Document:

DATA
      SYSTEMS & SOFTWARE INC. 

    

    SUBSCRIPTION
      AGREEMENT

    

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

    

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

    

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

    

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

    

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

    

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

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

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

    

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

    

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

    

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

    

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

    

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

    
      
         

      

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

    

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

    

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

    

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

    

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

    
      
         

      

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

    

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

    

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

     

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

    

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

    

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

    

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

    

     

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

    
      
         

      

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    
      
         

      

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

    

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

    

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

    

    (a) The
      Company and its Controlled Subsidiaries, are (a) corporations duly organized,
      validly existing and in good standing under the laws of their respective states
      of incorporation, each have full power and authority to own or lease all of
      the
      assets owned or leased by each of them and to conduct their respective business
      as described in the Memorandum and (b) are duly qualified to do business and
      in
      good standing as a foreign corporation in all jurisdictions in which the nature
      of the activities conducted or the character of the assets owned or leased
      makes
      such qualification necessary, except where the failure to be so qualified would
      not have a material adverse effect on the Company's presently conducted business
      (taken as a whole with the business of the Controlled Subsidiaries). The term
      “Controlled Subsidiaries” means any corporation or other organization in which
      the Company owns, directly or indirectly, an equity or other ownership interest
      equal to or greater than 50 percent.

    

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

    

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

    
      
         

      

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

    

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

    

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

    
      
         

      

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

    

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

    

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

    

    (j) The
      outstanding options, warrants and other convertible securities of the Company
      are as set forth in the Memorandum and the Company’s SEC Reports (collectively,
      the “Company
      Documents).
      Neither
      the Company nor any subsidiary is a party to an agreement, instrument or
      understanding which calls for, and no securities of the Company or any
      subsidiary contain provisions relating to, the
      resetting or repricing
      of any debt or equity security instrument of the Company or any Subsidiary.
      The
      issuance of the Securities or the consummation of the Offering will not trigger
      any resetting or repricing of any debt or equity security instrument of the
      Company or any Subsidiary and will not result in any preemptive rights to
      acquire securities of the Company in favor of any third party.

    
      
         

      

      
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    (k) Neither
      the Company nor any of its subsidiaries are (i) in violation of its certificate
      of incorporation or by-laws, (ii) to the best knowledge of the Company, in
      violation of any statute, law, rule, code, administrative regulation, ordinance,
      judgment, order or decree of any government, governmental instrumentality,
      court, domestic or foreign, or arbitration panel or other body applicable to
      it
      where such violation would have a material adverse effect or (iii) to the best
      knowledge of the Company, in default in the performance or observance of any
      obligation, agreement, covenant or condition contained in any indenture,
      mortgage, deed of trust, voting agreement, voting trust agreement, loan
      agreement, bond, debenture, note or other evidence of indebtedness, lease,
      sublease, license agreement, contract or other agreement or instrument to which
      it is a party or by which it or any of its respective properties are bound
      or
      affected (“contracts”), where such defaults, singly or in the aggregate, would
      have a material adverse effect. To the knowledge of the Company, no other party
      under any contract is in default in any material respect thereunder which
      affects the Company or any subsidiary.

    

    (l)
      The
      Company and its subsidiaries (A) has paid all federal, state, local and foreign
      taxes for which it is liable and has furnished all information returns it is
      required to furnish pursuant to the Internal Revenue Code of 1986, as amended,
      (B) has established adequate reserves for such taxes which are not due and
      payable and (C) does not have any tax deficiency or claims outstanding, proposed
      or assessed against it.

    

    (m) The
      Company and the subsidiaries maintain a system of internal accounting and other
      controls sufficient to provide reasonable assurances that: (i) transactions
      are
      executed in accordance with management’s general or specific authorizations,
      (ii) transactions are recorded as necessary to permit preparation of reliable
      financial statements in conformity with United States generally accepted
      accounting principles and to maintain accountability for assets, (iii) access
      to
      assets is permitted only in accordance with management’s general or specific
      authorization, and (iv) the recorded accounting for assets is compared with
      existing assets at reasonable intervals and appropriate action is taken with
      respect to any material differences.

    

    (n)
      The
      Company is in compliance with applicable requirements of the Sarbanes-Oxley
      Act
      of 2002 and applicable rules and regulations promulgated by the Commission
      thereunder in effect as of the date of this Agreement, except where such
      noncompliance could not be reasonably expected to have, individually or in
      the aggregate, a material adverse effect upon the Company.

    

    

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

    

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

    
      
         

      

      
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    6. Anti-Dilution
      Adjustments; Right of Participation.
      

    

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

     

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

    

    
      	
              A

            	
              =

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

            
	 	 	
              Share
                Anti-dilution Price

            
	 	 	
              And

            
	
              B

            	
              =

            	
              The
                number of Shares acquired by such investor in this Offering
                

            

    

    

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

    

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

    

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

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    

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

     

    7. Patriot
      Act Compliance

    

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

     

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

     

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

          

     

    	(2)  	
            A
              Foreign Shell Bank; or

          

     

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

          

     

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

     

    (c)  The
      undersigned represents that:

     

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

          

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

     

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

          

     

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

          

     

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

     

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

     

    FATF:
      The
      Financial Action Task Force on Money Laundering.

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    8. Miscellaneous.

    

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

    

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

    

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

    

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

    

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

    

    If
      to the
      Company, at:

    

    200
      Route
      17

    Mahwah,
      NJ 07430

    Attn.:
      John A. Moore, Chief Executive Officer 

    

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

    

    If
      to
      First Montauk Securities Corp. at:

    

    Parkway
      109 Office Center

    Red
      Bank,
      New Jersey 07701

    Tel
      No.:
      732-842-4700

    Attn:
      Chief Compliance Officer 

    

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

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    

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

    

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

    

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

    

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

    

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

    

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

    

    

    

    [Signature
      Pages Follow]

    

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    Signature
      Page for Individuals:

    

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

    

     

      
        	
                $

              	 
	
                Purchase
                  Price

              	
                Number
                  of Shares

              
	 	 
	
                Print
                  or Type Name

              	
                Print
                  or Type Name (Joint-owner)

              
	 	 
	
                Signature

              	
                Signature
                  (Joint-owner)

              
	 	 
	
                Date

              	
                Date
                  (Joint-owner)

              
	 	 
	
                Social
                  Security Number

              	
                Social
                  Security Number (Joint-owner)

              
	 	 
	 	 
	
                Address

              	
                Address
                  (Joint-owner)

              

      

    

     

    

    _______
      Joint Tenancy   ______
      Tenants in Common

    

    

    Wiring
      Instructions:

    

    

    
      	
              Bank
                Name:

            	 	
              Signature
                Bank

            
	
              ABA
                #:

            	 	
              0260135176

            
	
              Tel
                Number

            	 	
              646-822-1361

            
	
              Address

            	 	
              261
                Madison Avenue, New York, New York 10016

            
	
              Acct
                #:

            	 	
              1500768270

            
	
              Acct.
                Name: 

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

            
	
              Reference

            	 	 

    

    

    

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    Signature
      Page for Partnerships, Corporations or Other Entities:

    

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

    

    

    $
      ______________________    __________________________

    Total
      Purchase Price    Number
      of
      Shares

    

    _____________________________________________________________________________

    Print
      or
      Type Name of Entity

    

    ______________________________________________________________________________

    Address

    

    ____________________________________ 
____________________________________

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

    

    

    By:
      ____________________________________ ____________________________________

    Signature:
      Name:         Print
      or
      Type Name and Indicate

     
        Title:          Title
      or
      Position with Entity  

    

    

    ____________________________________ ____________________________________

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

     
                    Title
      or Position with Entity  

    

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

    

    Wiring
      Instructions:

    

    
      	
              Bank
                Name:

            	 	
              Signature
                Bank

            
	
              ABA
                #:

            	 	
              0260135176

            
	
              Tel
                Number

            	 	
              646-822-1361

            
	
              Address

            	 	
              261
                Madison Avenue, New York, New York 10016

            
	
              Acct
                #:

            	 	
              1500768270

            
	
              Acct.
                Name: 

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

            
	
              Reference

            	 	 

    

    

    
      
         

      

      
        17

        
          

        

      

      
         

        
          

        

      

    

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

    

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

    

    

    DATA
      SYSTEMS & SOFTWARE, INC.

    

    

    By:
      __________________________________

    Name:

    Title:

    

    

    

    Date:
      __________________________, 2006

    

    

    

    
      	 	 	 
	
              Name
                of Subscriber

            	 	 
	
               

              $

            	 	 
	
              Total
                Purchase Price

            	 	
              Number
                of Shares

            

    

    

    
      
         

      

      
        18

        
          

        

      

      
         

        
          

        

      

    

    Annex
      A

    

    Registration
      Rights

    

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

    

    1. Definitions.

    

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

    

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

    

    Commission:
      The
      United States Securities and Exchange Commission.

    

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

    

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

    

    Holder
      or
Holders:
      Any
      holder of the Registrable Securities.

    

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

    

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

    

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

    

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

    
      
         

      

      
        A-2

        
          

        

      

      
         

      

    

    

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

    

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

    

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

    

    

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

    

    2. Registration
      Rights.

    

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

    

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

    
      
         

      

      
        A-3

        
          

        

      

      
         

      

    

    

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

    

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

    

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

    

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

    

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

    

    

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

    

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

    
      
         

      

      
        A-4

        
          

        

      

      
         

      

    

    

    3. Registration
      Procedures.

    

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

    

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

    

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

    

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

    
      
         

      

      
        A-5

        
          

        

      

      
         

      

    

    

    

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

    

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

    

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

    

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

    

    

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

    
      
         

      

      
        A-6

        
          

        

      

      
         

      

    

    

    4. Registration
      Expenses.

    

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

    

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

    

    5. Indemnification;
      Contribution.

    

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

    
      
         

      

      
        A-7

        
          

        

      

      
         

      

    

    

    

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

    

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

    
      
         

      

      
        A-8

        
          

        

      

      
         

      

    

    

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

    

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

    

    6. Transfer
      of Rights.

    

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

    

    7. Amendment

    

    Except
      as
      otherwise provided herein, the provisions hereof may not be amended, modified
      or
      supplemented, and waivers or consents to departures from the provisions hereof
      may not be given unless the Company has obtained the written consent of Holders
      of at least a majority of the aggregate number of the Registrable Securities
      then outstanding.EXHIBIT
        10.2

      

      Data
        Systems & Software Inc.

