Document:

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                                  Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "Agreement") is dated as of
October 24, 2003, among SteelCloud, Inc., a Virginia corporation (the
"Company"), and the purchasers identified on the signature pages hereto (each a
"Purchaser" and collectively the "Purchasers").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company, shares of Common Stock and Warrants on the Closing
Date (each as defined herein).

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

                  "Action" shall have the meaning ascribed to such term in
         Section 3.1(j).

                  "Affiliate" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person as such terms are used in and
         construed under Rule 144. With respect to a Purchaser, any investment
         fund or managed account that is managed on a discretionary basis by the
         same investment manager as such Purchaser will be deemed to be an
         Affiliate of such Purchaser.

                  "Business Day" means any day except Saturday, Sunday and any
         day which shall be a federal legal holiday or a day on which banking
         institutions in the State of New York are authorized or required by law
         or other governmental action to close.

                  "Closing" means the closing of the purchase and sale of the
         Common Stock and the Warrants pursuant to Section 2.1.

                  "Closing Date" means the Trading Day when all of the
         Transaction Documents have been executed and delivered by the
         applicable parties thereto, all conditions precedent to the Purchasers'
         obligations to pay the Subscription Amount have been satisfied or
         waived and the Subscription Amount has been received by the Company.

                  "Closing Price" means on any particular date (a) the last
         reported closing bid price per share of Common Stock on such date on
         the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York
         time) as the last reported closing bid price for regular session
         trading on such day), or (b) if there is no such price on such date,
         then the closing bid price on the Trading Market on the date nearest
         preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York
         time) as the closing bid price for regular session trading on such
         day), or (c) if the Common Stock is not then listed or quoted on the
         Trading Market and if prices for the Common Stock are then reported in
         the "pink sheets" published by the Pink Sheets LLC (formerly the
         National Quotation Bureau Incorporated) (or a similar organization or
         agency succeeding to its functions of reporting prices), the most
         recent bid price per share of the Common Stock so reported, or (d) if
         the shares of Common Stock are not then publicly traded the fair market
         value of a share of Common Stock as determined by an appraiser selected
         in good faith by the Purchasers of a majority in interest of the
         Shares.

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                  "Commission" means the Securities and Exchange Commission.

                  "Common Stock" means the common stock of the Company, $0.001
         par value per share, and any securities into which such common stock
         may hereafter be reclassified.

                  "Common Stock Equivalents" means any securities of the Company
         or the Subsidiaries which would entitle the holder thereof to acquire
         at any time Common Stock, including without limitation, any debt,
         preferred stock, rights, options, warrants or other instrument that is
         at any time convertible into or exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                  "Company Counsel" means Gersten, Savage, Kaplowitz, Wolf &
         Marcus, LLP with offices located at 101 E. 52nd Street, 9th Floor, New
         York, NY 10022.

                  "Disclosure Schedules" means the Disclosure Schedules attached
         hereto.

                  "Effective Date" means the date that the Registration
         Statement is first declared effective by the Commission.

                  "Exchange Act" means the Securities Exchange Act of 1934, as
         amended.

                  "Intellectual Property Rights" shall have the meaning ascribed
         to such term in Section 3.1(o).

                  "Liens" means a lien, charge, security interest, encumbrance,
         preemptive right or other restriction.

                  "Material Adverse Effect" shall have the meaning ascribed to
         such term in Section 3.1(b).

                  "Material Permits" shall have the meaning ascribed to such
         term in Section 3.1(m).

                  "Per Share Purchase Price" equals $4, subject to adjustment
         for reverse and forward stock splits, stock dividends, stock
         combinations and other similar transactions of the Common Stock that
         occur after the date of this Agreement.

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                  "Person" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company, government (or an
         agency or subdivision thereof) or other entity of any kind.

                  "Registration Statement" means a registration statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale by the Purchasers of the Shares and the Warrant
         Shares.

                  "Registration Rights Agreement" means the Registration Rights
         Agreement, dated as of the date of this Agreement, among the Company
         and each Purchaser, in the form of Exhibit A hereto.

                  "Required Approvals" shall have the meaning ascribed to such
         term in Section 3.1(e).

                  "Rule 144" means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC Reports" shall have the meaning ascribed to such term in
         Section 3.1(h).

                  "Securities" means the Shares, the Warrants and the Warrant
         Shares.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Shares" means the shares of Common Stock issued or issuable
         to each Purchaser pursuant to this Agreement.

                  "Subscription Amount" means, as to each Purchaser, the amounts
         set forth below such Purchaser's signature block on the signature page
         hereto, in United States dollars and in immediately available funds.

                  "Subsidiary" shall mean the subsidiaries of the Company set
         forth on Schedule 3.1(a).

                  "Trading Day" means (i) a day on which the Common Stock is
         traded on a Trading Market, or (ii) if the Common Stock is not listed
         on a Trading Market, a day on which the Common Stock is traded on the
         over the counter market, as reported by the OTC Bulletin Board, or
         (iii) if the Common Stock is not quoted on the OTC Bulletin Board, a
         day on which the Common Stock is quoted in the over the counter market
         as reported by the Pink Sheets LLC (formerly the National Quotation
         Bureau Incorporated) (or any similar organization or agency succeeding
         its functions of reporting prices); provided, that in the event that
         the Common Stock is not listed or quoted as set forth in (i), (ii) and
         (iii) hereof, then Trading Day shall mean a Business Day.

                  "Trading Market" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the American Stock Exchange, the New York Stock Exchange, the
         Nasdaq National Market or the Nasdaq SmallCap Market.

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                  "Transaction Documents" means this Agreement, the Warrants and
         the Registration Rights Agreement and any other documents or agreements
         executed in connection with the transactions contemplated hereunder.

                  "Warrants" means the Common Stock Purchase Warrants, in the
         form of Exhibit B, issuable to the Purchasers at the Closing, which
         warrants shall have an exercise price equal to $______ (125% of the
         Closing Price on the Trading Day prior to the date hereof) and be
         exercisable for a period of 5 years.

                  "Warrant Shares" means the shares of Common Stock issuable
         upon exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

         2.1 Closing. At the Closing, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser's Subscription Amount divided by the Per Share Purchase Price and (b)
the Warrants as determined pursuant to Section 2.2(a)(iii). The maximum
aggregate Subscription Amounts shall be up to $7,500,000. Upon satisfaction of
the conditions set forth in Section 2.2, the Closing shall occur at the offices
of Bonanza Capital Master Fund Ltd., or such other location as the parties shall
mutually agree.

         2.2 Closing Conditions.

                  (a) At the Closing the Company shall deliver or cause to be
         delivered to each Purchaser the following:

                           (i) this Agreement duly executed by the Company;

                           (ii) a certificate evidencing a number of Shares
                  equal to such Purchaser's Subscription Amount divided by the
                  Per Share Purchase Price, registered in the name of such
                  Purchaser;

                           (iii) a Warrant, registered in the name of such
                  Purchaser, pursuant to which such Purchaser shall have the
                  right to acquire up to the number of shares of Common Stock
                  equal to 25% of the Shares to be issued to such Purchaser at
                  the Closing;

                           (iv) the Registration Rights Agreement duly executed
                  by the Company; and

                           (v) a legal opinion of Company Counsel, in the form
                  of Exhibit C attached hereto.

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                  (b) At the Closing each Purchaser shall deliver or cause to be
         delivered to the Company the following:

                           (i) this Agreement duly executed by such Purchaser;

                           (ii) such Purchaser's Subscription Amount by wire
                  transfer to the account specified by the Company in writing;
                  and

                           (iii) the Registration Rights Agreement duly executed
                  by such Purchaser.

                  (c) All representations and warranties of the other party
         contained herein shall remain true and correct as of the Closing Date.

                  (d) As of the Closing Date, there shall have been no Material
         Adverse Effect with respect to the Company since the date hereof.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 Representations and Warranties of the Company. Except as set forth
in the Disclosure Schedules to this Agreement delivered concurrently herewith,
disclosure in any one of which shall apply to any and all representations and
warranties made in this Agreement, the Company hereby makes the following
representations and warranties as of the date hereof and as of the Closing Date
to each Purchaser:

                  (a) Subsidiaries. Except as provided in Schedule 3.1(a)
         attached hereto, the Company has no direct or indirect subsidiaries.
         The Company owns, directly or indirectly, all of the capital stock or
         other equity interests of each Subsidiary free and clear of any Liens,
         and all the issued and outstanding shares of capital stock of each
         Subsidiary are validly issued and are fully paid, non-assessable and
         free of preemptive and similar rights.

                  (b) Organization and Qualification. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation of any of the provisions of
         its respective certificate or articles of incorporation, bylaws or
         other organizational or charter documents. Each of the Company and the
         Subsidiaries is duly qualified to conduct business and is in good
         standing as a foreign corporation or other entity in each jurisdiction
         in which the nature of the business conducted or property owned by it
         makes such qualification necessary, except where the failure to be so
         qualified or in good standing, as the case may be, could not have or
         reasonably be expected to result in (i) a material adverse effect on
         the legality, validity or enforceability of any Transaction Document,
         (ii) a material adverse effect on the results of operations, assets,
         business or financial condition of the Company and the Subsidiaries,
         taken as a whole, or (iii) a material adverse effect on the Company's
         ability to perform in any material respect on a timely basis its
         obligations under any Transaction Document (any of (i), (ii) or (iii),
         a "Material Adverse Effect").

