyer(s) shall have sold all the Conversion Shares and (B) none of the
Convertible Debentures are outstanding (the "Registration Period"), the Company
shall use its commercially reasonable efforts to file in a timely manner all
reports required to be filed with the SEC pursuant to the 1934 Act and the
regulations of the SEC there under, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations there under would otherwise permit such
termination.

Use of Proceeds. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate purposes.

Reservation of Shares. The Company shall take all action reasonably necessary to
at all times have authorized, and reserved for the purpose of issuance, such
number of shares of Common Stock as shall be necessary to effect the issuance of
the Conversion Shares. If at any time the Company does not have available such
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Conversion Shares of the Company shall call and hold a
special meeting of the shareholders within sixty (60) days of such occurrence,
for the sole purpose of increasing the number of shares authorized. The
Company's management shall recommend to the shareholders to vote in favor of
increasing the number of shares of Common Stock authorized. Management shall
also vote all of its shares in favor of increasing the number of authorized
shares of Common Stock.

Listings or Quotation. The Company shall promptly secure the listing or
quotation of the Conversion Shares upon each national securities exchange,
automated quotation system or Over-The-Counter Bulletin Board or other market,
if any, upon which shares of Common Stock are then listed or quoted (subject to
official notice of issuance) and shall use its best efforts to maintain, so long
as any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable under the terms of this Agreement.
The Company shall maintain the Common Stock's authorization for quotation in the
over-the counter market.

Expenses. Each of the Company and the Buyer(s) shall pay all costs and expenses
incurred by such party in connection with the negotiation, investigation,
preparation, execution and delivery of this Agreement and the Registration
Rights Agreement. The costs and expenses of the Consultant, its counsel, and
Kirkpatrick & Lockhart LLP shall be paid for by the Company at Closing in
accordance with the terms of the Consulting Agreement between the Company and
the Consultant, of even date herewith.

<PAGE>

Corporate Existence. So long as any of the Convertible Debentures remain
outstanding, the Company shall not directly or indirectly consummate any merger,
reorganization, restructuring, consolidation, sale of all or substantially all
of the Company's assets or any similar transaction or related transactions (each
such transaction, a "Sale of the Company") unless, prior to the consummation of
a Sale of the Company, the Company makes appropriate provision to insure that,
upon the consummation of such Sale of the Company, each of the holders of the
Convertible Debentures will thereafter have the right to acquire and receive
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Convertible Debentures had such Sale of the Company not taken place. In any such
case, the Company will make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 4(h) will
thereafter be applicable to the Convertible Debentures.

Transactions With Affiliates. So long as any Convertible Debentures are
outstanding, the Company shall not, and shall cause each of its subsidiaries not
to, enter into, amend, modify or supplement, or permit any subsidiary to enter
into, amend, modify or supplement any agreement, transaction, commitment, or
arrangement with any of its or any subsidiary's officers, directors, person who
were officers or directors at any time during the previous two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or Affiliates (as defined below) or with any individual related by blood,
marriage, or adoption to any such individual or with any entity in which any
such entity or individual owns a five percent (5%) or more beneficial interest
(each a "Related Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any investment in an Affiliate of the
Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (d) any agreement
transaction, commitment, or arrangement which is approved by a majority of the
disinterested directors of the Company, for purposes hereof, any director who is
also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment, or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a ten percent (10%) or more equity interest in that person or entity,
(ii) has ten percent (10%) or more common ownership with that person or entity,
(iii) controls that person or entity, or (iv) shares common control with that
person or entity. "Control" or "controls" for purposes hereof means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.

Transfer Agent. The Company covenants and agrees that, in the event that the
Company's agency relationship with the transfer agent should be terminated for
any reason prior to a date which is two (2) years after the Closing Date, the
Company shall immediately appoint a new transfer agent and shall require that
the transfer agent execute and agree to be bound by the terms of the Irrevocable
Instructions (as defined herein) to Transfer Agent.

                          TRANSFER AGENT INSTRUCTIONS.

The Company shall issue irrevocable instructions in the form attached hereto as
Exhibit C to its transfer agent to issue certificates, registered in the name of
the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing such amounts of Convertible Debentures as specified from time to
time by the Buyer(s) to the Company upon conversion of the Convertible
Debentures (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares under the 1933 Act, all such certificates
shall bear the restrictive legend

<PAGE>

specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the 1933 Act) will be given by the Company to its transfer agent
and that the Conversion Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Registration Rights Agreement. Nothing in this Section 5 shall affect in
any way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of Conversion Shares. If the Buyer(s) provides the
Company with an opinion of counsel, reasonably satisfactory in form, and
substance to the Company, that registration of a resale by the Buyer(s) of any
of the Conversion Shares is not required under the 1933 Act, the Company shall
permit the transfer and, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Buyer. The Company acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Buyer by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

                 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closing is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:

Each Buyer shall have executed this Agreement and the Registration Rights
Agreement and delivered the same to the Company.

The Buyer(s) shall have delivered to the Escrow Agent the Purchase Price for
Convertible Debentures in respective amounts as set forth next to each Buyer as
outlined on Schedule I attached hereto and the Escrow Agent shall have delivered
such funds to the Company by wire transfer of immediately available U.S. funds
pursuant to the wire instructions provided by the Company.

The representations and warranties of the Buyer(s) shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and the Buyer(s) shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer(s) at or prior to the Closing Date.

                CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for the
Buyer's sole benefit and may be waived by the Buyer(s) at any time in its sole
discretion:

<PAGE>

The Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer(s).

