Document:

EXHIBIT 10.8

                              INVESTMENT AGREEMENT

     INVESTMENT  AGREEMENT  (this  "AGREEMENT"), dated as of June 4, 2004 by and
between  Payment  Data  Systems, Inc., a Nevada corporation (the "Company"), and
Dutchess  Private  Equities  Fund,  L.P.,  a  Delaware  limited partnership (the
"Investor").

     Whereas,  the  parties  desire  that,  upon  the  terms  and subject to the
conditions contained herein, the Investor shall invest up to Ten Million Dollars
($10,000,000)  to  purchase the Company's Common Stock, .001 par value per share
(the  "Common  Stock");

     Whereas,  such  investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the "1933 Act"), Rule
506  of  Regulation  D,  and  the  rules and regulations promulgated thereunder,
and/or  upon such other exemption from the registration requirements of the 1933
Act  as may be available with respect to any or all of the investments in Common
Stock  to  be  made  hereunder;  and

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

     NOW  THEREFORE,  in consideration of the foregoing recitals, which shall be
considered  an integral part of this Agreement, the covenants and agreements set
forth  hereafter,  and  other  good  and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby
agree  as  follows:

Section  1.  DEFINITIONS.

     As  used  in  this  Agreement, the following terms shall have the following
meanings  specified  or  indicated  below,  and  such  meanings shall be equally
applicable  to  the  singular  and  plural  forms  of  such  defined  terms.

     "1933  Act"  shall  have  the  meaning  set  forth  in the preamble, above.

     "1934  Act"  shall  mean  the Securities Exchange Act of 1934, as it may be
amended.

     "Affiliate"  shall  have  the  meaning  specified  in  Section 5(h), below.

     "Agreement"  shall  mean  this  Investment  Agreement.

"Best  Bid"  shall  mean  the  highest  posted  bid  price  of the Common Stock.

     "Buy  In"  shall  have  the  meaning  specified  in  Section  6,  below.

     "Buy  In  Adjustment Amount" shall have the meaning specified in Section 6.

     "Closing"  shall  have  the  meaning  specified  in  Section  2(h).

     "Closing  Date"  shall mean seven (7) Trading Days following the Put Notice
Date.

"Common  Stock"  shall  have  the  meaning  set  forth  in  the preamble to this
Agreement.

     "Control"  or  "Controls" shall have the meaning specified in Section 5(h).

     "Covering  Shares"  shall  have  the  meaning  specified  in  Section  6.

     "Effective  Date"  shall mean the date the SEC declares effective under the
1933  Act  the  Registration  Statement  covering  the  Securities.

     "Environmental  Laws"  shall  have  the  meaning specified in Section 4(m),
below.

     "Execution  Date"  shall  mean  the  date indicated in the preamble to this
Agreement.

     "Indemnitiees"  shall  have  the  meaning  specified  in Section 11, below.

     "Indemnified  Liabilities"  shall have the meaning specified in Section 11,
below.

     "Ineffective  Period"  shall  mean any period of time that the Registration
Statement  or  any  Supplemental  Registration  Statement  (as  defined  in  the
Registration  Rights  Agreement)  becomes ineffective or unavailable for use for
the  sale  or resale, as applicable, of any or all of the Registrable Securities
(as  defined  in  the  Registration  Rights Agreement) for any reason (or in the
event  the  prospectus under either of the above is not current and deliverable)
during  any  time  period  required  under  the  Registration  Rights Agreement.

     "Investor"  shall  have  the  meaning  indicated  in  the  preamble of this
Agreement.

     "Major  Transaction"  shall  have  the  meaning  specified in Section 2(g),
above.

     "Material Adverse Effect" shall have the meaning specified in Section 4(a).

     "Maximum Common Stock Issuance" shall have the meaning specified in Section
2(i).

     "Minimum  Acceptable  Price" with respect to any Put Notice Date shall mean
75%  of the lowest closing bid prices for the ten Trading Day period immediately
preceding  such  Put  Notice  Date.