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                  (c) Authorization; Enforcement. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been
         duly authorized by all necessary action on the part of the Company and
         no further action is required by the Company in connection therewith
         other than in connection with the Required Approvals. Each Transaction
         Document has been (or upon delivery will have been) duly executed by
         the Company and, when delivered in accordance with the terms hereof,
         will constitute the valid and binding obligation of the Company
         enforceable against the Company in accordance with its terms except (i)
         as limited by applicable bankruptcy, insolvency, reorganization,
         moratorium and other laws of general application affecting enforcement
         of creditors' rights generally and (ii) as limited by laws relating to
         the availability of specific performance, injunctive relief or other
         equitable remedies.

                  (d) No Conflicts. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated thereby do not and will not
         (i) conflict with or violate any provision of the Company's or any
         Subsidiary's certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) conflict with, or
         constitute a default (or an event that 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 (with or without
         notice, lapse of time or both) of, any agreement, credit facility, debt
         or other instrument (evidencing a Company or Subsidiary debt or
         otherwise) or other understanding to which the Company or any
         Subsidiary is a party or by which any property or asset of the Company
         or any Subsidiary is bound or affected, or (iii) subject to the
         Required Approvals, result in a violation of any law, rule, regulation,
         order, judgment, injunction, decree or other restriction of any court
         or governmental authority to which the Company or a Subsidiary is
         subject (including federal and state securities laws and regulations),
         or by which any property or asset of the Company or a Subsidiary is
         bound or affected; except in the case of each of clauses (ii) and
         (iii), such as could not have or reasonably be expected to result in a
         Material Adverse Effect.

                  (e) Filings, Consents and Approvals. The Company is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or registration with ("Required
         Approvals"), any court or other federal, state, local or other
         governmental authority or other Person in connection with the
         execution, delivery and performance by the Company of the Transaction
         Documents, other than (i) filings required pursuant to Section 4.4 of
         this Agreement, (ii) the filing with the Commission of the Registration
         Statement, (iii) application(s) to the Trading Market for the listing
         of the Shares and Warrant Shares for trading thereon in the time and
         manner required thereby, and (iv) the filing of Form D with the
         Commission and such filings as are required to be made under applicable
         state securities laws.

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                  (f) Issuance of the Securities. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         Transaction Documents, will be duly and validly issued, fully paid and
         nonassessable, free and clear of all Liens. The Company has reserved
         from its duly authorized capital stock the maximum number of shares of
         Common Stock issuable pursuant to this Agreement and the Warrants.

                  (g) Capitalization. The capitalization of the Company is as
         described in the Company's most recent periodic report filed with the
         Commission. The Company has not issued any capital stock since such
         filing other than pursuant to the exercise of employee stock options
         under the Company's stock option plans, the issuance of shares of
         Common Stock to employees pursuant to the Company's employee stock
         purchase plan and pursuant to the conversion or exercise of outstanding
         Common Stock Equivalents. No Person has any right of first refusal,
         preemptive right, right of participation, or any similar right to
         participate in the transactions contemplated by the Transaction
         Documents. Except as a result of the purchase and sale of the
         Securities, there are no outstanding options, warrants, script rights
         to subscribe to, calls or commitments of any character whatsoever
         relating to, or securities, rights or obligations convertible into or
         exchangeable for, or giving any Person any right to subscribe for or
         acquire, any shares of Common Stock, or contracts, commitments,
         understandings or arrangements by which the Company or any Subsidiary
         is or may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issue and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities.

                  (h) SEC Reports; Financial Statements. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials, including the exhibits thereto, being collectively referred
         to herein as the "SEC Reports") on a timely basis or has received a
         valid extension of such time of filing and has filed any such SEC
         Reports prior to the expiration of any such extension. As of their
         respective dates, the SEC Reports complied in all material respects
         with the requirements of the Securities Act and the Exchange Act and
         the rules and regulations of the Commission promulgated thereunder, and
         none of the SEC Reports, when filed, contained any untrue statement of
         a material fact or omitted to state a material fact required to be
         stated therein or necessary in order to make the statements therein, in
         light of the circumstances under which they were made, not misleading.
         The financial statements of the Company included in the SEC Reports
         comply in all material respects with applicable accounting requirements
         and the rules and regulations of the Commission with respect thereto as
         in effect at the time of filing. Such financial statements have been
         prepared in accordance with generally accepted accounting principles
         applied on a consistent basis during the periods involved ("GAAP"),
         except as may be otherwise specified in such financial statements or
         the notes thereto and except that unaudited financial statements may
         not contain all footnotes required by GAAP, and fairly present in all
         material respects the financial position of the Company and its
         consolidated subsidiaries as of and for the dates thereof and the
         results of operations and cash flows for the periods then ended,
         subject, in the case of unaudited statements, to normal, immaterial,
         year-end audit adjustments.

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                  (i) Material Changes. Since the date of the latest audited
         financial statements included within the SEC Reports, except as
         disclosed in the SEC Reports, (i) there has been no event, occurrence
         or development that has had or that could reasonably be expected to
         result in a Material Adverse Effect, (ii) the Company has not incurred
         any liabilities (contingent or otherwise) other than (A) trade payables
         and accrued expenses incurred in the ordinary course of business
         consistent with past practice and (B) liabilities not required to be
         reflected in the Company's financial statements pursuant to GAAP or
         required to be disclosed in filings made with the Commission, (iii) the
         Company has not altered its method of accounting, (iv) the Company has
         not declared or made any dividend or distribution of cash or other
         property to its stockholders or purchased, redeemed or made any
         agreements to purchase or redeem any shares of its capital stock and
         (v) the Company has not issued any equity securities to any officer,
         director or Affiliate, except pursuant to existing Company stock option
         plans. The Company does not have pending before the Commission any
         request for confidential treatment of information.

                  (j) Litigation. Except as disclosed in the SEC Reports, there
         is no action, suit, inquiry, notice of violation, proceeding or
         investigation pending or, to the knowledge of the Company, threatened
         against or affecting the Company, any Subsidiary or any of their
         respective properties before or by any court, arbitrator, governmental
         or administrative agency or regulatory authority (federal, state,
         county, local or foreign) (collectively, an "Action") which (i)
         adversely affects or challenges the legality, validity or
         enforceability of any of the Transaction Documents or the Securities or
         (ii) could, if there were an unfavorable decision, have or reasonably
         be expected to result in a Material Adverse Effect. Neither the Company
         nor any Subsidiary, nor any director or officer thereof, is or has been
         the subject of any Action involving a claim of violation of or
         liability under federal or state securities laws or a claim of breach
         of fiduciary duty. There has not been, and to the knowledge of the
         Company, there is not pending or contemplated, any investigation by the
         Commission involving the Company or any current or former director or
         officer of the Company. The Commission has not issued any stop order or
         other order suspending the effectiveness of any registration statement
         filed by the Company or any Subsidiary under the Exchange Act or the
         Securities Act.

                  (k) Labor Relations. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company which could reasonably be expected to result
         in a Material Adverse Effect.

                  (l) Compliance. Except as disclosed in the SEC Reports,
         neither the Company nor any Subsidiary (i) is in default under or in
         violation of (and no event has occurred that has not been waived that,
         with notice or lapse of time or both, would result in a default by the
         Company or any Subsidiary under), nor has the Company or any Subsidiary
         received notice of a claim that it is in default under or that it is in
         violation of, any indenture, loan or credit agreement or any other
         agreement or instrument to which it is a party or by which it or any of
         its properties is bound (whether or not such default or violation has
         been waived), (ii) is in violation of any order of any court,
         arbitrator or governmental body, or (iii) is or has been in violation
         of any statute, rule or regulation of any governmental authority,
         including without limitation all foreign, federal, state and local laws
         applicable to its business except in each case as could not have a
         Material Adverse Effect.

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                  (m) Regulatory Permits. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state, local or foreign regulatory authorities
         necessary to conduct their respective businesses as described in the
         SEC Reports, except where the failure to possess such permits could not
         have or reasonably be expected to result in a Material Adverse Effect
         ("Material Permits"), and neither the Company nor any Subsidiary has
         received any notice of proceedings relating to the revocation or
         modification of any Material Permit.

                  (n) Title to Assets. The Company and the Subsidiaries have
         good and marketable title in fee simple to all real property owned by
         them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do not
         materially interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries and Liens for the payment
         of federal, state or other taxes, the payment of which is neither
         delinquent nor subject to penalties. Any real property and facilities
         held under lease by the Company and the Subsidiaries are held by them
         under valid, subsisting and enforceable leases of which the Company and
         the Subsidiaries are in compliance.

                  (o) Patents and Trademarks. To the knowledge of the Company
         and each Subsidiary, the Company and the Subsidiaries have, or have
         rights to use, all patents, patent applications, trademarks, trademark
         applications, service marks, trade names, copyrights, licenses and
         other similar rights that are necessary or material for use in
         connection with their respective businesses as described in the SEC
         Reports and which the failure to so have could have or reasonably be
         expected to result in a Material Adverse Effect (collectively, the
         "Intellectual Property Rights"). Neither the Company nor any Subsidiary
         has received a written notice that the Intellectual Property Rights
         used by the Company or any Subsidiary violates or infringes upon the
         rights of any Person. To the knowledge of the Company, all such
         Intellectual Property Rights are enforceable.

                  (p) Insurance. The Company and the Subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are prudent and customary in the
         businesses in which the Company and the Subsidiaries are engaged.
         Neither the Company nor any 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 without a
         significant increase in cost.