The Common Stock shall be authorized for quotation on The National Association
of Securities Dealers, Inc. OTC Bulletin Board, trading in the Common Stock
shall not have been suspended for any reason and all of the Conversion Shares
issuable upon conversion of the Convertible Debentures shall be approved for
listing or quotation on The National Association of Securities Dealers, Inc. OTC
Bulletin Board.

The representations and warranties of the Company shall be true and correct in
all material respects (except to the extent that any of such representations and
warranties is already qualified as to materiality in Section 3 above, in which
case, such representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate, executed by the President of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by the Buyer including, without limitation an update as of the Closing
Date regarding the representation contained in Section 3(c) above.

The Company shall have executed and delivered to the Buyer(s) the Convertible
Debentures in the respective amounts set forth opposite each Buyer(s) name on
Schedule I attached hereto.

As of the Closing Date, the Company shall have reserved out of its authorized
and unissued Common Stock, solely for the purpose of effecting the conversion of
the Convertible Debentures, shares of Common Stock to effect the conversion of
all of the Conversion then outstanding.

The Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to the Buyer, shall have been delivered to and acknowledged in writing by the
Company's transfer agent.

                                INDEMNIFICATION.

In consideration of the Buyer's execution and delivery of this Agreement and
acquiring the Convertible Debentures and the Conversion Shares hereunder, and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Buyer(s) and each
other holder of the Convertible Debentures and the Conversion Shares, and all of
their officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Buyer Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Convertible Debentures or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, or the Registration Rights Agreement or any
other certificate, instrument or document contemplated hereby or thereby, or (c)
any cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other

<PAGE>

instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.

In consideration of the Company's execution and delivery of this Agreement, and
in addition to all of the Buyer's other obligations under this Agreement, the
Buyer shall defend, protect, indemnify and hold harmless the Company and all of
its officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Company Indemnitees") from and against any and
all Indemnified Liabilities incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of any representation or warranty made by the Buyer(s) in this Agreement, ,
instrument or document contemplated hereby or thereby executed by the Buyer, (b)
any breach of any covenant, agreement or obligation of the Buyer(s) contained in
this Agreement, the Investor Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby executed by
the Buyer, or (c) any cause of action, suit or claim brought or made against
such Company Indemnitee based on material misrepresentations or due to a
material breach and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement, the Investor Registration Rights
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnities. To the extent that the foregoing
undertaking by each Buyer may be unenforceable for any reason, each Buyer shall
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities, which is permissible under applicable law.

                          GOVERNING LAW: MISCELLANEOUS.

Governing Law. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York without regard to the principles of
conflict of laws. The parties further agree that any action between them shall
be heard in New York City, New York, and expressly consent to the jurisdiction
and venue of the Supreme Court of New York and the United States District Court
for the Southern District of New York for the adjudication of any civil action
asserted pursuant to this Paragraph.

Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery shall cause four
(4) additional original executed signature pages to be physically delivered to
the other party within five (5) days of the execution and delivery hereof.

Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

<PAGE>

Entire Agreement, Amendments. This Agreement supersedes all other prior oral or
written agreements between the Buyer(s), the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.

Notices. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon confirmation of receipt, when sent by facsimile; (iii)
three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:

      If to the Company, to:           Vertical Computer Systems, Inc.
                                       6336 Wilshire Boulevard
                                       Los Angeles, CA 90048
                                       Attention: Richard Wade
                                                  President
                                       Telephone: (323) 658-4211
                                       Facsimile: (323) 658-4223

      With a copy to:                  Kirkpatrick & Lockhart LLP
                                       201 South Biscayne Boulevard - Suite 2000
                                       Miami, FL 33131
                                       Attention: Clayton E. Parker, Esq.
                                       Telephone: (305) 539-3300
                                       Facsimile: (305) 358-7095

      If to the Transfer Agent, to:

      If to the Investor:              At the address listed on Schedule A.

If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.

Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. Neither the
Company nor any Buyer shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party hereto.

<PAGE>

No Third Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
person.

Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing for a period of one (1) year following the date on which the Convertible
Debentures are converted in full. The Buyer(s) shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

Publicity. The Company and the Buyer(s) shall have the right to approve, before
issuance any press release or any other public statement with respect to the
transactions contemplated hereby made by any party; provided, however, that the
Company shall be entitled, without the prior approval of the Buyer(s), to issue
any press release or other public disclosure with respect to such transactions
required under applicable securities or other laws or regulations (the Company
shall use its best efforts to consult the Buyer(s) in connection with any such
press release or other public disclosure prior to its release and Buyer(s) shall
be provided with a copy thereof upon release thereof).

Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

Termination. In the event that the Closing shall not have occurred with respect
to the Buyers on or before five (5) business days from the date hereof due to
the Company's or the Buyer's failure to satisfy the conditions set forth in
Sections 6 and 7 above (and the non-breaching party's failure to waive such
unsatisfied condition(s)), the non-breaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other party;
provided, however, that if this Agreement is terminated pursuant to this Section
9(l), the Company shall remain obligated to reimburse the Buyer(s) for the
expenses described in Section 4(g) above.

No Strict Construction. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.

                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

                                        COMPANY:
                                        VERTICAL COMPUTER SYSYTEMS INC.

                                        By:_____________________________________
                                        Name:  Richard Wade
                                        Title: President

                                        INVESTOR:

                                        By:_____________________________________
                                        Name:

<PAGE>

                                                                       EXHIBIT A

                      FORM OF REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                                                       EXHIBIT B

                            FORM OF ESCROW AGREEMENT

<PAGE>

                                                                       EXHIBIT C

                           TRANSFER AGENT INSTRUCTIONS

<PAGE>

                                   SCHEDULE I

                               SCHEDULE OF BUYERS

                                                                    Amount of
Name                   Address/Facsimile Number of Buyer            Subscription
----                   ---------------------------------            ------------

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