      

      PLACEMENT
        AGENT AGREEMENT

      

      June
        12,
        2006

      

      First
        Montauk Securities Corp.

      Parkway
        109 Office Center

      328
        Newman Springs Road

      Red
        Bank,
        New Jersey 07701

      

      Ladies
        and Gentlemen:

       

      Data
        Systems & Software Inc., a Delaware corporation (the “Company” or “DSSI”),
        proposes to offer for sale (the "Offering") in a private offering pursuant
        to
        Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and/or
        Regulation D promulgated thereunder, shares of its Common Stock, par value
        $.01
        per share (“Shares”) and (ii) warrants for purchase of Shares (“Warrants”). The
        Shares and Warrants to be offered and sold are sometimes referred to herein
        as
        the “Securities”. The Offering is being conducted on a “best efforts” basis
        (with no minimum gross proceeds) for up to $3,000,000 of gross proceeds (the
        “Maximum Offering”). Offers and sales of the Securities shall be made solely to
        Accredited Investors (as defined in Regulation D). This letter agreement
        shall
        confirm our agreement concerning First Montauk Securities Corp. acting as
        our
        placement agent (the “Placement Agent” or “First Montauk”) in connection with
        the sale of the Securities. 

      

      l.
        Appointment of Placement Agent.

      

      On
        the
        basis of the representations and warranties contained herein, and subject
        to the
        terms and conditions set forth herein, the Company hereby appoints First
        Montauk
        as its Placement Agent and grants to First Montauk the exclusive right to
        offer,
        as its agent, the Securities through the period of the Offering, as such
        period
        may be extended in accordance with Section 2(c) below (the “Exclusive Period”).
        The Company expressly acknowledges and agrees that First Montauk's obligations
        hereunder are not on a firm commitment basis and that the execution of this
        Agreement does not constitute a commitment by First Montauk to purchase the
        Securities and does not ensure the successful placement of the Securities
        or any
        portion thereof. Further, First Montauk's obligation to use its best efforts
        to
        assist the Company in the Offering is subject to the completion of a due
        diligence review of the Company, the industry and the market for such securities
        generally, as well as general market conditions. On the basis of such
        representations and warranties, and subject to such conditions, First Montauk
        hereby accepts such appointment and agrees to use its reasonable commercial
        efforts to secure subscriptions for the purchase of Securities up to the
        Maximum
        Offering. 

      

      2. Terms
        of
        the Offering. 

      

      (a)
        The
        Company has prepared and delivered to the Placement Agent copies of a
        Confidential Private Placement Memorandum (as may be amended from time to
        time,
        and including the exhibits thereto, the “Memorandum”), relating to, among other
        things, the business of the Company, its financial condition, the Securities
        and
        the terms of Offering. 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      

      (b)
         
        Pursuant
        to the Offering as further described in the Memorandum the Company intends
        to
        offer Shares with an aggregate purchase price of $3,000,000. The purchase
        price
        per Share in the Offering shall be $2.65 (the “Purchase Price”). In addition,
        each purchaser in the Offering will receive Warrants equal to 25% of the
        number
        of Shares purchased (“Investor Warrants”). The Investor Warrants will have a
        term of five (5) years and will be exercisable at an exercise price of $2.78
        per
        Share. The investors shall be entitled to such “registration rights”,
        anti-dilution protection, future participation rights and other rights as
        are
        described in the Offering Documents (as defined below).

      

      (c)
         The
        Offering shall commence on the date hereof and shall expire at 3:00 p.m.,
        New
        York time, on July 12, 2006 and may be extended at the discretion of the
        Placement Agent and the Company up to August 11, 2006, or any date prior
        thereto. Such period, as the same may be so extended, shall hereinafter be
        referred to as the “Offering Period.” 

      

      (d)
         Each
        prospective investor (“Prospective Investor”) who desires to purchase Securities
        shall deliver to the Placement Agent a fully executed Subscription Agreement,
        Investor Questionnaire ), and such other agreements as are required to be
        signed
        in connection with the Offering (together with the Memorandum, Subscription
        Agreement, Investor Questionnaire, and other exhibits thereto, the “Offering
        Documents”) along with payment in the form of immediately available funds in the
        amount necessary to purchase the number of Securities such Prospective Investor
        desires to purchase. Upon receipt of the executed Offering Documents, the
        Placement Agent shall forward such documents to the Company for review, keeping
        a copy of such documents for its records. The Placement Agent shall not have
        any
        obligation to independently verify the accuracy or completeness of any
        information contained in any Subscription Agreement or the authenticity,
        sufficiency, or validity of any check delivered by any Prospective Investor
        in
        payment for Securities.

      

      (e)
         The
        Placement Agent shall deliver all subscription funds received from a Prospective
        Investor to Signature Bank for deposit in a segregated escrow account pursuant
        to an escrow deposit agreement among the Company, Placement Agent and Signature
        Bank, as escrow agent, and shall deliver the executed copies of the Subscription
        Agreement received from such Prospective Investor to the Company. All funds
        shall be held in the segregated non-interest-bearing account pending acceptance
        of the subscription and no funds shall be released without execution of a
        written notice by the Company and the Placement Agent. The Company shall
        notify
        the Placement Agent promptly of the acceptance or rejection or any
        subscription.

      

      (f)
         Subject
        to the approval of the Company and the conditions set forth herein, which
        approval shall not be unreasonably withheld, First Montauk may engage other
        persons selected by First Montauk to assist First Montauk in the Offering
        (each
        such broker/dealers being hereinafter referred to as a “Selling Group Member”)
        and First Montauk may allow such Selling Group Member such part of the
        compensation and payment of expenses payable to First Montauk under Section
        5
        hereof as First Montauk shall determine. Any such Selling Group Member shall
        be
        a member firm in good standing as a broker-dealer under the rules of the
        NASD.
        The Company hereby agrees to make such representations and warranties to,
        and
        covenants and agreements with, any Selling Group Member (including an agreement
        to indemnify such Selling Group Member on terms substantially similar to
        Section
        12 hereof) as provided herein.

      

      3.
        Closings: Release of Funds.

      

      (a)
         The
        date
        that the parties determine to hold an initial closing for acceptance of
        subscriptions by the Company and funds are released from the escrow account
        shall be deemed the “Initial Closing”. There is no minimum amount of securities
        which are required to be sold prior to the Initial Closing. At least one
        (1) day
        prior to the release of funds, the Company and the Placement Agent shall
        send
        written notice to each other, which notice shall state the amount of funds
        to be
        released, the name and address of each subscriber whose subscription has
        been
        accepted by the Company, and the amount of each subscription.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      

      

      (b) At
        any
        time prior to the expiration of the Offering Period following the Initial
        Closing and after acceptance by the Company of subscriptions for the sale
        of
        additional Securities up to the Maximum Offering, one or more closings (each
        an
        "Interim Closing") shall take place in the manner herein set forth with respect
        to the Initial Closing. The final Interim Closing to be held in accordance
        herewith shall be deemed the “Final Closing” and the date thereof shall be the
”Final Closing Date”. References herein to a "Closing" shall mean the Initial
        Closing, any Interim Closing or the Final Closing, as the context requires,
        and
        the date thereof shall be referred to as a ”Closing Date”. Prior to each
        Closing, Placement Agent will furnish to the Company appropriate records
        indicating the name and address of each person subscribing in the Offering
        and a
        copy of the executed Subscription Agreement for each subscriber. The Company
        shall have discretion as to whether or not to accept any Subscription Agreement;
        provided,
        however
        any rejection of a subscription shall be in good faith on the basis of a
        reasonable business purpose 

      

      4. Representations
        and Warranties of the Placement Agent.

      

      The
        Placement Agent represents, warrants to and agrees with the Company as
        follows:

      

      (a) The
        Placement Agent is duly incorporated and validly existing and in good standing
        under the laws of the State of New York.

      

      (b) The
        Placement Agent is, and at the time of each Closing will be, duly registered
        as
        a broker/dealer pursuant to the Securities Exchange Act of 1934, as amended
        (the
“Exchange Act”) and a member in good standing of the NASD, and each of the
        Placement Agent's representatives is, and at the time of each Closing will
        be,
        registered as an agent or salesman of the Placement Agent and in good standing
        with the NASD.

      

      (c) Sales
        of
        Securities by the Placement Agent will only be made in such jurisdictions
        in
        which the Placement Agent is a registered broker-dealer or where an applicable
        exemption from such registration exists.

      

      (d) Offers
        and sales of Securities by the Placement Agent will be made only in accordance
        with this Agreement and in compliance with the provisions of Rule 506 of
        Regulation D (it being understood and agreed that the Placement Agent shall
        be
        entitled to rely upon the information and statements provided by the Prospective
        Investors in the Subscription Agreement and Investor Questionnaires), and
        the
        Placement Agent will furnish to each Prospective Investor a copy of the Offering
        Documents prior to the receipt thereby of any Subscription Agreement from
        such
        Prospective Investor.