                  (q) Transactions With Affiliates and Employees. Except as set
         forth in the SEC Reports, none of the officers or directors of the
         Company and, to the knowledge of the Company, none of the employees of
         the Company is presently a party to any transaction with the Company or
         any Subsidiary (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 entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner, in each case in excess of $60,000 other
         than (i) for payment of salary or consulting fees for services
         rendered, (ii) reimbursement for expenses incurred on behalf of the
         Company and (iii) for other employee benefits, including stock option
         agreements under any stock option plan of the Company.

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                  (r) Internal Accounting Controls; Sarbanes-Oxley. As of the
         Closing Date, the Company is in material compliance with all provisions
         of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the
         filing of its most recent SEC Report. The Company and each of its
         subsidiaries maintains 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 GAAP 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. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-14 and
         15d-14) for the Company and designed such disclosure controls and
         procedures to ensure that material information relating to the Company,
         including its subsidiaries, is made known to the certifying officers by
         others within those entities, particularly during the period in which
         the Company's most recently filed period report under the Exchange Act,
         as the case may be, is being prepared. The Company's certifying
         officers have evaluated the effectiveness of the Company's controls and
         procedures as of a date within 90 days prior to the filing date of the
         most recently filed periodic report under the Exchange Act (such date,
         the "Evaluation Date"). The Company presented in its most recently
         filed period report under the Exchange Act the conclusions of the
         certifying officers about the effectiveness of the disclosure controls
         and procedures based on their evaluations as of the Evaluation Date.
         Since the Evaluation Date, there have been no significant changes in
         the Company's internal controls (as such term is defined in Item 307(b)
         of Regulation S-K under the Exchange Act) or, to the Company's
         knowledge, in other factors that could significantly affect the
         Company's internal controls.

                  (s) Certain Fees. Except as provided in Schedule 3.1(s)
         attached hereto, no brokerage or finder's fees or commissions are or
         will be payable by the Company to any broker, financial advisor or
         consultant, finder, placement agent, investment banker, bank or other
         Person with respect to the transactions contemplated by this Agreement.
         The Purchasers shall have no obligation with respect to any fees or
         with respect to any claims made by or on behalf of other Persons for
         fees of a type contemplated in this Section that may be due in
         connection with the transactions contemplated by this Agreement.

                  (t) Private Placement. Assuming the accuracy of each
         Purchaser's representations and warranties set forth in Section 3.2, no
         registration under the Securities Act is required for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby. The issuance and sale of the Securities hereunder does not
         contravene the rules and regulations of the Trading Market.

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                  (u) Investment Company. The Company is not, and is not an
         Affiliate of, an "investment company" within the meaning of the
         Investment Company Act of 1940, as amended.

                  (v) Registration Rights. Except as set forth on the Disclosure
         Schedules and on the disclosure schedule attached to the Registration
         Rights Agreement, no Person has any right to cause the Company to
         effect the registration under the Securities Act of any securities of
         the Company.

                  (w) Listing and Maintenance Requirements. The Company has not,
         in the 12 months preceding the date hereof, received notice from any
         Trading Market on which the Common Stock is or has been listed or
         quoted to the effect that the Company is not in compliance with the
         listing or maintenance requirements of such Trading Market. The Company
         is, and has no reason to believe that it will not in the foreseeable
         future continue to be, in compliance with all such listing and
         maintenance requirements.

                  (x) Application of Takeover Protections. The Company and its
         Board of Directors have taken all necessary action, if any, in order to
         render inapplicable any control share acquisition, business
         combination, poison pill (including any distribution under a rights
         agreement) or other similar anti-takeover provision under the Company's
         Certificate of Incorporation (or similar charter documents) or the laws
         of its state of incorporation that is or could become applicable to the
         Purchasers as a result of the Purchasers and the Company fulfilling
         their obligations or exercising their rights under the Transaction
         Documents, including without limitation the Company's issuance of the
         Securities and the Purchasers' ownership of the Securities.

                  (y) Disclosure. The Company confirms that, neither the Company
         nor any other Person acting on its behalf has provided any of the
         Purchasers or their agents or counsel with any information that
         constitutes or might constitute material, non-public information. The
         Company understands and confirms that the Purchasers will rely on the
         foregoing representations and covenants in effecting transactions in
         securities of the Company. All disclosure provided to the Purchasers
         regarding the Company, its business and the transactions contemplated
         hereby, including the Disclosure Schedules to this Agreement, furnished
         by or on behalf of the Company are true and correct and do not contain
         any untrue statement of a material fact or omit to state any material
         fact necessary in order to make the statements made therein, in light
         of the circumstances under which they were made, not misleading.

                  (z) 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 cause this offering of the Securities to be integrated with prior
         offerings by the Company for purposes of the Securities Act or any
         applicable shareholder approval provisions, including, without
         limitation, under the rules and regulations of any exchange or
         automated quotation system on which any of the securities of the
         Company are listed or designated.

                                       11
<PAGE>

                  (aa) Form S-3 Eligibility. The Company is eligible to register
         the resale of its Common Stock by the Purchasers under Form S-3
         promulgated under the Securities Act.

         3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                  (a) Organization; Authority. Such Purchaser is an entity duly
         organized, validly existing and in good standing under the laws of the
         jurisdiction of its organization with full right, corporate or
         partnership power and authority to enter into and to consummate the
         transactions contemplated by the Transaction Documents and otherwise to
         carry out its obligations thereunder. The execution, delivery and
         performance by such Purchaser of the transactions contemplated by this
         Agreement have been duly authorized by all necessary corporate action
         on the part of such Purchaser. Each Transaction Document to which it is
         party has been duly executed by such Purchaser, and when delivered by
         such Purchaser in accordance with the terms hereof, will constitute the
         valid and legally binding obligation of such Purchaser, enforceable
         against it in accordance with its terms.

                  (b) Investment Intent. Such Purchaser understands that the
         Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable state securities law and is
         acquiring the Securities as principal for its own account for
         investment purposes only and not with a view to or for distributing or
         reselling such Securities or any part thereof, has no present intention
         of distributing any of such Securities and has no arrangement or
         understanding with any other persons regarding the distribution of such
         Securities (this representation and warranty not limiting such
         Purchaser's right to sell the Securities pursuant to the Registration
         Statement or otherwise in compliance with applicable federal and state
         securities laws). Such Purchaser is acquiring the Securities hereunder
         in the ordinary course of its business. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities.

                  (c) Purchaser Status. At the time such Purchaser was offered
         the Securities, it was, and at the date hereof and the Closing Date it
         is an "accredited investor" as defined in Rule 501(a) under the
         Securities Act. Such Purchaser is not required to be registered as a
         broker-dealer under Section 15 of the Exchange Act.

                  (d) Experience of Such Purchaser. Such Purchaser, either alone
         or together with its representatives, has such knowledge,
         sophistication and experience in business and financial matters so as
         to be capable of evaluating the merits and risks of the prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an investment in the Securities and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) General Solicitation. Such Purchaser is not purchasing the
         Securities as a result of any advertisement, article, notice or other
         communication regarding the Securities published in any newspaper,
         magazine or similar media or broadcast over television or radio or
         presented at any seminar or any other general solicitation or general
         advertisement.

                                       12
<PAGE>

                  (f) No Prior Short Selling. At no time during the 30 days
         prior to the date hereof has such Purchaser engaged in or effected, in
         any manner whatsoever, directly or indirectly, in any "short sale" (as
         such term is defined in Rule 3b-3 of the Exchange Act) of the Common
         Stock (a "Short Sale").

                  (g) Due Diligence. Such Purchaser has had the opportunity to
         perform its own due diligence regarding the company and the Securities
         to the satisfaction of such Purchaser.

         The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 Transfer Restrictions. (a) The Securities may only be disposed of
         in compliance with state and federal securities laws. In connection
         with any transfer of Securities other than pursuant to an effective
         registration statement, to the Company, to an Affiliate of a Purchaser
         or in connection with a pledge as contemplated in Section 4.1(b), the
         Company may require the transferor thereof to provide to the Company an
         opinion of counsel selected by the transferor, the form and substance
         of which opinion shall be reasonably satisfactory to the Company, to
         the effect that such transfer does not require registration of such
         transferred Securities under the Securities Act. As a condition of
         transfer, any such transferee shall agree in writing to be bound by the
         terms of this Agreement and shall have the rights of a Purchaser under
         this Agreement and the Registration Rights Agreement.

                  (b) The Purchasers agree to the imprinting, so long as is
         required by this Section 4.1(b), of a legend on any of the Securities
         in the following form:

                  THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
                  AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
                  STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
                  THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
                  AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
                  TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
                  ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
                  TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
                  THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
                  SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
                  THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
                  REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
                  PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
                  REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
                  INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
                  RULE 501(a) UNDER THE SECURITIES ACT.