     "Open  Period" shall mean the period beginning on and including the Trading
Day  immediately following the Effective Date and ending on the earlier to occur
of  (i)  the  date  which is thirty six (36) months from the Effective Date; and
(ii)  termination  of  the  Agreement  in  accordance  with  Section  9,  below.

      "Pricing  Period"  shall  mean the period beginning on the Put Notice Date
and  ending  on  and including the date that is five (5) Trading Days after such
Put  Notice  Date.

     "Principal  Market"  shall  mean  the  American  Stock  Exchange, Inc., the
National  Association  of  Securities  Dealers,  Inc.  Over-the-Counter Bulletin
Board,  the  Nasdaq  National  Market  System  or  the  Nasdaq  SmallCap Market,
whichever  is  the  principal  market  on  which  the  Common  Stock  is listed.

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"Prospectus"  shall mean the prospectus, preliminary prospectus and supplemental
prospectus  used  in  connection  with  the  Registration  Statement.

     "Purchase Amount" shall mean the total amount being paid by the Investor on
a  particular  Closing  Date  to  purchase  the  Securities.

     "Purchase Price" shall mean ninety-five percent (95%) of the lowest closing
Best  Bid  price  of  the  Common  Stock  during  the  Pricing  Period.

     "Put  Amount"  shall  have  the  meaning  set forth in Section 2(b) hereof.

     "Put  Notice"  shall  mean  a  written  notice  sent to the Investor by the
Company  stating  the  Put  Amount  of Shares the Company intends to sell to the
Investor  pursuant  to the terms of the Agreement and stating the current number
of  Shares  issued  and  outstanding  on  such  date.

     "Put  Notice Date" shall mean the Trading Day immediately following the day
on  which  the  Investor  receives  a  Put Notice, however a Put Notice shall be
deemed delivered on (x) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received prior to 9:00 am Eastern Time, or (y)
the  immediately  succeeding  Trading  Day  if  it  is  received by facsimile or
otherwise  after  9:00  am  Eastern Time on a Trading Day.  No Put Notice may be
deemed  delivered  on  a  day  that  is  not  a  Trading  Day.

     "Put Restriction" shall mean the days between the end of the Pricing Period
and  the date on which the Investor deems the Put closed.  During this time, the
Company  shall  not  be  entitled  to  deliver  another  Put  Notice.

     "Registration  Period"  shall  have  the meaning specified in Section 5(c),
below.

     "Registration  Rights  Agreement"  shall  have the meaning set forth in the
recitals,  above.

     "Registration  Statement"  means  the registration statement of the Company
filed  under  the  1933  Act  covering  the  Common  Stock  issuable  hereunder.

     "Related  Party"  shall  have  the  meaning  specified  in  Section  5(h).

     "Resolution"  shall  have  the  meaning  specified  in  Section  8(e).

     "SEC"  shall  mean  the  U.S.  Securities  &  Exchange  Commission.

     "SEC  Documents"  shall  have  the  meaning  specified  in  Section  4(f).

     "Securities"  shall  mean the shares of Common Stock issued pursuant to the
terms  of  the  Agreement.

     "Shares"  shall  mean  the  shares  of  the  Company's  Common  Stock.

     "Sold  Shares"  shall  have  the  meaning  specified  in  Section  6.

     "Subsidiaries"  shall  have  the  meaning  specified  in  Section  4(a).

     "Trading  Day"  shall  mean  any  day on which the Principal Market for the
Common  Stock  is  open  for  trading,  from the hours of 9:30 am until 4:00 pm.

<PAGE>
"Transaction  Documents"  shall  mean  this  Agreement,  the Registration Rights
Agreement,  and  each of the other agreements entered into by the parties hereto
in  connection  with  this  Agreement.

     "Valuation  Event"  shall  have  the  meaning  specified  in  Section 2(j).

Section  2.  PURCHASE  AND  SALE  OF  COMMON  STOCK.