      

      (e) During
        the course of the Offering, the Placement Agent and its representatives will
        not
        make any untrue statement of a material fact or omit to state a material
        fact
        required to be stated, or necessary to make any statement made, by the Placement
        Agent or its representatives, not misleading concerning the Offering or any
        matters set forth in or contemplated by the Offering Documents (it being
        understood that the statements made in the Offering Documents are deemed
        to be
        made by the Company and not the Placement Agent, except for information set
        forth therein based upon written information provided by, or on behalf of,
        the
        Placement Agent or any of its representatives for inclusion
        therein).

      

      (f) Neither
        the Placement Agent nor any of its representatives or affiliates, has engaged
        or
        will engage, directly or indirectly, in any act or activity that may jeopardize
        the status of the Offering and sale of the Securities as an exempt transaction
        under the Act or under all applicable federal and/or state securities or
        blue
        sky laws of any jurisdiction in which the Securities may be offered or
        sold.

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

      

      5.
        Placement Agent Compensation; Future Financing. 

      

      (a) The
        Placement Agent shall be entitled, on each Closing Date, as compensation
        for its
        services as Placement Agent under this Agreement, to (i) selling commissions
        equal to 7% of the gross proceeds received by the Company from the sale of
        the
        Shares and (ii) a management fee of 3% of the gross proceeds received by
        the
        Company from the sale of the Shares. In addition, the Placement Agent will
        receive an advisory fee equal to 1% of the gross proceeds of the
        Offering.
        All
        payments hereunder shall be effected at each Closing in immediately available
        funds. 

      

      (b)
         In
        addition to the forgoing cash compensation, the Placement Agent will be entitled
        to receive Warrants to purchase a number of shares equal to 10% of the Shares
        sold by it in the Offering (the “Agent Warrants”). The Agent Warrants shall be
        on the same terms as the Investor Warrants.

      

      (c)
         For
        a
        period of 18 months following the end of the Exclusive Period, the Company
        agrees to pay to Placement Agent at each closing of any other equity financing,
        convertible debt financing or any instrument convertible into Shares from
        any
        Source contacted by Placement Agent on the Company’s behalf and disclosed to the
        Company in writing or from any investor who purchases shares in the Offering
        (i)
        a cash transaction fee in the amount of 10% of the amount of the gross proceeds
        received by the Company from any such financing, (ii) a non-accountable expense
        allowance of 1% of the amount of gross proceeds received by the Company from
        any
        such financing and (iii) Agent Warrants. As
        used
        in this Agreement, the term “Source” shall be broadly interpreted to include,
        without limitation, any corporation, company, institution, partnership,
        individual and all of the Source’s affiliates that are directly or indirectly
        contacted by Placement Agent for the purpose of investing in the Offering.
        Placement Agent will periodically provide the Company with a written list
        of all
        Sources contacted by Placement Agent.

      

      (d)
         The
        Placement Agent shall also be entitled to receive, during the term of the
        Warrants, a warrant solicitation fee (“Solicitation Fee”) equal to five percent
        (5%) of the exercise price of the Warrants, which fee shall be payable within
        five business days of receipt by the Company of the exercise price from a
        holder
        of the Warrants. The Solicitation Fee shall be payable in accordance with
        the
        applicable rules of the NASD and the form of warrants issuable to investors
        shall disclose shall include appropriate disclosure regarding the payment
        of the
        Solicitation Fee upon terms acceptable to the Placement Agent. The Company
        shall
        not hire any other broker dealer firm other than the Placement Agent to assist
        it in connection with the solicitation of the exercise of the
        Warrants. 

      

      (e) In
        the
        event that the Company enters into a merger, acquisition, or sale transaction
        with a Source, Placement Agent shall be entitled to receive a fee in accordance
        with industry standard terms to be agreed upon in good faith between the
        Company
        and Montauk.

      

       

      6.
        Representations and Warranties of the Company. The Company represents and
        warrants to, and agrees with, the Placement Agent that as of the date hereof
        and
        as of each Closing Date (except as disclosed in the Disclosure Statement
        or
        contemplated therein):

      

      (a)
         Assuming
        the accuracy of the representations and warranties of the Prospective Investors
        set forth in the Subscription Agreement and Investor Questionnaire and the
        representations and warranties of the Placement Agent set forth herein, the
        Offering Documents (including, without limitation, the Company Documents
        as
        defined clause (c) below) (i) contain at all times during the period from
        the
        date hereof to and including each Closing Date, all information required
        to be
        contained therein, if any, pursuant to a private offering to all “accredited
        investors“ under Rule 506 of Regulation D and all applicable federal and/or
        state securities and blue sky laws, and (ii) do not, and during such period
        will
        not, contain any untrue statement of a material fact or omit to state any
        material fact necessary in order to make the statements made therein, in
        the
        light of the circumstances in which they were made, not misleading. Each
        contract, agreement, instrument, lease, license, or other document required
        to
        be described in the Offering Documents shall be, and have been, accurately
        described therein in all material respects. 

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      

      

      (b)
         The
        information provided by the Company to Prospective Investors pursuant to
        Section
        7(f) hereof (it being understood that neither the Company nor any of its
        officers or directors or employees shall provide any information to any
        Prospective Investor which is not contained or referred to in the Offering
        Documents) taken as a whole shall not contain any untrue statement of a material
        fact or omit to state any material fact necessary to make the statements
        made
        therein, in the light of the circumstances in which they were made, not
        misleading. Contracts to which the Company or any of its Controlled Subsidiaries
        (as defined below) is a party provided by the Company to Prospective Investors
        shall not be deemed to contain any untrue statement of a material fact or
        to
        omit to state any material fact if the contract so provided is a true, correct
        and complete copy of such contract, as amended or modified through the date
        it
        is so provided.

      

      (c)
         The
        authorized capital stock of the Company consists of 20,000,000 Shares . As
        of
        the date hereof, 8,162,024 Shares are issued and outstanding, and all such
        Shares are, duly authorized, validly issued, fully paid and nonassessable
        and
        not subject to preemptive rights. In addition, there are (i) warrants
        outstanding to acquire an aggregate of approximately 190,000 Shares of common
        Stock, and (ii) options outstanding to acquire an aggregate of approximately
        1,988,665 Shares of Common Stock. The Shares, including Shares issuable upon
        exercise of the Warrants, when issued in accordance with the terms of the
        Offering, will be validly issued, fully paid and nonassessable and not subject
        to preemptive or any other similar rights and no personal liability will
        attach
        to the ownership thereof. The outstanding options, warrants and other
        convertible securities of the Company are as set forth in the Memorandum
        and the
        Company’s filings with the SEC under the Exchange Act (collectively, the
“Company Documents).
        Neither
        the Company nor any Subsidiary is a party to an agreement, instrument or
        understanding which calls for, and no securities of the Company or any
        Subsidiary contain provisions relating to, the
        resetting or repricing
        of any debt or equity security instrument of the Company or any Subsidiary.
        The
        issuance of the Securities or the consummation of the Placement will not
        trigger
        any resetting or repricing of any debt or equity security instrument of the
        Company or any Subsidiary and will not result in any preemptive rights to
        acquire securities of the Company in favor of any third party.

      

      (d) Each
        statute, regulation, legal and governmental proceeding, contract, agreement,
        instrument, lease, license, or other document required to be described in
        the
        Offering Documents has been accurately described therein in all material
        respects.

      

      (e) All
        prior
        offerings of the Company’s securities complied in all respects with the Act and
        the rules and regulations promulgated thereunder and all applicable blue
        sky
        laws.

      

      (f) The
        Company and its Controlled Subsidiaries, are (a) corporations duly organized,
        validly existing and in good standing under the laws of the respective state
        of
        their incorporation, each have full power and authority to own or lease all
        of
        the assets owned or leased by each of them and to conduct their respective
        business as described in the Offering Documents and (b) are duly qualified
        to do
        business and in good standing as a foreign corporation in all jurisdictions
        in
        which the nature of the activities conducted or the character of the assets
        owned or leased makes such qualification necessary, except where the failure
        to
        be so qualified would not have a material adverse effect on the Company's
        presently conducted business (taken as a whole with the business of the
        Controlled Subsidiaries). Complete and correct copies of the certificate
        of
        incorporation and of the by-laws of the Company and its Controlled Subsidiaries
        as in effect on the date hereof have been delivered to First Montauk, and
        no
        changes therein will be made on or subsequent to the date hereof and prior
        to
        the Final Closing Date except as may be disclosed in the Offering Documents
        or
        required pursuant to this Agreement. The term “Controlled Subsidiaries” means
        any corporation or other organization in which the Company owns, directly
        or
        indirectly, an equity or other ownership interest equal to or greater than
        50
        percent.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      

      

      (g)
         Since
        the
        dates as of which information is given in the Offering Documents, other than
        as
        set forth or contemplated therein, (A) there has not been any material adverse
        change in the business, prospects, properties, management, financial condition
        or results of operations of the Company or its Controlled Subsidiaries, (B)
        the
        Company has not and will not have paid or declared any dividends or other
        distributions on its capital stock and (C) there has not been any change
        in the
        capital stock of the Company or any material change in the short-term or
        long-term debt of the Company or its Controlled Subsidiaries. 

      

      (h) The
        consolidated financial statements, together with related notes and schedules
        of
        the Company and its Controlled Subsidiaries, included as part of the Offering
        Documents (including the financial statements contained in the company
        Documents), present fairly the financial position of the Company and its
        Controlled Subsidiaries in all material respects as of the respective dates
        and
        for the periods indicated therein. Audited financial statements, and related
        notes and schedules, have been prepared in conformity with United States
        generally accepted accounting principles applied on a consistent basis and
        the
        rules of the SEC through the entire period involved. Except as stated in
        the
        Offering Documents, the unaudited statements contained in the Offering Documents
        are consistent with, and have been prepared from the books and records kept
        by
        the Company in a manner consistent with past practice.