                                       13
<PAGE>

                  The Company acknowledges and agrees that a Purchaser may from
         time to time pledge pursuant to a bona fide margin agreement with a
         registered broker-dealer or grant a security interest in some or all of
         the Securities to a financial institution that is an "accredited
         investor" as defined in Rule 501(a) under the Securities Act and, if
         required under the terms of such arrangement, such Purchaser may
         transfer pledged or secured Securities to the pledgees or secured
         parties. Such a pledge or transfer would not be subject to approval of
         the Company and no legal opinion of legal counsel of the pledgee,
         secured party or pledgor shall be required in connection therewith.
         Further, no notice shall be required of such pledge. At the appropriate
         Purchaser's expense, the Company will execute and deliver such
         reasonable documentation as a pledgee or secured party of Securities
         may reasonably request in connection with a pledge or transfer of the
         Securities, including, if the Securities are subject to registration
         pursuant to the Registration Rights Agreement, the preparation and
         filing of any required prospectus supplement under Rule 424(b)(3) under
         the Securities Act or other applicable provision of the Securities Act
         to appropriately amend the list of Selling Stockholders thereunder.

                  (c) Certificates evidencing the Shares and Warrant Shares
         shall not contain any legend (including the legend set forth in Section
         4.1(b)), (i) while a registration statement (including the Registration
         Statement) covering the resale of such security is effective under the
         Securities Act, or (ii) following any sale of such Shares or Warrant
         Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
         are eligible for sale under Rule 144(k), or (iv) if such legend is not
         required under applicable requirements of the Securities Act (including
         judicial interpretations and pronouncements issued by the Staff of the
         Commission). The Company shall cause its counsel to issue a legal
         opinion to the Company's transfer agent promptly after the Effective
         Date if required by the Company's transfer agent to effect the removal
         of the legend hereunder. If all or any portion of a Warrant is
         exercised at a time when there is an effective registration statement
         to cover the resale of the Warrant Shares, such Warrant Shares shall be
         issued free of all legends. The Company agrees that following the
         Effective Date or at such time as such legend is no longer required
         under this Section 4.1(c), it will, no later than five Trading Days
         following the delivery by a Purchaser to the Company or the Company's
         transfer agent of a certificate representing Shares or Warrant Shares,
         as the case may be, issued with a restrictive legend (such date, the
         "Legend Removal Date"), deliver or cause to be delivered to such
         Purchaser a certificate representing such Securities that is free from
         all restrictive and other legends. The Company may not make any
         notation on its records or give instructions to any transfer agent of
         the Company that enlarge the restrictions on transfer set forth in this
         Section, except that in the event the Registration Statement ceases to
         be effective the Company shall give notice to each Purchaser and
         request that any Shares or Warrant Shares which remain unsold by each
         such Purchaser be immediately returned to the Company and the Company
         shall cause its transfer agent to: (i) place stop transfer instructions
         in its records with respect to the Shares or the Warrant Shares, and
         (ii) replace such certificates with new certificates bearing the
         restrictive legend set forth in Section 4.1(b) above. Any new
         certificates issued hereunder shall bear such restrictive legend until
         (i), (ii), (iii) or (iv) above are applicable.

                                       14
<PAGE>

                  (d) In addition to such Purchaser's other available remedies,
         the Company shall pay to a Purchaser, in cash, as liquidated damages
         and not as a penalty, for each $1,000 of Shares or Warrant Shares
         (based on the Closing Price of the Common Stock on the date such
         Securities are submitted to the Company's transfer agent) subject to
         Section 4.1(c), $5 per Trading Day (increasing to $10 per Trading Day
         five (5) Trading Days after such damages have begun to accrue) for each
         Trading Day after such fifth Trading Day after the Legend Removal Date
         until such certificate is delivered. Nothing herein shall limit such
         Purchaser's right to pursue actual damages for the Company's failure to
         deliver certificates representing any Securities as required by the
         Transaction Documents, and such Purchaser shall have the right to
         pursue all remedies available to it at law or in equity including,
         without limitation, a decree of specific performance and/or injunctive
         relief.

                  (e) Each Purchaser, severally and not jointly with the other
         Purchasers, agrees that the removal of the restrictive legend from
         certificates representing Securities as set forth in this Section 4.1
         is predicated upon the Company's reliance that the Purchaser will sell
         any Securities pursuant to either the registration requirements of the
         Securities Act, including any applicable prospectus delivery
         requirements, or an exemption therefrom.

         4.2 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.

         4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

         4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30
a.m. Eastern time on the Trading Day following the Closing Date, issue a press
release or file a Current Report on Form 8-K, in each case reasonably acceptable
to Nathan Sommers Jacobs + Gorman, which is hereby designated Purchasers'
special counsel solely for the purpose of reviewing such Form 8-K and the
Registration Statement as set forth in the Registration Rights Agreement, and
for no other purposes ("Purchasers' Counsel"). The Company and Purchasers'
Counsel shall consult with each other in issuing any press releases with respect
to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of Purchasers' Counsel,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of any Purchaser, or include
the name of any Purchaser in any filing with the Commission or any regulatory
agency or Trading Market, without the prior written consent of such Purchaser,
except (i) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).

                                       15
<PAGE>

         4.5 Shareholders Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.

         4.6 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and not for the satisfaction of any
portion of the Company's debt (other than payment of trade payables in the
ordinary course of the Company's business and prior practices), to redeem any
Company equity or equity-equivalent securities or to settle any outstanding
litigation.

         4.8 No Liability of Purchasers. The Company agrees that neither the
Purchasers nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.

         4.9 Indemnification. (a) The Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, partners, employees and
agents (each, a "Purchaser Party") harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys' fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to: (i) any misrepresentation, breach
or inaccuracy, or any allegation by a third party that, if true, would
constitute a breach or inaccuracy, of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents; or (ii) any cause of action, suit or claim brought or
made against such Purchaser Party and arising solely out of or solely resulting
from the execution, delivery, performance or enforcement of this Agreement or
any of the other Transaction Documents and without causation by any other
activity, obligation, condition or liability pertaining to such Purchaser. The
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred. (b) Such Purchaser will indemnify and hold the Company and its
directors, officers, shareholders, partners, employees and agents (each, a
"Company Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Company Party may suffer or incur as a
result of or relating to any misrepresentation, breach or inaccuracy of any of
the representations, warranties, covenants or agreements made by such Purchaser
in this Agreement or in the other Transaction Documents. Such Purchaser will
reimburse the Company for its prorata share of the reasonable legal and other
expenses (including the cost of any investigation, preparation and travel in
connection therewith) incurred in connection therewith, as such expenses are
incurred.

                                       16
<PAGE>

         4.10 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.11 Listing of Common Stock. The Company hereby agrees to use
commercially reasonably efforts to maintain the listing of the Common Stock on
the Trading Market, and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to list all of the Shares and Warrant Shares on the Trading
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Trading Market, it will include in such application
all of the Shares and Warrant Shares, and will take such other action as is
necessary to cause the Shares and Warrant Shares to be listed on such other
Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will take all action reasonably necessary to comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Trading Market.

         4.12 Subsequent Equity Sales. From the date hereof until 45 days after
the Effective Date, neither the Company nor any Subsidiary shall issue shares of
Common Stock or Common Stock Equivalents; provided, however, the 45 day period
set forth in this Section 4.12 shall be extended for the number of Trading Days
during such period in which (y) trading in the Common Stock is suspended by any
Trading Market, or (z) following the Effective Date, the Registration Statement
is not effective or the prospectus included in the Registration Statement may
not be used by the Purchasers for the resale of the Shares and Warrant Shares.
Notwithstanding anything to the contrary herein, this Section 4.12 shall not
apply to the following (a) the granting of options to employees, officers and
directors of the Company pursuant to any stock option plan duly adopted by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose, or (b) the exercise of any security issued by the Company in
connection with the offer and sale of the Company's securities pursuant to this
Agreement, or (c) the exercise of or conversion of any convertible securities,
options or warrants issued and outstanding on the date hereof, provided such
securities have not been amended since the date hereof, or (d) acquisitions or
strategic investments, the primary purpose of which is not to raise capital, or
(e) any firm-commitment underwritten public offering with gross proceeds from
the public of at least $20,000,000.

                                       17
<PAGE>

         4.13 Equal Treatment of Purchasers. No consideration shall be offered
or paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents.

         4.15 Additional Investment. During the period beginning on the
Effective Date and ending on the date that is 60 days following the Effective
Date, each Purchaser may, in its sole determination, elect to purchase, in the
ratio of such Purchaser's Subscription Amount to the aggregate Subscription
Amounts of all Purchasers, additional shares of Common Stock and warrants to
acquire shares of Common Stock for an aggregate purchase price of $1,500,000.
Any additional investment will be on terms identical those set forth in the
Transaction Documents, mutatis mutandis, except that, the Per Share Purchase
Price of the Common Stock for such additional investment shall equal $5, subject
to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement. In order to effectuate a purchase and sale of the
additional shares of preferred stock and warrants, the Company and the
Purchasers shall enter into the following agreements: (x) a securities purchase
agreement identical to this Agreement, mutatis mutandis and shall include
updated disclosure schedules and (y) a registration rights agreement identical
to the Registration Rights Agreement, mutatis mutandis and shall include updated
disclosure schedules.

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 Fees and Expenses. The Company agrees to pay $20,000 to Bonanza
Capital for its legal and due diligence fees and expenses incurred in connection
with the investigation and negotiation of the transaction and the preparation
and negotiation of the Transaction Documents ($10,000 of which has already been
paid). Except as otherwise set forth in this Agreement, each party shall pay the
fees and expenses of its advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all stamp and other taxes and duties levied in connection with the
sale of the Securities.

         5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading
Day, (c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

                                       18
<PAGE>

         5.3 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

         5.4 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. 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.

         5.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

         5.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Sections 4.9 and 4.10.