     (a)  Purchase  and  Sale  of  Common  Stock.  Subject  to  the  terms  and
conditions  set  forth herein, the Company shall issue and sell to the Investor,
and  the  Investor  shall purchase from the Company, up to that number of Shares
having  an  aggregate  Purchase  Price  of  Ten  Million  Dollars ($10,000,000).

     (b)  Delivery  of  Put  Notices.

     (i)  Subject  to the terms and conditions of the Transaction Documents, and
from  time  to  time  during  the  Open  Period,  the  Company  may, in its sole
discretion,  deliver  a  Put  Notice to the Investor which states the Put Amount
which  the  Company  intends to sell to the Investor on a Closing Date.  The Put
Notice shall be in the form attached hereto as Exhibit B and incorporated herein
by  reference.  The  amount  that  the  Company  shall be entitled to Put to the
Investor  in  any single Put Notice (the "Put Amount") shall be equal to, at the
Company's election, either: (a) four hundred percent (400%) of the average daily
volume  (U.S.  market  only)  of  the Common Stock for the ten (10) Trading Days
prior  to the applicable Put Notice Date, multiplied by the average of the three
(3)  daily  closing  Best  Bid prices immediately preceding the Put Date, or (b)
twenty  five  thousand $25,000; provided that in no event will the Put Amount be
more  than  One  Million  Dollars  ($1,000,000)  with respect to any single Put.
During the Open Period, the Company shall not be entitled to submit a Put Notice
until  after the previous Closing has been completed. The Purchase Price for the
Common  Stock  identified  in the Put Notice shall be equal to 95% of the lowest
closing  bid  price  of  the  Common  Stock  during  the  Pricing  Period.

     (ii)  If  any  closing  bid price during the applicable Pricing Period with
respect  to  that  Put  Notice  is  less than 75% of the lowest closing Best Bid
prices of the Common Stock for the Ten (10) Trading Days prior to the Put Notice
Date  (the  "Minimum  Acceptable  Price"),  the Put Notice will terminate at the
Company's  request  sent in accordance with Section 9 of this Agreement.  In the
event  that the closing bid price for the applicable Pricing Period is less than
the  Minimum  Acceptable Price, the Company may elect, by sending written notice
to  the  Investor  to  cancel  the  Put  Notice.

     (iii)  Within  seven  calendar days prior the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
shall  undertake  to notify Investor as to its reasonable expectations as to the
Put Amount it intends to raise during such calendar quarter, if any, through the
issuance  of  Put Notices. Such notification shall constitute only the Company's
good  faith  estimate  with respect to such calendar quarter and shall in no way
obligate  the  Company  to  raise  such  amount  during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The  failure  by  the  Company  to  comply  with  this provision may be cured by
notifying  the  Investor at any time as to the Company's reasonable expectations
with  respect  to  the  current  calendar  quarter.

     (c)  Interest.  It  is  the intention of the parties that any interest that
may  be  deemed  to be payable under this Agreement shall not exceed the maximum
amount  permitted  under  applicable law. If any applicable law sets the maximum
interest  amount,  and  any  payment  required under this Agreement exceeds such
limit,  then:  (i)  any  such  interest  shall  be  reduced  by  the  amount

<PAGE>
necessary  to  reduce  the interest to the legally permitted limit; and (ii) any
sums  already collected (if any) from a party which exceed the legally permitted
limits  will  be  refunded  to  such  party.

     (d)  Investor's  Obligation  to Purchase Shares.  Subject to the conditions
set  forth  in  this  Agreement,  following  the Investor's receipt of a validly
delivered  Put  Notice,  the  Investor  shall  be  required to purchase from the
Company  during  the  related  Pricing  Period  that  number of Shares having an
aggregate  Purchase Price equal to the lesser of (i) the Put Amount set forth in
the Put Notice, and (ii) 20% of the aggregate trading volume of the Common Stock
during  the  applicable  Pricing  Period times (x) 95% of the lowest closing bid
prices  of  the  Company's Common Stock during the specified Pricing Period, but
only if said Shares bear no restrictive legend, are not subject to stop transfer
instructions,  pursuant  to  Section 2(h), prior to the applicable Closing Date.