      

      (i) Except
        as
        described in the Offering Documents, there is no action, suit, investigation
        or
        proceeding pending or, to the Company's knowledge, threatened before or by
        any
        Federal or state court, commission, regulatory body, administrative agency
        or
        other governmental body, domestic or foreign, or arbitrator to which the
        Company
        or its Controlled Subsidiaries is or may become a party or of which any property
        of the Company or its Controlled Subsidiaries is subject or affected that
        (i)
        might affect the consummation of the transactions contemplated under this
        Agreement, including the issuance or validity of the Shares offered hereby
        or
        (ii) would have a material adverse effect on the financial condition,
        properties, results of operations or businesses of the Company and its
        Controlled Subsidiaries, taken as a whole (“Material Adverse
        Effect”).

      

      (j) The
        Company and its Controlled Subsidiaries have all approvals, licenses,
        franchises, authorizations and permits (collectively, “permits”) necessary under
        all applicable statutes, codes, rules, regulations, orders and decrees of
        governments or governmental bodies (collectively, “laws”), which are material to
        the ownership, lease or use of their respective properties or the conduct
        of
        their respective businesses as described in the Offering Documents. Neither
        the
        Company nor its Controlled Subsidiaries has received notice of any proceedings
        relating to the revocation or modification of any such permits which, singly
        or
        in the aggregate, would have a Material Adverse Effect, and each of the Company
        and its Controlled Subsidiaries is in all material respects in compliance
        with
        such permits and laws.

      

      (k) The
        Company and its Controlled Subsidiaries own or are licensed to use all patents,
        patent applications, inventions, trademarks, trade names, applications for
        registration of trademarks, copyrights, know-how, trade secrets, licenses
        and
        rights in any thereof (“Proprietary Rights”) which are material to the business
        of the Company and its Controlled Subsidiaries taken as a whole as now conducted
        and as proposed to be conducted, in each case as described in the Offering
        Documents. Except as described in the Offering Documents:

      

      (i)
        the
        Company and its Controlled Subsidiaries do not have any knowledge of, and
        the
        Company and its Controlled Subsidiaries have not given or received any notice
        of
        any pending conflict with or infringement of, the rights of others with respect
        to any Proprietary Rights or with respect to any license of Proprietary
        Rights;

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      

      

      (ii)
        no
        action, suit, arbitration, or legal, administrative or other proceeding,
        or
        domestic or foreign governmental investigation is pending or, to the best
        of the
        Company's knowledge, threatened, which involves any Proprietary Rights and
        would
        have a Material Adverse Effect;

      

      (iii)
        neither the Company nor its Controlled Subsidiaries is subject to any judgment,
        order, writ, injunction or decree of any court or any Federal, state, local,
        foreign or other governmental department, commission, board, bureau, agency
        or
        instrumentality, domestic or foreign, or any arbitrator, which restricts
        or
        impairs the use of any such Proprietary Rights in a manner which would have
        a
        Material Adverse Effect on the use of any of the Proprietary
        Rights;

      

      (iv)
        no
        Proprietary Rights used by the Company or its Controlled Subsidiaries and
        no
        services or products sold by the Company or its Controlled Subsidiaries,
        conflict with or infringe upon, to the knowledge of the Company and its
        Controlled Subsidiaries, any proprietary rights available to any third
        party;

      

      (v)
        neither the Company nor its Controlled Subsidiaries has entered into any
        consent, indemnification, forbearance to sue or settlement agreement with
        respect to Proprietary Rights other than in the ordinary course of
        business;

      

      (vi)
        to
        the best knowledge of the Company, no claims have been asserted by any person
        with respect to the validity of or the Company's or its Controlled Subsidiaries'
        ownership of or right to use the Proprietary Rights and, to the best knowledge
        of the Company, there is no reasonable basis for any such claim;

      

      (vii)
        to
        the best knowledge of the Company, the Proprietary Rights are valid and
        enforceable and no registration relating thereto has lapsed, expired or been
        abandoned or canceled or is the subject of cancellation or other adversarial
        proceedings which would have a Material Adverse Effect, and any applications
        therefore are pending and are in good standing;

      

      (viii)
        the Company and its Controlled Subsidiaries have complied, in all material
        respects, with their respective contractual obligations relating to the
        protection of the Proprietary Rights used pursuant to licenses; and

      

      (ix)
        to
        the best knowledge of the Company, no person is infringing on or violating
        the
        Proprietary Rights owned or used by the Company or its Controlled
        Subsidiaries.

      

      (l)
         Except
        as
        described in the Offering Documents, there are no contracts, agreements or
        understandings between the Company and any person granting such person the
        right
        to require the Company to file a registration statement under the Act with
        respect to any securities of the Company owned or to be owned by such person
        or
        to require the Company to include such securities in the securities being
        registered pursuant to any registration statement filed by the Company under
        the
        Act.

      

      (m) All
        offers and sales of securities of the Company issued during the three year
        period prior to the date hereof were at all relevant times duly registered
        or
        exempt from the registration requirements of the Act and the rules and
        regulations thereunder and were duly registered or the subject of an available
        exemption from the registration requirements of the applicable state securities
        or Blue Sky laws. The Company has not, directly or indirectly, solicited
        any
        offer to buy or offered to sell any securities during the twelve-month period
        ending on the date hereof which, to the knowledge of the Company, would be
        integrated with the Offering. 

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      

      (n) Neither
        the Company nor its Controlled Subsidiaries are (i) in violation of its
        certificate of incorporation or by-laws, (ii) to the best knowledge of the
        Company, in violation of any statute, law, rule, code, administrative
        regulation, ordinance, judgment, order or decree of any government, governmental
        instrumentality, court, domestic or foreign, or arbitration panel or other
        body
        applicable to it where such violation would have a Material Adverse Effect
        or
        (iii) to the best knowledge of the Company, in default in the performance
        or
        observance of any obligation, agreement, covenant or condition contained
        in any
        indenture, mortgage, deed of trust, voting agreement, voting trust agreement,
        loan agreement, bond, debenture, note or other evidence of indebtedness,
        lease,
        sublease, license agreement, contract or other agreement or instrument to
        which
        it is a party or by which it or any of its respective properties are bound
        or
        affected (“Contracts”), where such defaults, singly or in the aggregate, would
        have a Material Adverse Effect. To the knowledge of the Company, no other
        party
        under any Contract is in default in any material respect thereunder which
        affects the Company.

      

      (o) The
        Company has all requisite power and authority to execute, deliver and perform
        its obligations under this Agreement and the Subscription Agreement. This
        Agreement and the Subscription Agreement have been duly and validly authorized,
        executed and delivered by the Company, and each such agreement constitutes
        a
        legal, valid and binding agreement of the Company enforceable against the
        Company in accordance with its respective terms, except as rights to indemnity
        and contribution hereunder and thereunder may be limited by the securities
        laws
        and public policy of the United States and except as such enforceability
        may be
        limited by bankruptcy, insolvency, reorganization or similar laws or equitable
        principles affecting the enforcement of creditors' rights
        generally;

      

      (p) The
        issuance of the Securities and the execution, delivery and performance of
        this
        Agreement and the Subscription Agreement, and the consummation of the
        transactions contemplated hereby and thereby, do not and will not conflict
        with
        or result in a material breach or violation of any of the terms or provisions
        of, or constitute a material default under, or give rise to rights of
        termination under, or result in the acceleration of any obligation under,
        or
        result in the creation or imposition of any lien, charge or encumbrance upon
        any
        material property or assets of the Company or any of its Controlled Subsidiaries
        pursuant to the terms of any indenture, mortgage, deed of trust, voting
        agreement, voting trust agreement, loan agreement, bond, debenture, note
        or
        other evidence of indebtedness or result in a material breach or violation
        of
        any of the terms or provisions of, or constitute a material default under
        any
        lease, sublease, contract or other agreement or instrument to which the Company
        or any of its Controlled Subsidiaries are a party, or by which the Company,
        its
        Controlled Subsidiaries, or any of the Company’s or its Controlled
        Subsidiaries’respective properties or assets are bound or affected, nor will
        such action result in any violation of the provisions of the certificate
        of
        incorporation or by-laws of the Company or its Controlled Subsidiaries or
        a
        material violation of any applicable statute, law, rule, code, administrative
        regulation, ordinance, judgment, order or decree of any government, governmental
        instrumentality or court, domestic or foreign, or arbitration panel or other
        body, having jurisdiction over the Company, its Controlled Subsidiaries,
        or any
        of the Company’s or its Controlled Subsidiaries’ respective properties or
        obligations.

      

      (q) No
        consent, approval, authorization, license or order of or from, or registration,
        qualification, declaration or filing with, federal, state, local, foreign
        or
        other governmental authority or any person or court, administrative agency,
        or
        other body is required for the consummation of the transactions contemplated
        in
        this Agreement, or the Offering Documents, except as may have been made,
        are
        required to be made prior to the Initial Closing, or may be required to be
        obtained under any state securities or blue sky laws or pursuant to Regulation
        D.

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      

      (r) The
        Company is in compliance in all material respects with all applicable federal,
        state and local environmental laws and regulations (collectively, the
“Environmental Laws”), except for any material noncompliance as may be described
        in the Offering Documents, and to the best of the Company's knowledge, there
        are
        no circumstances that would prevent, interfere with, or materially increase
        the
        cost of such compliance in the future. Except as set forth in the Offering
        Documents, there is no claim under any Environmental Law, including common
        law
        (“Environmental Claim”), pending or, to the knowledge of the Company, threatened
        against or affecting the Company or its Controlled Subsidiaries and, to the
        best
        of the Company's knowledge, there are no past or present actions, activities,
        circumstances, events or incidents, including, without limitation, releases
        of
        any material into the environment, that could form the basis of any
        Environmental Claim against or affecting the Company or its Controlled
        Subsidiaries.