         5.7 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
New York for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by delivering a copy thereof
via overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto (including its
Affiliates, agents, officers, directors and employees) hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

                                       19
<PAGE>

         5.8 Survival. The representations and warranties herein shall survive
the Closing and delivery of the Shares and Warrant Shares.

         5.9 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

         5.10 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.11 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

         5.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

                                       20
<PAGE>

         5.13 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

         5.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Except as expressly set forth in this Agreement, each Purchaser has
been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through Bonanza Capital Master Fund Ltd. Bonanza
Capital Master Fund Ltd. does not represent all of the Purchasers but only
Bonanza Capital. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.

                            (Signature Page Follows)

                                       21
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

STEELCLOUD, INC.                                         Address for Notice:

By:                                                      1306 Squire Court
   ---------------------------------                     Dulles, VA 20166
     Name:                                               ATTN: Thomas P. Dunne
     Title:                                              Tel: 703.450.0400
                                                         Fax: 703.450.0411

With copy to (which shall not constitute notice):

Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP
101 East 52nd Street, 9th Floor
New York, NY 10022-6018
ATTN:  Jay Kaplowitz, Esq.
Tel:  212.752.9700
Fax:  212.980.5192

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]

                                       22
<PAGE>

          IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

BONANZA CAPITAL MASTER FUND LTD.                    Address for Notice:

By:                                                 8235 Douglas Ave., Suite 423
   ---------------------------------                Dallas, TX 75225
     Name:                                          ATTN: Brian Ladin
     Title:                                         Tel: 214.615.7090
                                                    Fax: 214.987.4342

Subscription Amount:  $
Shares:
Warrant Shares:

With copy to (which shall not constitute notice):

Nathan Sommers Jacobs + Gorman
2800 Post Oak Boulevard, 61st Floor
Houston, TX  77006
ATTN:  David M. Washburn, Esq.
Tel:  713.960.0303
Fax:  713.892.4840

                           [SIGNATURE PAGE CONTINUED]

                                       23
<PAGE>

                     PURCHASER'S SIGNATURE PAGE (CONT. . . )

PURCHASER:                                        Address for Notice:

------------------------------

                                                  ATTN:
By:
   ------------------------------
     Name:
     Title:
Subscription Amount:  $
Shares:
Warrant Shares:

With copy to (which shall not constitute notice):

                           [SIGNATURE PAGE CONTINUED]

                                       24
<PAGE>

                                 Schedule 3.1(a)

List of Subsidiaries of the Company:

1. Dunn Computer Corporation, a Delaware Corporation.

2. Dunn Computer Operating Company, a Virginia Corporation.

3. STMS, Inc., a Virginia Corporation.

4. Puerto Rico Industrial Manufacturing Operations Acquisition
         Corp., a Puerto Rico corporation

5. International Data Products, Corp., a Maryland Corporation.

                                       25
<PAGE>

                                 Schedule 3.1(g)

1.       Briarcliff Investors LLC has warrants that, upon exercise, require the
         Company to issue 247,525 shares of Common Stock.

2.       Cardinal Capital, LLC has warrants that, upon exercise, require the
         Company to issue 75,000 shares of Common Stock.

                                       26
<PAGE>

                                 Schedule 3.1(s)

Brean Murray shall be paid a 3.5% commission in cash and a 2.75% commission in
warrants and Ferris Baker Watts shall be paid a 3.5% commission in cash and a
2.75% commission in warrants.

                                       27
<PAGE>

                                 Schedule 3.1(v)

1.       Pursuant to an agreement with Briarcliff Investors LLC, the Company is
         obligated to register 247,525 shares of Common Stock that are issuable
         upon exercise of warrants granted to Briarcliff Investors LLC.

2.       Pursuant to an agreement with Cardinal Capital, LLC, the Company is
         obligated to register 75,000 shares of Common Stock that are issuable
         upon exercise of warrants granted to Cardinal Capital, LLC.

                                       28
<PAGE>

                                 Schedule 3.1(w)

Within the last 12 months, the Company has received a letter stating that it is
not in compliance with the listing or maintenance requirements of the Nasdaq
National Market System.

                                       29<PAGE>

                                  Exhibit 10.2

                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement (this "Agreement") is made
and entered into as of October 24, 2003, by and among SteelCloud, Inc., a
Virginia corporation (the "Company"), and the purchasers signatory hereto (each
such purchaser, a "Purchaser" and collectively, the "Purchasers").

                  This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").

                  The Company and the Purchasers hereby agree as follows:

         1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:

                  "Advice" shall have the meaning set forth in Section 6(d).

                  "Common Stock" means the common stock of the Company, $0.001
         par value per share.

                  "Effectiveness Date" means, with respect to the initial
         Registration Statement required to be filed hereunder, the earlier of
         (a) the 90th calendar day following the date of the Purchase Agreement,
         and (b) the fifth Trading Day following the date on which the Company
         is notified by the Commission that the Registration Statement will not
         be reviewed or is no longer subject to further review and comments.

                  "Effectiveness Period" shall have the meaning set forth in
         Section 2(a).

                  "Event" shall have the meaning set forth in Section 2(b).

                  "Filing Date" means, with respect to the Registration
         Statement required to be filed hereunder, the 30th calendar day
         following the Closing Date.

                  "Holder" or "Holders" means the holder or holders, as the case
         may be, from time to time of Registrable Securities.

                  "Indemnified Party" shall have the meaning set forth in
         Section 5(c).

                  "Indemnifying Party" shall have the meaning set forth in
         Section 5(c).

                  "Losses" shall have the meaning set forth in Section 5(a).

                                       1
<PAGE>

                  "Proceeding" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

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

                  "Registrable Securities" means all of the Shares and the
         Warrant Shares, together with any shares of Common Stock issued or
         issuable upon any stock split, dividend or other distribution,
         recapitalization or similar event with respect to the foregoing.

                  "Registration Statement" means the registration statements
         required to be filed hereunder, including (in each case) the
         Prospectus, amendments and supplements to the registration statement or
         Prospectus, including pre- and post-effective amendments, all exhibits
         thereto, and all material incorporated by reference or deemed to be
         incorporated by reference in the registration statement.

                  "Rule 415" means Rule 415 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "Rule 424" means Rule 424 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Shares" means the shares of Common Stock issued pursuant to
         the Purchase Agreement.

                  "Warrants" means the Warrants issued pursuant to the Purchase
         Agreement.

                  "Warrant Shares" shall mean the shares of Common Stock issued
         upon exercise of the Warrants.

         2. Registration.

                  (a) On or prior to the Filing Date, the Company shall prepare
         and file with the Commission the Registration Statement covering the
         resale of all of the Registrable Securities for an offering to be made
         on a continuous basis pursuant to Rule 415. The Registration Statement
         required hereunder shall be on Form S-3 (except if the Company is not
         then eligible to register for resale the Registrable Securities on Form
         S-3, in which case the Registration shall be on another appropriate
         form in accordance herewith). The Registration Statement required
         hereunder shall contain (except if otherwise directed by the Holders)
         substantially the "Plan of Distribution" attached hereto as Annex A.
         Subject to the terms of this Agreement, the Company shall use its
         commercially reasonable efforts to cause the Registration Statement to
         be declared effective under the Securities Act as promptly as possible
         after the filing thereof, but in any event not later than the
         Effectiveness Date, and shall use its commercially reasonable efforts
         to keep the Registration Statement continuously effective under the
         Securities Act until the date when all Registrable Securities covered
         by the Registration Statement have been sold or may be sold without
         volume restrictions pursuant to Rule 144(k) as determined by the
         counsel to the Company pursuant to a written opinion letter to such
         effect, addressed and acceptable to the Company's transfer agent and
         the affected Holders (the "Effectiveness Period").

                                       2
<PAGE>

                  (b) If: (i) a Registration Statement is not filed on or prior
         to the Filing Date (if the Company files a Registration Statement
         without affording Bonanza Capital Master Fund Ltd., which is hereby
         designated Holders' special counsel solely for the purposes expressly
         set forth in this Agreement ("Holders' Counsel"), the opportunity to
         review and comment on the same as required by Section 3(a), the Company
         shall not be deemed to have satisfied this clause (i)), or (ii) the
         Company fails to file with the Commission a request for acceleration in
         accordance with Rule 461 promulgated under the Securities Act, within
         five Trading Days of the date that the Company is notified (orally or
         in writing, whichever is earlier) by the Commission that a Registration
         Statement will not be "reviewed," or is not subject to further review,
         or (iii) prior to the date when such Registration Statement is first
         declared effective by the Commission, the Company fails to file a
         pre-effective amendment and otherwise respond in writing to comments
         made by the Commission in respect of such Registration Statement within
         10 Trading Days after the receipt of comments by or notice from the
         Commission that such amendment is required in order for a Registration
         Statement to be declared effective, or (iv) a Registration Statement
         filed or required to be filed hereunder is not declared effective by
         the Commission on or before the Effectiveness Date, or (v) after a
         Registration Statement is first declared effective by the Commission,
         it ceases for any reason to remain continuously effective as to all
         Registrable Securities for which it is required to be effective, or the
         Holders are not permitted to utilize the Prospectus therein to resell
         such Registrable Securities, for in any such case 15 consecutive days
         but no more than an aggregate of 25 consecutive days during any 12
         month period (which need not be consecutive Trading Days)(any such
         failure or breach being referred to as an "Event," and for purposes of
         clause (i) or (iv) the date on which such Event occurs, or for purposes
         of clause (ii) the date on which such five Trading Day period is
         exceeded, or for purposes of clause (iii) the date which such 10
         Trading Day period is exceeded, or for purposes of clause (v) the date
         on which such 15 or 25 day period, as applicable, is exceeded being
         referred to as "Event Date"), then in addition to any other rights the
         Holders may have hereunder or under applicable law, the Company shall
         pay to each Holder an amount in cash, as liquidated damages and not as
         a penalty, equal to 1.5% of the aggregate purchase price paid by such
         Holder pursuant to the Purchase Agreement for any Registrable
         Securities then held by such Holder on each monthly anniversary of each
         such Event Date (if the applicable Event shall not have been cured by
         such date) until the applicable Event is cured. Notwithstanding
         anything herein to the contrary, if an Event specified in clause (iv)
         has occurred and the Company has filed the Registration Statement
         required hereunder within 10 Trading Days of the Closing Date, then the
         liquidated damages set forth in the previous sentence of this Section
         2(b) shall be reduced to 1.0% of the aggregate purchase price paid by
         such Holder pursuant to the Purchase Agreement for any Registrable
         Securities then held by such Holder on each monthly anniversary of each
         such Event Date (if such Event shall not have been cured by such date)
         until such Event is cured. If the Company fails to pay any liquidated
         damages pursuant to this Section in full within seven days after the
         date payable, the Company will pay interest thereon at a rate of 15%
         per annum (or such lesser maximum amount that is permitted to be paid
         by applicable law) to the Holder, accruing daily from the date such
         liquidated damages are due until such amounts, plus all such interest
         thereon, are paid in full; provided, however, that the Company's
         obligations pursuant to this Section 2(b) shall cease to accrue on the
         date upon which such Registrable Securities may be sold under Rule
         144(k) in the reasonable opinion of Company Counsel (provided that the
         Company's transfer agent has accepted an instruction from the Company
         to such effect). The liquidated damages pursuant to the terms hereof
         shall apply on a daily pro-rata basis for any portion of a month prior
         to the cure of an Event. Notwithstanding the foregoing, if the Event
         occurs solely by reason of the failure of any Holder to provide such
         information as (i) the Company may reasonably request from such Holder
         to be included in the Registration Statement or (ii) the Commission or
         Nasdaq may request in connection with such Registration Statement
         (which request was provided to the Holder in writing), the Company
         shall not be required to pay said amounts to any of the Holders.

                                       3
<PAGE>

         3. Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall:

                  (a) Not less than five Trading Days prior to the filing of the
         Registration Statement or any related Prospectus or any amendment or
         supplement thereto, the Company shall, (i) furnish to Holders' Counsel
         copies of all such documents proposed to be filed which documents will
         be subject to the review of Holders' Counsel, and (ii) cause its
         officers and directors, counsel and independent certified public
         accountants to respond to such inquiries as shall be necessary, in the
         reasonable opinion of Holders' Counsel, to conduct a reasonable
         investigation within the meaning of the Securities Act. The Company
         shall not file the Registration Statement or any such Prospectus or any
         amendments or supplements thereto to which the Holders of a majority of
         the Registrable Securities shall reasonably object in good faith,
         provided that the Company is notified of such objection in writing no
         later than 5 Trading Days after Holders' Counsel has been so furnished
         copies of such documents.

                  (b) (i) Prepare and file with the Commission such amendments,
         including post-effective amendments, to the Registration Statement and
         the Prospectus used in connection therewith as may be necessary to keep
         the Registration Statement continuously effective as to the applicable
         Registrable Securities for the Effectiveness Period and prepare and
         file with the Commission such additional Registration Statements in
         order to register for resale under the Securities Act all of the
         Registrable Securities; (ii) cause the related Prospectus to be amended
         or supplemented by any required Prospectus supplement, and as so
         supplemented or amended to be filed pursuant to Rule 424; (iii) respond
         as promptly as reasonably possible to any comments received from the
         Commission with respect to the Registration Statement or any amendment
         thereto and, as promptly as reasonably possible, upon request, provide
         Holders' Counsel true and complete copies of all correspondence from
         and to the Commission relating to the Registration Statement; and (iv)
         comply in all material respects with the provisions of the Securities
         Act and the Exchange Act with respect to the disposition of all
         Registrable Securities covered by the Registration Statement during the
         applicable period in accordance with the intended methods of
         disposition by the Holders thereof set forth in the Registration
         Statement as so amended or in such Prospectus as so supplemented.

                                       4
<PAGE>

                  (c) Notify Holders' Counsel of Registrable Securities to be
         sold as promptly as reasonably possible and (if requested by any such
         Person) confirm such notice in writing promptly following the day
         (i)(A) when a Prospectus or any Prospectus supplement or post-effective
         amendment to the Registration Statement is proposed to be filed; (B)
         when the Commission notifies the Company whether there will be a
         "review" of the Registration Statement and whenever the Commission
         comments in writing on the Registration Statement (the Company shall
         upon request provide true and complete copies thereof and all written
         responses thereto to each of Holders' Counsel); and (C) with respect to
         the Registration Statement or any post-effective amendment, when the
         same has become effective; (ii) of any request by the Commission 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 Prospectus or for
         additional information; (iii) of the issuance by the Commission or any
         other federal or state governmental authority of any stop order
         suspending the effectiveness of the Registration Statement covering any
         or all of the Registrable Securities or the initiation of any
         Proceedings for that purpose; (iv) of the receipt by the Company 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; and (v) of the occurrence of any event or
         passage of time that makes the financial statements included in the
         Registration Statement ineligible for inclusion therein or any
         statement made in the Registration Statement or Prospectus or any
         document incorporated or deemed to be incorporated therein by reference
         untrue in any material respect or that requires any revisions to the
         Registration Statement, Prospectus or other documents so that, in the
         case of the Registration Statement or the Prospectus, as the case may
         be, 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 light of the circumstances under
         which they were made, not misleading.

                  (d) Use commercially reasonable efforts to avoid the issuance
         of, or, if issued, obtain the withdrawal of (i) any order suspending
         the effectiveness of the Registration Statement, or (ii) any suspension
         of the qualification (or exemption from qualification) of any of the
         Registrable Securities for sale in any jurisdiction, at the earliest
         practicable moment.

                                       5
<PAGE>

                  (e) Furnish to each Holder, without charge, at least one
         conformed copy of the Registration Statement and each amendment
         thereto, including financial statements and schedules, all documents
         incorporated or deemed to be incorporated therein by reference to the
         extent requested by such Person, and all exhibits to the extent
         requested by such Person (including those previously furnished or
         incorporated by reference) promptly after the filing of such documents
         with the Commission.

                  (f) Promptly deliver to each Holder, without charge, as many
         copies of the Prospectus or Prospectuses (including each form of
         prospectus) and each amendment or supplement thereto as such Persons
         may reasonably request in connection with resales by the Holder of
         Registrable Securities. Subject to the terms of this Agreement, the
         Company hereby consents to the use of such Prospectus and each
         amendment or supplement thereto by each of the selling Holders in
         connection with the offering and sale of the Registrable Securities
         covered by such Prospectus and any amendment or supplement thereto,
         except after the giving on any notice pursuant to Section 3(c).

                  (g) Prior to any resale of Registrable Securities by a Holder,
         use its commercially reasonable efforts to register or qualify or
         cooperate with the selling Holders in connection with the registration
         or qualification (or exemption from the Registration or qualification)
         of such Registrable Securities for the resale by the Holder under the
         securities or Blue Sky laws of such jurisdictions within the United
         States as any Holder reasonably requests in writing, to keep each the
         Registration or qualification (or exemption therefrom) effective during
         the Effectiveness Period and to do any and all other acts or things
         reasonably necessary to enable the disposition in such jurisdictions of
         the Registrable Securities covered by the Registration Statement;
         provided, that the Company shall not be required to qualify generally
         to do business in any jurisdiction where it is not then so qualified,
         subject the Company to any material tax in any such jurisdiction where
         it is not then so subject or file a general consent to service of
         process in any such jurisdiction.

                  (h) If requested by the Holders, cooperate with the Holders to
         facilitate the timely preparation and delivery of certificates
         representing Registrable Securities to be delivered to a transferee
         pursuant to the Registration Statement, which certificates shall be
         free, to the extent permitted by the Purchase Agreement, of all
         restrictive legends, and to enable such Registrable Securities to be in
         such denominations and registered in such names as any such Holders may
         reasonably request.

                  (i) Upon the occurrence of any event contemplated by Section
         3(c)(v), as promptly as reasonably possible, prepare a supplement or
         amendment, including a post-effective amendment, to the Registration
         Statement or a supplement to the related Prospectus or any document
         incorporated or deemed to be incorporated therein by reference, and
         file any other required document so that, as thereafter delivered,
         neither the Registration Statement nor such Prospectus will contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein, in light of the circumstances under which they were made, not
         misleading. If the Company notifies the Holders in accordance with
         clauses (ii) through (v) of Section 3(c) above to suspend the use of
         the use of any Prospectus until the requisite changes to such
         Prospectus have been made, then the Holders shall suspend use of such
         Prospectus. The Company will use its best efforts to ensure that the
         use of the Prospectus may be resumed as promptly as is practicable. The
         Company shall be entitled to exercise its right under this Section 3(i)
         to suspend the availability of a Registration Statement and Prospectus,
         subject to the payment of liquidated damages pursuant to Section 2(b),
         for a period not to exceed 60 days (which need not be consecutive days)
         in any 12 month period.