      

      (s) Each
        of
        the Company and its Controlled Subsidiaries has good and marketable title
        to all
        property owned by it, in each case free and clear of all liens, charges,
        encumbrances or restrictions except as described in the Offering Documents
        or
        such as do not materially affect the value of such property and do not interfere
        with the use made and proposed to be made of such property by the Company.
        Except as described in the Offering Documents, all material Contracts to
        which
        the Company or its Controlled Subsidiaries is a party or by which the Company
        or
        its Controlled Subsidiaries or any of their respective properties or assets
        are
        bound are valid, subsisting and enforceable and are in full force and
        effect.

      

      (t) The
        Company and its Controlled Subsidiaries (A) has paid all federal, state,
        local
        and foreign taxes for which it is liable and has furnished all information
        returns it is required to furnish pursuant to the Internal Revenue Code of
        1986,
        as amended, (B) has established adequate reserves for such taxes which are
        not
        due and payable and (C) does not have any tax deficiency or claims outstanding,
        proposed or assessed against it.

      

      (u) The
        Company and its Controlled Subsidiaries maintain insurance of the types and
        in
        amounts which it deems adequate for its business taken as a whole, all of
        which
        are in full force and effect.

      

      (v) Other
        than as set forth herein or in the Offering Documents, there are no claims,
        payments, issuances, arrangements or understandings, whether oral or written,
        for services in the nature of a finder's or origination fee with respect
        to the
        sale of the Securities.

      

      (w) Neither
        the Company nor its Controlled Subsidiaries, nor to the best of the Company’s
        knowledge any of the Company’s officers, employees, agents or any other person
        acting on behalf of, at the direction of or for the benefit of the Company
        has,
        directly or indirectly, given or agreed to give any money, gift or similar
        benefit (other than legal price concessions to customers in the ordinary
        course
        of business) to any customer, supplier, employee or agent of a customer or
        supplier, or official or employee of any governmental agency (domestic or
        foreign) or instrumentality of any government (domestic or foreign) or any
        political party or candidate for office (domestic or foreign) or other person
        who was, is, or may be in a position to help or hinder the business of the
        Company (or assist the Company in connection with any actual or proposed
        transaction) which (a) might subject the Company or any other such person
        to any
        damage or penalty in any civil, criminal or governmental litigation or
        proceeding (domestic or foreign), (b) if not given in the past, might have
        had a
        Material Adverse Effect or (c) if not continued in the future, might result
        in a
        Material Adverse Effect. The Company's internal accounting controls are
        sufficient to cause the Company to comply with the Foreign Corrupt Practices
        Act
        of 1977, as amended. 

      

      (x) To
        the
        best knowledge of the Company, during the past five years, none of the current
        officers or directors of the Company have been:

      

      (i) The
        subject of a petition under the federal bankruptcy laws or any state insolvency
        law filed by or against them, or by a receiver, fiscal agent or similar officer
        appointed by a court for their business or property, or any partnership in
        which
        any or them was a general partner at or within two years before the time
        of such
        filing, or any corporation or business association of which any of them was
        an
        executive officer at or within two years before the time of such
        filing;

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      

      

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

      

      (iii) The
        subject of any order, judgment, or decree not subsequently reversed, suspended
        or vacated, of any court of competent jurisdiction, permanently or temporarily
        enjoining any of them from, or otherwise limiting, any of the following
        activities:

      

      (iv) acting
        as
        a futures commission merchant, introducing broker, commodity trading advisor,
        commodity pool operator, floor broker, leverage transaction merchant, any
        other
        person regulated by the Commodity Futures Trading Commission, or an associated
        person of any of the foregoing, or as an investment adviser, underwriter,
        broker
        or dealer in securities, or as an affiliated person, director or employee
        of any
        investment company, bank, savings and loan association or insurance company,
        or
        engaging in or continuing any conduct or practice in connection with any
        such
        activity;

      

      (v)
         engaging
        in any type of business practice; or

      

      (vi) engaging
        in any activity in connection with the purchase or sale of any security or
        commodity or in connection with any violation of federal or state securities
        law
        or federal commodity laws.

      

      (vii) the
        subject of any order, judgment or decree, not subsequently reversed, suspended
        or vacated of any federal or state authority barring, suspending or otherwise
        limiting for more than sixty (60) days their right to engage in any activity
        described in paragraph (c)(i) above, or be associated with persons engaged
        in
        any such activity;

      

      (viii) found
        by
        any court of competent jurisdiction in a civil action or by the Securities
        and
        Exchange Commission to have violated any federal or state securities law,
        and
        the judgment in such civil action or finding by the Commission has not been
        subsequently reversed, suspended or vacated; or

      

      (ix) found
        by
        a court of competent jurisdiction in a civil action or by the Commodity Futures
        Trading Commission to have violated any federal commodities law, and the
        judgment in such civil action or finding by the Commodity Futures Trading
        Commission has not been subsequently reversed, suspended or
        vacated.

      

      (x) found
        by
        a court or an administrative agency to have or is alleged to have violated
        any
        foreign securities laws.

      

      (y) Neither
        the Company nor, to the knowledge of the Company, any of its affiliates has,
        directly or through any agent, sold, offered for sale or solicited offers
        to buy
        any security of the Company, nor will any of the foregoing directly buy any
        security of the Company.

      

      (z) Neither
        the Company nor any of its officers, directors, or affiliates, has engaged
        or
        will engage, directly or indirectly, in any act or activity that may jeopardize
        the status of the Offering and sale of the Securities as an exempt transaction
        under the Act or under all applicable federal and/or state securities or
        blue
        sky laws of any jurisdiction in which the Securities may be offered or sold.
        

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      

      (aa)  The
        Company and the Subsidiaries maintain a system of internal accounting and
        other
        controls sufficient to provide reasonable assurances that: (i) transactions
        are
        executed in accordance with management’s general or specific authorizations,
        (ii) transactions are recorded as necessary to permit preparation of reliable
        financial statements in conformity with United States generally accepted
        accounting principles and to maintain accountability for assets, (iii) access
        to
        assets is permitted only in accordance with management’s general or specific
        authorization, and (iv) the recorded accounting for assets is compared with
        existing assets at reasonable intervals and appropriate action is taken with
        respect to any material differences. 

      

      (bb)  Neither
        the Company nor any of its Subsidiaries has violated or is currently in
        violation of any provisions of: (a) any federal or state environmental law,
        (b)
        Employee Retirement Income Security Act of 1974, as amended, including the
        regulations and published interpretations thereunder (“ERISA”), (c) the Bank
        Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as
        amended, (e) the Foreign Corrupt Practices Act, or (f) the Uniting and
        Strengthening of America by Providing Appropriate Tools Required to Intercept
        and Obstruct Terrorism (“USA Patriot Act”) Act of 2001, and the rules and
        regulations promulgated under any such law, or any successor law, except
        for
        such violations which, singly or in the aggregate, would not have a Material
        Adverse Effect.

      

      (cc)  So
        long
        as the Common Stock and the Warrants (including the Common Stock receivable
        upon
        the exercise thereof) are “restricted securities” within the meaning of Rule
        144(a)(3) under the Securities Act, the Company, during any period in which
        it
        is not subject to and in compliance with Section 13 or 15(d) of the Exchange
        Act, or is not exempt from such reporting requirements pursuant to and in
        compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
        of
        Common Stock and to each prospective purchaser (as designated by such holder)
        of
        Common Stock upon the request of such holder or prospective holder, any
        information required to be provided by Rule 144A(d)(4) under the Securities
        Act.

       

      (dd)  
        The
        Company is not and, at all times up to and including consummation of the
        transactions contemplated by this Agreement, and after giving effect to
        application of the net proceeds of the Placement, will not be, subject to
        registration as an “investment company” under the Investment Company Act of
        1940, as amended (the “1940
        Act”),
        and
        is not and will not be an entity “controlled” by an “investment company” within
        the meaning of the 1940 Act. The Company will: (i) utilize the proceeds of
        the
        Placement in accordance with the “Use of Proceeds” section of the Memorandum and
        (ii) initially utilize the proceeds of the Placement and all other funds
        of the
        Company in such a manner so as to cause the Company not to be subject to
        the
        1940 Act, and will thereafter use its best efforts to avoid the Company’s
        becoming subject to the 1940 Act.

       

      (ee)  The
        Company is in compliance with applicable requirements of the Sarbanes-Oxley
        Act
        of 2002 and applicable rules and regulations promulgated by the Commission
        thereunder in effect as of the date of this Agreement, except where such
        noncompliance could not be reasonably expected to have, individually or in
        the aggregate, a material adverse effect upon the Company.

       

      7. Covenants
        of the Company. 

      

      The
        Company covenants that it will: 

      

      (a)
        Notify First Montauk immediately, and confirm such notice in writing, (i)
        when
        any event shall have occurred during the period commencing on the date hereof
        and ending on the Final Closing Date, as a result of which the Offering
        Documents would include any untrue statement of a material fact or omit to
        state
        any material fact necessary to make the statements made therein, in the light
        of
        the circumstances under which they were made, not misleading, and (ii) of
        the
        receipt of any notification with respect to the modification, rescission,
        withdrawal, or suspension of the qualification or registration of the
        Securities, or of an exemption from such registration or qualification, in
        any
        jurisdiction. The Company will use its reasonable best efforts to prevent
        the
        issuance of any such modification, rescission, withdrawal, or suspension,
        and at
        Placement Agent's request, to use reasonable best efforts to obtain the lifting
        thereof as promptly as possible.

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      

      

      (b)
        Not
        make any supplement or amendment to the Offering Documents unless such
        supplement or amendment complies with the requirements of the Act and Regulation
        D and the applicable federal and/or state securities and blue sky laws and
        unless the Placement Agent shall have approved of such supplement or amendment.
        If, at any time during the period commencing on the date hereof and ending
        on
        the Final Closing Date, any event shall have occurred as a result of which
        the
        Offering Documents contain any untrue statement of a material fact or omit
        to
        state any material fact necessary to make the statements made therein, in
        the
        light of the circumstances in which they were made, not misleading, or if,
        in
        the reasonable opinion of counsel to the Company or counsel to the Placement
        Agent, it is necessary at any time to supplement or amend the Offering Documents
        to comply with the Act, Regulation D, or any applicable securities or blue
        sky
        laws, the Company will promptly prepare an appropriate supplement or amendment
        (in form and substance satisfactory to the Placement Agent) which will correct
        such statement or omission or which will effect such compliance.