                                       6
<PAGE>

                  (j) Comply with all applicable rules and regulations of the
         Commission.

                  (k) The Company may require each Holder to furnish to the
         Company a certified statement as to the number of shares of Common
         Stock beneficially owned by such Holder and, if required by the
         Commission, the person thereof that has voting and dispositive control
         over the Shares. During any periods that the Company is unable to meet
         its obligations hereunder with respect to the registration of the
         Registrable Securities solely because any Holder fails to furnish such
         information within three Trading Days of the Company's request, any
         liquidated damages that are accruing at such time shall be tolled and
         any Event that may otherwise occur solely because of such delay shall
         be suspended, until such information is delivered to the Company.

         4. Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

         5. Indemnification

                                       7
<PAGE>

                  (a) Indemnification by the Company. The Company shall,
         notwithstanding any termination of this Agreement, indemnify and hold
         harmless each Holder, the officers, directors, agents and employees of
         each of them, each Person who controls any such Holder (within the
         meaning of Section 15 of the Securities Act or Section 20 of the
         Exchange Act) and the officers, directors, agents and employees of each
         such controlling Person, to the fullest extent permitted by applicable
         law, from and against any and all losses, claims, damages, liabilities,
         costs (including, without limitation, reasonable attorneys' fees) and
         expenses (collectively, "Losses"), as determined by a court of
         competent jurisdiction in a final judgment not subject to appeal or
         review, arising out of or relating to any untrue or alleged untrue
         statement of a material fact contained in the Registration Statement,
         any Prospectus or any form of prospectus or in any amendment or
         supplement thereto or in any preliminary prospectus, or arising out of
         or relating to any omission or alleged omission of a material fact
         required to be stated therein or necessary to make the statements
         therein (in the case of any Prospectus or form of prospectus or
         supplement thereto, in light of the circumstances under which they were
         made) not misleading, except to the extent, but only to the extent,
         that (i) such untrue statements or omissions or alleged untrue
         statements or omissions are based upon information regarding such
         Holder furnished in writing to the Company by such Holder for use
         therein, or to the extent that such information relates to such Holder
         or such Holder's proposed method of distribution of Registrable
         Securities and was reviewed and expressly approved in writing by such
         Holder or Holders' Counsel for use in the Registration Statement, such
         Prospectus or such form of Prospectus or in any amendment or supplement
         thereto (it being understood that the Holder has approved Annex A
         hereto for this purpose) or (ii) in the case of an occurrence of an
         event of the type specified in Section 3(c)(ii)-(v), the use by such
         Holder of an outdated or defective Prospectus after the Company has
         notified such Holder in writing that the Prospectus is outdated or
         defective and prior to the receipt by such Holder of the Advice
         contemplated in Section 6(d). The Company shall notify the Holders
         promptly of the institution, threat or assertion of any Proceeding of
         which the Company is aware in connection with the transactions
         contemplated by this Agreement.

                  (b) Indemnification by Holders. Each Holder shall,
         notwithstanding any termination of this Agreement, severally and not
         jointly, indemnify and hold harmless the Company, its directors,
         officers, agents and employees, each Person who controls the Company
         (within the meaning of Section 15 of the Securities Act and Section 20
         of the Exchange Act), and the directors, officers, agents or employees
         of such controlling Persons, to the fullest extent permitted by
         applicable law, from and against all Losses, as incurred, to the extent
         arising out of or based upon: (x) such Holder's failure to comply with
         the prospectus delivery requirements of the Securities Act or (y) as
         determined by a court of competent jurisdiction in a final judgment not
         subject to appeal or review, any untrue or alleged untrue statement of
         a material fact contained in any Registration Statement, any
         Prospectus, or any form of prospectus, or in any amendment or
         supplement thereto or in any preliminary prospectus, or arising out of
         or relating to any omission or alleged omission of a material fact
         required to be stated therein or necessary to make the statements
         therein (in the case of any Prospectus or form of prospectus or
         supplement thereto, in light of the circumstances under which they were
         made) not misleading (i) to the extent, but only to the extent, that
         such untrue statement or omission is contained in any information so
         furnished in writing by such Holder to the Company for inclusion in the
         Registration Statement or such Prospectus or (ii) to the extent, but
         only to the extent that (1) such untrue statements or omissions or
         alleged untrue statements or omissions are based upon information
         regarding such Holder furnished in writing to the Company by such
         Holder for use therein, or to the extent that such information relates
         to such Holder or such Holder's proposed method of distribution of
         Registrable Securities and was reviewed and expressly approved in
         writing by such Holder or Holders' Counsel for use in the Registration
         Statement, such Prospectus or such form of Prospectus or any amendment
         or supplement thereto (it being understood that the Holder has approved
         Annex A hereto for this purpose) or (2) the use by such Holder of an
         outdated or defective Prospectus after the Company has notified such
         Holder in writing that the Prospectus is outdated or defective and
         prior to the receipt by such Holder of the Advice contemplated in
         Section 6(d). In no event shall the liability of any selling Holder
         hereunder be greater in amount than the dollar amount of the net
         proceeds received by such Holder upon the sale of the Registrable
         Securities giving rise to such indemnification obligation.

                                       8
<PAGE>

                  (c) Conduct of Indemnification Proceedings. If any Proceeding
         shall be brought or asserted against any Person entitled to indemnity
         hereunder (an "Indemnified Party"), such Indemnified Party shall
         promptly notify the Person from whom indemnity is sought (the
         "Indemnifying Party") in writing, and the Indemnifying Party shall have
         the right to assume the defense thereof, including the employment of
         counsel reasonably satisfactory to the Indemnified Party and the
         payment of all fees and expenses incurred in connection with defense
         thereof; provided, that the failure of any Indemnified Party to give
         such notice shall not relieve the Indemnifying Party of its obligations
         or liabilities pursuant to this Agreement, except (and only) to the
         extent that it shall be finally determined by a court of competent
         jurisdiction (which determination is not subject to appeal or further
         review) that such failure shall have prejudiced the Indemnifying Party.

                  An Indemnified Party shall have the right to employ separate
         counsel in any such Proceeding and to participate in the defense
         thereof, but the fees and expenses of such counsel shall be at the
         expense of such Indemnified Party or Parties unless: (1) the
         Indemnifying Party has agreed in writing to pay such fees and expenses;
         (2) the Indemnifying Party shall have failed promptly to assume the
         defense of such Proceeding and to employ counsel reasonably
         satisfactory to such Indemnified Party in any such Proceeding; or (3)
         the named parties to any such Proceeding (including any impleaded
         parties) include both such Indemnified Party and the Indemnifying
         Party, and such Indemnified Party shall have been advised by counsel
         that a conflict of interest is likely to exist if the same counsel were
         to represent such Indemnified Party and the Indemnifying Party (in
         which case, if such Indemnified Party notifies the Indemnifying Party
         in writing that it elects to employ separate counsel at the expense of
         the Indemnifying Party, the Indemnifying Party shall not have the right
         to assume the defense thereof and the reasonable fees and expenses of
         one separate counsel shall be at the expense of the Indemnifying
         Party). The Indemnifying Party shall not be liable for any settlement
         of any such Proceeding effected without its written consent, which
         consent shall not be unreasonably withheld. No Indemnifying Party
         shall, without the prior written consent of the Indemnified Party,
         effect any settlement of any pending Proceeding in respect of which any
         Indemnified Party is a party, unless such settlement includes an
         unconditional release of such Indemnified Party from all liability on
         claims that are the subject matter of such Proceeding.

                                       9
<PAGE>

                  Subject to the terms of this Agreement, all reasonable fees
         and expenses of the Indemnified Party (including reasonable fees and
         expenses to the extent incurred in connection with investigating or
         preparing to defend such Proceeding in a manner not inconsistent with
         this Section) shall be paid to the Indemnified Party, as incurred,
         within ten Trading Days of written notice thereof to the Indemnifying
         Party; provided, that the Indemnified Party shall promptly reimburse
         the Indemnifying Party for that portion of such fees and expenses
         applicable to such actions for which such Indemnified Party is not
         entitled to indemnification hereunder, determined based upon the
         relative faults of the parties.

                  (d) Contribution. If a claim for indemnification under Section
         5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
         public policy or otherwise), then each Indemnifying Party, in lieu of
         indemnifying such Indemnified Party, shall contribute to the amount
         paid or payable by such Indemnified Party as a result of such Losses,
         in such proportion as is appropriate to reflect the relative fault of
         the Indemnifying Party and Indemnified Party in connection with the
         actions, statements or omissions that resulted in such Losses as well
         as any other relevant equitable considerations. The relative fault of
         such Indemnifying Party and Indemnified Party shall be determined by
         reference to, among other things, whether any action in question,
         including any untrue or alleged untrue statement of a material fact or
         omission or alleged omission of a material fact, has been taken or made
         by, or relates to information supplied by, such Indemnifying Party or
         Indemnified Party, and the parties' relative intent, knowledge, access
         to information and opportunity to correct or prevent such action,
         statement or omission. The amount paid or payable by a party as a
         result of any Losses shall be deemed to include, subject to the
         limitations set forth in this Agreement, any reasonable attorneys' or
         other reasonable fees or expenses incurred by such party in connection
         with any Proceeding to the extent such party would have been
         indemnified for such fees or expenses if the indemnification provided
         for in this Section was available to such party in accordance with its
         terms.

                  The parties hereto agree that it would not be just and
         equitable if contribution pursuant to this Section 5(d) were determined
         by pro rata allocation or by any other method of allocation that does
         not take into account the equitable considerations referred to in the
         immediately preceding paragraph. Notwithstanding the provisions of this
         Section 5(d), no Holder shall be required to contribute, in the
         aggregate, any amount in excess of the amount by which the proceeds
         actually received by such Holder from the sale of the Registrable
         Securities subject to the Proceeding exceeds the amount of any damages
         that such Holder has otherwise been required to pay by reason of such
         untrue or alleged untrue statement or omission or alleged omission,
         except in the case of fraud by such Holder.

                  The indemnity and contribution agreements contained in this
         Section are in addition to any liability that the Indemnifying Parties
         may have to the Indemnified Parties.

                                       10
<PAGE>

         6. Miscellaneous

                  (a) Remedies. In the event of a breach by the Company or by a
         Holder, of any of their obligations under this Agreement, each Holder
         or the Company, as the case may be, in addition to being entitled to
         exercise all rights granted by law and under this Agreement, including
         recovery of damages, will be entitled to specific performance of its
         rights under this Agreement. The Company and each Holder agree that
         monetary damages would not provide adequate compensation for any losses
         incurred by reason of a breach by it of any of the provisions of this
         Agreement and hereby further agrees that, in the event of any action
         for specific performance in respect of such breach, it shall waive the
         defense that a remedy at law would be adequate.

                  (b) No Piggyback on Registrations. Except as set forth on
         Schedule 6(b) attached hereto, neither the Company nor any of its
         security holders (other than the Holders in such capacity pursuant
         hereto) may include securities of the Company in the Registration
         Statement other than the Registrable Securities, and the Company shall
         not after the date hereof enter into any agreement providing any such
         right to any of its security holders. Except as set forth in the SEC
         Reports and Disclosure Schedules of the Purchase Agreement, no Person
         has any right to cause the Company to effect the registration under the
         Securities Act of any securities of the Company. The Company shall not
         file any other registration statement until after the Effective Date
         other than amendments to its registration statement on Form S-1,
         Registration Statement Number 333-36022.

                  (c) Compliance. Each Holder covenants and agrees that it will
         comply with the prospectus delivery requirements of the Securities Act
         as applicable to it in connection with sales of Registrable Securities
         pursuant to the Registration Statement.

                  (d) Discontinued Disposition. Each Holder agrees by its
         acquisition of such Registrable Securities that, upon receipt of a
         notice from the Company of the occurrence of any event of the kind
         described in Section 3(c), such Holder will forthwith discontinue
         disposition of such Registrable Securities under the Registration
         Statement until such Holder's receipt of the copies of the supplemented
         Prospectus and/or amended Registration Statement or until it is advised
         in writing (the "Advice") by the Company that the use of the applicable
         Prospectus may be resumed, and, in either case, has received copies of
         any additional or supplemental filings that are incorporated or deemed
         to be incorporated by reference in such Prospectus or Registration
         Statement. The Company may provide appropriate stop orders to enforce
         the provisions of this paragraph.

                  (e) Piggy-Back Registrations. If at any time during the
         Effectiveness Period there is not an effective Registration Statement
         covering all of the Registrable Securities and the Company shall
         determine to prepare and file with the Commission a registration
         statement relating to an offering for its own account or the account of
         others under the Securities Act of any of its equity securities, other
         than on Form S-4 or Form S-8 (each as promulgated under the Securities
         Act) or their then equivalents relating to equity securities to be
         issued solely in connection with any acquisition of any entity or
         business or equity securities issuable in connection with the stock
         option or other employee benefit plans, then the Company shall send to
         each Holder a written notice of such determination and, if within
         fifteen days after the date of such notice, any such Holder shall so
         request in writing, the Company shall include in such registration
         statement all or any part of such Registrable Securities such Holder
         requests to be registered, subject to customary underwriter cutbacks
         applicable to all holders of registration rights; provided, that, the
         Company shall not be required to register any Registrable Securities
         pursuant to this Section 6(e) that are eligible for resale pursuant to
         Rule 144(k) promulgated under the Securities Act or that are the
         subject of a then effective Registration Statement

                                       11
<PAGE>

                  (f) Amendments and Waivers. The provisions of this Agreement,
         including the provisions of this sentence, may not be amended, modified
         or supplemented, and waivers or consents to departures from the
         provisions hereof may not be given, unless the same shall be in writing
         and signed by the Company and each Holder of the then outstanding
         Registrable Securities. Notwithstanding the foregoing, a waiver or
         consent to depart from the provisions hereof with respect to a matter
         that relates exclusively to the rights of certain Holders and that does
         not directly or indirectly affect the rights of other Holders may be
         given by Holders of all of the Registrable Securities to which such
         waiver or consent relates.

                  (g) Notices. Any and all notices or other communications or
         deliveries required or permitted to be provided hereunder shall be made
         in accordance with the provisions of the Purchase Agreement.

                  (h) Successors and Assigns. This Agreement shall inure to the
         benefit of and be binding upon the successors and permitted assigns of
         each of the parties and shall inure to the benefit of each Holder. Each
         Holder may assign their respective rights hereunder in the manner and
         to the Persons as permitted under the Purchase Agreement.

                  (i) Execution and Counterparts. This Agreement may be executed
         in any number of counterparts, each of which when so executed shall be
         deemed to be an original and, all of which taken together shall
         constitute one and the same Agreement. In the event that any signature
         is delivered by facsimile transmission, such signature shall create a
         valid binding obligation of the party executing (or on whose behalf
         such signature is executed) the same with the same force and effect as
         if such facsimile signature were the original thereof.

                  (j) Governing Law. All questions concerning the construction,
         validity, enforcement and interpretation of this Agreement shall be
         determined with the provisions of the Purchase Agreement.

                  (k) Cumulative Remedies. The remedies provided herein are
         cumulative and not exclusive of any remedies provided by law.

                  (l) Severability. If any term, provision, covenant or
         restriction of this Agreement is held by a court of competent
         jurisdiction to be invalid, illegal, void or unenforceable, the
         remainder of the terms, provisions, covenants and restrictions set
         forth herein shall remain in full force and effect and shall in no way
         be affected, impaired or invalidated, and the parties hereto shall use
         their commercially reasonable efforts to find and employ an alternative
         means to achieve the same or substantially the same result as that
         contemplated by such term, provision, covenant or restriction. It is
         hereby stipulated and declared to be the intention of the parties that
         they would have executed the remaining terms, provisions, covenants and
         restrictions without including any of such that may be hereafter
         declared invalid, illegal, void or unenforceable.

                                       12
<PAGE>

                  (m) Headings. The headings in this Agreement are for
         convenience of reference only and shall not limit or otherwise affect
         the meaning hereof.

                  (n) Independent Nature of Purchasers' Obligations and Rights.
         The obligations of each Purchaser hereunder are several and not joint
         with the obligations of any other Purchaser hereunder, and no Purchaser
         shall be responsible in any way for the performance of the obligations
         of any other Purchaser hereunder. Nothing contained herein or in any
         other agreement or document delivered at any closing, and no action
         taken by any Purchaser pursuant hereto or thereto, shall be deemed to
         constitute the Purchasers as a partnership, an association, a joint
         venture or any other kind of entity, or create a presumption that the
         Purchasers are in any way acting in concert with respect to such
         obligations or the transactions contemplated by this Agreement. Each
         Purchaser shall be entitled to protect and enforce its rights,
         including without limitation the rights arising out of this Agreement,
         and it shall not be necessary for any other Purchaser to be joined as
         an additional party in any proceeding for such purpose.

                            *************************

                                       13
<PAGE>

                  IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.

                                  STEELCLOUD, INC.

                                  By:
                                      --------------------------------------
                                      Name:  Kevin Murphy
                                      Title:  Executive Vice President - Finance

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       14
<PAGE>

                       [SIGNATURE PAGE OF HOLDERS TO RRA]

                                  BONANZA CAPITAL MASTER FUND LTD.

                                  By:
                                      --------------------------------------
                                       Name:
                                       Title:

                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                       15
<PAGE>

                       [SIGNATURE PAGE OF HOLDERS TO RRA]

                                    [PURCHASER]

                                  By:
                                      --------------------------------------
                                       Name:
                                       Title:

                                       16
<PAGE>

                                     ANNEX A

                              Plan of Distribution

         The Selling Stockholders (the "Selling Stockholders") of the common
stock ("Common Stock") of SteelCloud, Inc. (the "Company") and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of Common Stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholders may use any one
or more of the following methods when selling shares:

         o        ordinary brokerage transactions and transactions in which the
                  broker-dealer solicits purchasers;

         o        block trades in which the broker-dealer will attempt to sell
                  the shares as agent but may position and resell a portion of
                  the block as principal to facilitate the transaction;

         o        purchases by a broker-dealer as principal and resale by the
                  broker-dealer for its account;

         o        an exchange distribution in accordance with the rules of the
                  applicable exchange;

         o        privately negotiated transactions;

         o        settlement of short sales entered into after the date of this
                  prospectus;

         o        broker-dealers may agree with the Selling Stockholders to sell
                  a specified number of such shares at a stipulated price per
                  share;

         o        a combination of any such methods of sale; and

         o        any other method permitted pursuant to applicable law.

         The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.

         Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

         The Selling Stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of Selling Stockholders to include the pledgee, transferee or
other successors in interest as Selling Stockholders under this prospectus.

                                       17
<PAGE>

         The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.

                                       18

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