      

      (c)
        Deliver without charge to the Placement Agent such number of copies of the
        Offering Documents and any supplement or amendment thereto as may reasonably
        be
        requested by the Placement Agent.

      

      (d)
        Not,
        directly or indirectly, solicit any offer to buy from, or offer to sell to
        any
        person any Securities, or any other securities (whether debt or equity) of
        the
        Company except through the Placement Agent.

      

      (e)
        Use
        its best efforts to establish an exemption from qualification and registration
        under the securities or blue sky laws of the jurisdictions as may be required
        by
        the Placement Agent in connection with the offer and sale of the Securities
        and
        retain counsel in making any required filings; provided, however, that the
        Company will not be obligated to qualify to do business or register as a
        dealer
        in securities, or otherwise subject itself to general service of process,
        in any
        jurisdiction in which it is not so qualified. The Company shall make a Form
        99
        and State Notice filing with the State of New York prior to the commencement
        of
        the Offering and timely file a Form D and such other required notice with
        all
        state blue sky authorities and the SEC.

      

      (f)
        At
        all times during the period commencing on the date hereof and ending on the
        Final Closing Date, provide to each Prospective Investor or his Purchaser
        Representative (as defined in Regulation D), if any, on request, such
        information (in addition to that contained in the Offering Documents) concerning
        the Offering, the Company and any other relevant matters, as it possesses
        or can
        acquire without unreasonable effort or expense, and to extend to each
        Prospective Investor or his Purchaser Representative, if any, the opportunity
        to
        ask questions of, and receive answers from, the President or other executive
        officers of the Company concerning the terms and conditions of the Offering
        and
        the business of the Company and to obtain any other additional information,
        to
        the extent it possesses the same or can acquire it with reasonable effort
        or
        expense, and in conformity with existing laws and regulations of federal
        and
        state and other regulatory bodies and agencies as such Prospective Investor
        or
        Purchaser Representative may consider necessary in making an informed investment
        decision or in order to verify the accuracy of the information furnished
        to such
        Prospective Investor or Purchaser Representative, as the case may be.
        Notwithstanding, anything in this Section 7(f) to the contrary, the Prospective
        Investor and/or his Purchaser Representative, as the case may be, shall only
        rely on such information in making an investment decision, to the extent
        it has
        been provided to them in the Offering Documents or otherwise provided by
        the
        Company in writing.

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

      

      

      (g) So
        long
        as the Shares and the Warrants (including the Shares receivable upon the
        exercise thereof) are “restricted securities” within the meaning of Rule
        144(a)(3) under the Securities Act, the Company, during any period in which
        it
        is not subject to and in compliance with Section 13 or 15(d) of the Exchange
        Act, or is not exempt from such reporting requirements pursuant to and in
        compliance with Rule 12g3-2b under the Exchange Act, provide to each holder
        of
        Shares and to each prospective purchaser (as designated by such holder) of
        Shares upon the request of such holder or prospective holder, any information
        required to be provided by Rule 144A(d)(4) under the Securities
        Act.

      

      (h)
        Not,
        directly or indirectly, engage in any act or activity which may jeopardize
        the
        status of the offering and sale of the Securities as exempt transactions
        under
        the Act or under the securities or blue sky laws of any jurisdiction in which
        the Offering maybe made. Without limiting the generality of the foregoing,
        and
        notwithstanding anything contained herein to the contrary, the Company shall
        not, directly or indirectly, engage in any offering of securities which,
        if
        integrated with the Offering in the manner prescribed by Rule 502(a) of
        Regulation D and applicable releases of the Commission, may jeopardize the
        status of the offering and sale of the Securities as exempt transactions
        under
        Regulation D.

      

      (i)
        Apply
        the net proceeds from the sale of the Securities in a manner consistent with,
        in
        all material respects, the description as set forth in the Offering Documents.
        

      

      (j)
        Not,
        during the period commencing on the date hereof and ending on the Final Closing
        Date, issue any press release or other communication, or hold any press
        conference with respect to the Company, its financial condition, results
        of
        operations, business, properties, assets, or liabilities, or the Offering,
        without First Montauk prior written consent, not to be unreasonably withheld,
        except as required by applicable securities laws and except as may be related
        to
        the marketing and sale of its products in the normal course of business.
        The
        foregoing shall not prohibit the Company from holding informational meetings
        with accredited investors who have a pre-existing relationship with the Company
        during which the materials and information disseminated will be limited to
        the
        information contained in the Offering Documents or from making disclosures
        required by law. 

      

      8.
        Payment of Expenses. The Company hereby agrees to pay all fees, charges,
        and
        expenses incident to the performance by the Company of its obligations
        hereunder, including, without limitation, all fees, charges, and expenses
        in
        connection with: (i) the preparation, printing, copying and mailing of the
        Offering Documents; (ii) the purchase, sale, and delivery of the Securities,
        and
        any supplements or amendments thereto; (iii) the issuance, sale, transfer,
        and
        delivery of the Securities, including any transfer or other taxes payable
        thereon and the fees of any transfer agent or registrar; (iv) the filing
        fees
        for the offer and sale under the securities laws of such states and other
        jurisdictions as Placement Agent may designate (including without limitation,
        all disbursements of Company counsel incurred in connection with such filings);
        (v) Placement Agent's documented counsel fees for services rendered in
        connection with the Offering, up to an amount of $25,000, of which $10,000
        has
        previously been paid; and (vi) the expense of the escrow account which expenses
        shall equal $2,500 and be payable to the escrow agent in advance. To the
        extent
        that Placement Agent wishes to incur any such costs or fees on the Company’s
        behalf, with the exception of NASD Rule 2710, blue sky filing fees, and counsel
        fees as provided for in the preceding sentence, all such expenses must be
        approved by Company prior to their incurrence. 

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      

      9. Conditions
        of Placement Agent's Obligations.

      

      The
        obligations of the Placement Agent pursuant to this Agreement shall be subject,
        in its discretion, to the continuing accuracy in all material respects of
        the
        representations and warranties of the Company contained herein and in each
        certificate and document contemplated under this Agreement to be delivered
        to
        the Placement Agent, as of the date hereof and as of each Closing Date, with
        respect to the performance in all material respects by the Company of its
        obligations hereunder, and to the following conditions:

      

      (a)
        At
        the First Closing and the Final Closing, the Placement Agent shall have received
        the favorable opinion of Eilenberg & Krause LLP, counsel for the Company,
        dated each Closing Date, addressed to the Placement Agent, and in form and
        scope
        reasonably satisfactory to counsel for the Placement Agent, substantially
        to the
        effect that: 

      

      (i)
        the
        Company is a corporation duly organized, validly existing, and in good standing
        under the laws of the State of Delaware, with the requisite corporate power
        to
        own and operate its properties and assets, and to carry on its business as
        described in the Offering Documents and is duly qualified to do business
        and is
        in good standing as a foreign corporation in those jurisdictions where the
        failure to so qualify would have a Material Adverse Effect on the business
        of
        the Company;

      

      (ii)
        the
        Company has, as of the date hereof, an authorized, and, to such counsel's
        knowledge based on the records of the Company, outstanding, capitalization
        as
        set forth in the Disclosure Statement. To such counsel's knowledge, each
        of the
        issued and outstanding Shares is validly issued, fully paid, and nonassessable.
        Except as set forth in the Disclosure Statement, to such counsel's knowledge,
        there are no preemptive rights, options or warrants or other conversion
        privileges or rights presently outstanding to purchase any of the authorized
        but
        unissued stock of the Company; 

      

      (iii)
        to
        such counsel's knowledge there is no litigation, arbitration, claim,
        governmental or other proceeding (formal or informal), or investigation pending
        or threatened with respect to the Company or any of its operations, businesses,
        properties, or assets except as described in the Offering Documents or such
        as
        individually or in the aggregate have, or could reasonably be expected to
        have a
        material adverse effect upon the operations, business, properties, or assets
        of
        the Company or which could materially adversely affect the transactions or
        other
        acts contemplated by this Agreement or the validity or enforceability of
        this
        Agreement;

      

      (iv)
        the
        Company has all requisite corporate power and authority to execute, deliver,
        and
        perform this Agreement, and to consummate the transactions contemplated hereby.
        All necessary corporate proceedings of the Company have been taken to authorize
        the execution, delivery, and performance by the Company of this Agreement,
        and
        the consummation of the transactions contemplated hereby. This Agreement
        has
        been duly authorized, executed, and delivered by the Company, is the legal,
        valid, and binding obligation of the Company, and is enforceable against
        the
        Company in accordance with its terms, except as such enforceability may be
        limited by applicable bankruptcy, insolvency, reorganization, moratorium
        and
        other laws of general application now or hereafter in effect relating to
        or
        affecting the enforcement of creditors' right generally and the application
        of
        general equitable principles in any action, legal or equitable and then except,
        as to those provisions relating to indemnity or contribution, such opinion
        shall
        be limited as effected by any Federal or state securities laws regarding
        indemnity and/or contribution; 

      

      (v)
        upon
        receipt of payment therefore in accordance with the Offering Documents, the
        Securities shall be validly authorized, validly issued, fully paid, and
        nonassessable;

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      

      

      (vi)
        assuming that (i) the Offering was made in the manner and by the means
        contemplated by the Offering Documents, (ii) a proper Form D is filed in
        accordance with Rule 503 of Regulation D, (iii) that the offer and sale of
        the
        Securities by the Placement Agent was made in accordance with Regulation
        D and
        the Offering Documents including, but not limited to, only accredited investors
        in compliance with Rule 506 of Regulation D without any advertising and/or
        general solicitation, (iv) the Placement Agent's representations, warranties
        and
        covenants set forth herein are true and correct, (v) the Company's
        representations, warranties and covenants set forth herein are true and correct,
        and (vi) the representations of the Prospective Investors in the Subscription
        Agreements and Investors Questionnaire signed by them are true and correct
        (which facts will not be independently verified by such counsel), the sale
        of
        Securities in the Offering is exempt from registration under the
        Act.

      

      (vii)
        the
        execution and delivery of this Agreement, the consummation of the transactions
        contemplated hereunder and the issuance of the Securities will not result
        in any
        material violation of, or material conflict with, or constitute a material
        default under (i) the certificate of incorporation or by-laws of the Company,
        (ii) to such counsel's knowledge, any material contract, instrument, agreement
        or document to which the Company is a party, or by which the assets or
        properties of the Company are bound; or (iii) to such counsel's knowledge,
        any
        statute, rule or regulation of Delaware or New York corporate law, or any
        judgment or order to which the Company is a party.

      

      In
        rendering such opinion, counsel for the Company may (A) base such opinions
        on
        such assumptions, qualifications, limitations and conditions as required
        by the
        opinion committee of such counsel, (B) rely as to matters of fact, on
        certificates of responsible officers of the Company; (C) to the extent they
        deem
        proper, upon written statements or certificates of officers of departments
        of
        various jurisdictions having custody of documents respecting the corporate
        existence or good standing of the Company, provided that copies of any such
        statements or certificates shall be delivered to counsel for the Placement
        Agent; and (D) rely upon such other opinions of other counsel to the Company
        as
        it deems necessary.

      

      (b)
        On or
        prior to the Initial Closing Date the Placement Agent shall have been furnished
        such information, documents, certificates, and opinions as it may reasonably
        require for the purpose of enabling it to review the matters referred to
        in
        Section 8(a), and in order to evidence the accuracy, completeness, or
        satisfaction of any of the representations, warranties, covenants, agreements,
        or conditions herein contained, or as it may otherwise reasonably
        request.

      

      (c)
        At
        the First Closing and at each additional Closing, the Placement Agent shall
        have
        received one or more certificates of the chief executive officer and of the
        chief financial officer of the Company, dated the applicable Closing Date
        to the
        effect that, as of the date of this Agreement and as of the applicable Closing
        Date the representations and warranties of the Company contained herein were
        and
        are accurate, and that as of the Closing Date the obligations to be performed
        by
        the Company hereunder on or prior thereto have been fully performed. In
        addition, the parties shall deliver such other certificates or closing documents
        as are customarily used by the Placement Agent in offerings of this
        nature.

      

      (d)
        All
        proceedings taken in connection with the issuance, sale, and delivery of
        the
        Securities shall be satisfactory in form and substance to First Montauk and
        First Montauk’s counsel.

      

      (e)
        Any
        certificate or other document signed by any officer of the Company and delivered
        to First Montauk or to First Montauk counsel at a Closing shall be deemed
        a
        representation and warranty by the Company hereunder as to the statements
        made
        therein. If any condition to First Montauk obligations hereunder has not
        been
        fulfilled as and when required to be so fulfilled, First Montauk may terminate
        this Agreement or, if First Montauk so elects, in writing waive any such
        conditions which have not been fulfilled or extend the time for their
        fulfillment. In the event that First Montauk elects to terminate this Agreement,
        First Montauk shall notify the Company of such election in writing. Upon
        such
        termination, neither party shall have any further liability or obligation
        to the
        other except as provided in Section 11 hereof.

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      

      10. Conditions
        of Company's Obligations. 

      

      The
        obligations of the Company pursuant to this Agreement shall be subject, in
        its
        discretion in good faith, to the performance by the Placement Agent in all
        material respects of its obligations hereunder. 

      

      11. Termination.

      

      If
        subscriptions for the Offering are not received into escrow during the Offering
        Period, or Placement Agent has committed a material breach of this Agreement,
        the Company may terminate the Agreement and the agency relationship created
        hereby upon prior written notice to First Montauk. First Montauk may terminate
        this Agreement and the agency created hereby for any reason upon written
        notice
        to the Company. In either case, neither party shall have any liability or
        continuing obligation to the other except that, regardless of which party
        elects
        to terminate, (i) the Company agrees to reimburse First Montauk for, or
        otherwise pay and bear, the expenses and fees to be paid and borne by the
        Company as provided for in Section 8 above and, subject to the Company's
        pre-approval for any expenses in excess of $350 individually, to reimburse
        First
        Montauk for the full amount of its actual out-of-pocket expenses (which shall
        include, without limitation, the fees and disbursements of First Montauk's
        counsel (up to the limits set forth in Section 8), travel and lodging expenses,
        mailing, printing and reproduction expenses, less amounts previously paid
        to
        First Montauk in reimbursement for such expenses, and (ii) the provisions
        of
        paragraph 8 and the Indemnification Provisions in Section 12 shall remain
        in
        full force and effect. Upon any such termination, the Company agrees to cease
        to
        use any Offering materials that represent First Montauk as placement agent.
        In
        the event that any Securities are sold, Sections 5, 8, 12, 13 and 14 shall
        survive the termination of this Agreement. Furthermore, notwithstanding anything
        to the contrary in this Agreement, in the event that the Company refuses
        to
        accept subscriptions during the Offering Period without a reasonable basis
        related to the subscriber or to the Offering generally, or otherwise refuses
        to
        complete the Offering without any failure of the condition set forth in Section
        10, then First Montauk shall be entitled to a fee of $200,000 which shall
        be
        deemed liquidated damages.

      

      12. Indemnification
        and Contribution. 

      

      (a)
        The
        Company agrees to indemnify and hold harmless the Placement Agent, its officers,
        directors, partners, employees, agents, and counsel, and each person, if
        any,
        who controls the Placement Agent within the meaning of Section 15 of the
        Act or
        Section 20(a) of the Exchange Act , against any and all loss, liability,
        claim,
        damage, and expense whatsoever (which shall include, for all purposes of
        this
        Section 12, but not be limited to, reasonable attorneys' fees and any and
        all
        reasonable expense whatsoever incurred in investigating, preparing, or defending
        against any litigation, commenced or threatened, or any claim whatsoever
        and any
        and all amounts paid in settlement of any claim or litigation) as and when
        incurred arising out of, based upon, or in connection with (i) any untrue
        statement or alleged untrue statement of a material fact contained in the
        Offering Documents or in any document delivered or written statement made
        pursuant to Section 7(f), or in any application or other document or
        communication (it being understood that neither the Company nor any officer,
        director or employee shall provide any information to any Prospective Investor
        which is not contained or referred to in the Offering Documents) (in this
        Section 12 collectively called an "application") executed by or on behalf
        of the
        Company or based upon written information furnished by or on behalf of the
        Company filed in any jurisdiction in order to register or qualify the Securities
        under the blue sky or securities laws thereof or in order to secure an exemption
        from such registration or qualification or filed with the Commission; or
        any
        omission or alleged omission to state a material fact necessary to make the
        statements made therein, in the light of the circumstances in which they
        were
        made, not misleading, unless such statement or omission was made in reliance
        upon and in conformity with written information furnished to the Company
        as
        stated in Section 12(b) with respect to the Placement Agent expressly for
        inclusion in the Offering Documents or in any application, as the case may
        be;
        and (ii) any breach of any representation, warranty, covenant, or agreement
        of
        the Company contained in this Agreement.
        The
        foregoing agreement to indemnify shall be in addition to any liability the
        Company may otherwise have, including liabilities arising under this Agreement.
        

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      

      

      If
        any
        action is brought against the Placement Agent or any of its officers, directors,
        partners, employees, agent, or counsel, or any controlling persons of the
        Placement Agent (an "indemnified party"), in respect of which indemnify may
        be
        sought against the Company pursuant to the foregoing paragraph, such indemnified
        party or parties shall promptly notify the Company (the "indemnifying party")
        in
        writing of the institution of such action (but the failure so to notify shall
        not relieve the indemnifying party from any liability it may have unless
        the
        indemnifying party is prejudiced by such failure) and the indemnifying party
        shall promptly assume the defense of such action, including the employment
        of
        counsel (reasonably satisfactory to such indemnified party or parties) and
        payment of expenses. Such indemnified party shall have the right to employ
        its
        own counsel in any such case, but the fees and expense of such counsel shall
        be
        at the expense of such indemnified party unless the employment of such counsel
        shall have been authorized in writing by the indemnifying party in connection
        with the defense of such action, in which event such fees and expenses shall
        be
        borne by the indemnifying party. Anything in this paragraph to the contrary
        notwithstanding, the indemnifying party shall not be liable for any settlement
        of any such claim or action effected without its written consent. The Company
        agrees promptly to notify the Placement Agent of the commencement of any
        litigation or proceedings against the Company or any of its officers or
        directors in connection with the sale of the Securities, the Offering Documents,
        or any application. 

      

      (b)
        The
        Placement Agent agrees to indemnify and hold harmless the Company, its officers,
        directors, employees, agents, and counsel, and each other person, if any,
        who
        controls the Company within the meaning of Section 15 of the Act or Section
        20(a) of the Exchange Act, to the same extent as the foregoing indemnity
        from
        the Company to the Placement Agent in Section 12(a), with respect to any
        and all
        loss, liability, claim, damage, and expense whatsoever (which shall include,
        for
        all purposes of this Section 12, but not be limited to, attorneys' fees and
        any
        and all expense whatsoever incurred in investigating, preparing, or defending
        against any litigation, commenced or threatened, or any claim whatsoever
        and any
        and all amounts paid in settlement of any claim or litigation) as and when
        incurred arising out of, based upon, or in connection with (i) statements
        or
        omissions, if any, made in the Offering Documents in reliance upon and in
        conformity with written information furnished to the Company by or on behalf
        of
        Placement Agent expressly for inclusion in the Offering Documents; (ii) the
        failure of the Placement Agent or its representatives to comply with the
        provisions of Section 4(c) hereof or with the federal, blue sky or securities
        laws of the jurisdictions in which the Placement Agent solicits offers to
        buy or
        offers to sell any Securities; or (iii) any breach of any representation,
        warranty, covenant or agreement of the Placement Agent contained in this
        Agreement. If any action shall be brought against the Company or any other
        person indemnified under this Section 12(b) in respect of which indemnity
        may be
        sought against the Placement Agent pursuant to this Section 12, the Placement
        Agent shall have the rights and duties given to the indemnifying party, and
        the
        Company and each other person so indemnified shall have the rights and duties
        given to the indemnified parties, by the provisions of Section 12(a)
        hereof.

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      

      

      (c)
        To
        provide for just and equitable contribution, if (i) an indemnified party
        makes a
        claim for indemnification pursuant to Section 12(a) or 12(b) hereof but it
        is
        found in a final judicial determination, not subject to further appeal, that
        such indemnification may not be enforced in such case, even though this
        Agreement expressly provides for indemnification in such case, or (ii) any
        indemnified or indemnifying party seeks contribution under the Act, the Exchange
        Act, or otherwise, then the Company (including for this purpose any contribution
        made by or on behalf of any officer, director, employee, agent, or counsel
        of
        the Company, or any controlling person of the Company), on the one hand,
        and the
        Placement Agent (including for this purpose any contribution by or on behalf
        of
        an indemnified party), on the other hand, shall contribute to the losses,
        liabilities, claims, damages, and expenses whatsoever to which any of them
        may
        be subject, in such proportions as are appropriate to reflect the relative
        benefits received by the Company, on the one hand, and the Placement Agent,
        on
        the other hand; provided, however, that if applicable law does not permit
        such
        allocation, then other relevant equitable considerations such as the relative
        fault of the Company and the Placement Agent in connection with the facts
        which
        resulted in such losses, liabilities, claims, damages, and expenses shall
        also
        be considered. The relative benefits received by the Company, on the one
        hand,
        and the Placement Agent, on the other hand, shall be deemed to be in the
        same
        proportion as (x) the total proceeds from the Offering (net of compensation
        payable to the Placement Agent pursuant to Section 5 hereof but before deducting
        expenses) received by the Company, and (y) the compensation received by the
        Placement Agent pursuant to Section 5 (a) hereof. 

      

      The
        relative fault, in the case of an untrue statement, alleged untrue statement,
        omission, or alleged omission, shall be determined by, among other things,
        whether such statement, alleged statement, omission, or alleged omission
        relates
        to information supplied by the Company or by the Placement Agent, and the
        parties' relative intent, knowledge, access to information, and opportunity
        to
        correct or prevent such statement, alleged statement, omission, or alleged
        omission. The Company and the Placement Agent agree that it would be unjust
        and
        inequitable if the respective obligations of the Company and the Placement
        Agent
        for contribution were determined by pro rata or per capita allocation of
        the
        aggregate losses, liabilities, claims, damages, and expenses or by any other
        method of allocation that does not reflect the equitable considerations referred
        to in this Section 12(c). In no case shall the Placement Agent be responsible
        for a portion of the contribution obligation in excess of the compensation
        received by it pursuant to Section 5 hereof. No person guilty of a fraudulent
        misrepresentation shall be entitled to contribution from any person who is
        not
        guilty of such fraudulent misrepresentation. For purposes of this Section
        12(c),
        each person, if any, who controls the Placement Agent within the meaning
        of
        Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
        director, partners, employee, agent, and counsel of the Placement Agent,
        shall
        have the same rights to contribution as the Placement Agent, and each person,
        if
        any, who controls the Company within the meaning of Section 15 of the Act
        or
        Section 20(a) of the Exchange Act and each officer, director, partner, employee,
        agent, and counsel of the Company, shall have the same rights to contribution
        as
        the Company, subject in each case to the provisions of this Section 12(c).
        Anything in this Section 12(c) to the contrary notwithstanding, no party
        shall
        be liable for contribution with respect to the settlement of any claim or
        action
        effected without its written consent. This Section 12(c) is intended to
        supersede any right to contribution under the Act, the Exchange Act, or
        otherwise.

      

      13.
        Solicitation Prohibition. 

      

      The
        Company agrees that, for a period of 18 months from end of the Exclusive
        Period,
        it shall not, directly or indirectly, (A) solicit offers to buy or sell any
        securities of the Company or any other entity from or to any person first
        introduced to the Company by First Montauk who purchases Securities in
        connection with the Offering, or (B) provide the name of any such person
        to any
        other securities broker or dealer or selling agent, without paying to First
        Montauk an amount equal to 10% of the aggregate purchase price of the securities
        so purchased or consideration received by such person.

      
        
          
          

        

        
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      14.
        Representations and Agreements to Survive Delivery.

      

      All
        representations, warranties, covenants, and agreements contained in this
        Agreement shall be deemed to be representations, warranties, covenants, and
        agreements at the Closing Date and, such representations, warranties, covenants,
        and agreements, including the indemnification and contribution agreements
        contained in Section 12, shall remain operative and in full force and effect
        regardless of any investigation made by or on behalf of the Placement Agent
        or
        any indemnified person, or by or on behalf of the Company or any person or
        entity which is entitled to be indemnified under Section 12(b), and shall
        survive termination of this Agreement or the issuance, sale, and delivery
        of the
        Securities. In addition, notwithstanding any election hereunder or any
        termination of this Agreement, and whether or not the terms of this Agreement
        are otherwise carried out, the provisions of Sections 5, 8, 11, 12, 13 and
        14
        shall survive termination of this Agreement and shall not be affected in
        any way
        by such election or termination or failure to carry out the terms of this
        Agreement or any part thereof.

      

      15.
        Notices.

      

      All
        communications hereunder, except as may be otherwise specifically provided
        herein, shall be in writing and, if sent to the Placement Agent, shall be
        mailed
        by certified mail, hand delivered, or sent by overnight courier service,
        to
        First Montauk Securities Corp., Parkway 109 Office Center, 328 Newman Springs
        Road, Red Bank, New Jersey 07701 Attention: Ernest Pellegrino, with a copy
        to
        Ellenoff Grossman & Schole LLP, 370 Lexington Avenue, 19th
        Floor,
        New York, New York 10017, Attention: Brian C. Daughney, Esq.; or if sent
        to the
        Company to Data Systems & Software Inc., 200 Route 17, Mahwah, NJ 07430,
        Attention: John A. Moore, Chief Executive Officer, with a copy to Eilenberg
        & Krause LLP, 17 East 44th Street, New York, NY 10017, Attention: Sheldon
        Krause, Esq. All notices hereunder shall be effective upon delivery to the
        party
        to which it is addressed.

      

      16.
        Parties.

      

      This
        Agreement shall inure solely to the benefit of, and shall be binding upon,
        the
        Placement Agent and the Company and the persons and entities referred to
        in
        Section 12 who are entitled to indemnification or contribution, and their
        respective successors, legal representatives, and assigns (which shall not
        include any purchaser, as such, of Securities), and no other person shall
        have
        or be construed to have any legal or equitable right remedy, or claim under
        or
        in respect of or by virtue of this Agreement or any provision herein contained.
        The engagement dated as of May 2, 2006 between First Montauk and the Company
        (the “Engagement Letter”) shall remain in effect, except as superseded by this
        Agreement. In the event of a conflict between the terms of this Agreement
        and
        those of the Engagement Letter, the terms of this Agreement will
        control.

      

      17.
        Governing Law. Submission to Jurisdiction.

      

      The
        validity and interpretation of this Agreement shall be governed by the laws
        of
        the State of New York applicable to agreements made and to be fully performed
        therein. Each of First Montauk and the Company (a) agrees that any legal
        suit,
        action or proceeding arising out of or relating to this Agreement shall be
        instituted exclusively in New York State Supreme Court, County of New York,
        or
        in the United States District Court for the Southern District of New York,
        (b)
        waives any objection which the Company may have now or hereafter to the venue
        of
        any such suit, action or proceeding, and (c) irrevocably consents to the
        jurisdiction of the foregoing named courts in any such suit, action or
        procedure. Each of the Company and First Montauk further agrees to accept
        and
        acknowledge service of any and all process which may be served in any suit,
        action or proceeding in the foregoing courts, and agrees that service of
        process
        upon the Company or First Montauk mailed by certified mail to the address
        set
        forth in Section 16 hereof shall be deemed in every respect effective service
        of
        process upon the Company in any such suit, action or proceeding. In the event
        of
        litigation between the parties arising hereunder, the prevailing party shall
        be
        entitled to costs and reasonable attorney's fees.

      

      18.
        Counterparts.

      

      This
        Agreement may be executed in counterparts, each of which shall constitute
        an
        original and all of which, when taken together, shall constitute one agreement.
        The
        parties hereto agree to accept a facsimile transmission copy of their respective
        actual signatures as evidence of their actual signatures to this
        Agreement

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      If
        the
        foregoing correctly sets forth the understanding between us, please so indicate
        in the space provided below for that purpose, whereupon this letter shall
        constitute a binding agreement among us. 

      

      Very
        truly yours, 

      

      DATA
        SYSTEMS & SOFTWARE INC.

      

      

      By:
        ________________________________

      Name:
        John A. Moore

      Title:
        Chief Executive Officer

      Accepted
        as of the date

      first
        above written:

      

      FIRST
        MONTAUK SECURITIES CORP.

      

      

      

      By:
        _______________________________ 

      Name:

      Title:

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