     (e)  Limitation  on  Investor's Obligation to Purchase Shares.  In no event
shall  the  Investor  purchase  Shares (whether from the Company or in public or
private secondary transactions) other than pursuant to this Agreement until such
date  as  this  Agreement  is  terminated.

     (f)  Conditions  to  Investor's  Obligation  to  Purchase  Shares.
Notwithstanding  anything  to  the contrary in this Agreement, the Company shall
not  be entitled to deliver a Put Notice and the Investor shall not be obligated
to  purchase any Shares at a Closing (as defined in Section 2(h)) unless each of
the  following  conditions  are  satisfied:

     (i)  a  Registration Statement shall have been declared effective and shall
remain  effective and available for the resale of all the Registrable Securities
(as defined in the Registration Rights Agreement) at all times until the Closing
with  respect  to  the  subject  Put  Notice;

     (ii)  at  all  times  during the period beginning on the related Put Notice
Date  and  ending  on  and  including the related Closing Date, the Common Stock
shall have been listed on the Principal Market and shall not have been suspended
from  trading  thereon  for a period of five consecutive Trading Days during the
Open  Period  or one day during a Pricing Period, and the Company shall not have
been notified of any pending or threatened proceeding or other action to de-list
or  suspend  the  Common  Stock;

     (iii) the Company has complied with its obligations and is otherwise not in
breach  of  a  material  provision  of, or in default under, this Agreement, the
Registration  Rights  Agreement  or  any  other agreement executed in connection
herewith  which has not been corrected prior to delivery of the Put Notice Date;

     (iv)  no  injunction  shall have been issued and remain in force, or action
commenced  by  a  governmental authority which has not been stayed or abandoned,
prohibiting  the  purchase  or  the  issuance  of  the  Securities;  and

     (v)  the  issuance  of  the  Securities  will  not  violate any shareholder
approval  requirements  of  the  Principal  Market.

If  any of the events described in clauses (i) through (v) above occurs during a
Pricing  Period,  then the Investor shall have no obligation to purchase the Put
Amount  of  Common  Stock  set  forth  in  the  applicable  Put  Notice.

<PAGE>

     (g)  Major  Transaction.  For  purposes  of  this  Agreement,  a  "Major
Transaction"  shall  be  deemed  to have occurred upon the closing of any of the
following events: (i) the consolidation, merger or other business combination of
the  Company  with  or  into  another person (other than pursuant to a migratory
merger  effected  solely  for  the  purposes  of  changing  the  jurisdiction of
incorporation of the Company or other than a transaction in which the Company is
the  surviving  corporation);  (ii) the sale or transfer of all or substantially
all  of the Company's assets; or (iii) the consummation of a purchase, tender or
exchange  offer  made  to,  and accepted by, the holders of more than 50% of the
economic  interest  in,  or  the  combined voting power of all classes of voting
stock  of,  the  Company.

     (h)  Mechanics  of  Purchase  of  Shares  by  Investor.  Subject  to  the
satisfaction  of the conditions set forth in Sections 2(f), 7 and 8, the closing
of  the purchase by the Investor of Shares (a "Closing") shall occur on the date
which  is  no  later than seven Trading Days following the applicable Put Notice
Date (each a "Closing Date").  Prior to each Closing Date, (i) the Company shall
deliver  to  the  Investor  pursuant  to  the  this  Agreement,  certificates
representing the Shares to be issued to the Investor on such date and registered
in  the name of the Investor; and (ii) the Investor shall deliver to the Company
the  Purchase  Price  to  be  paid  for  such Shares, determined as set forth in
accordance  with  the  terms  of  this Agreement. In lieu of delivering physical
certificates  representing  the  Securities  and  provided  that  the  Company's
transfer  agent  then  is  participating in The Depository Trust Company ("DTC")
Fast  Automated  Securities  Transfer  ("FAST")  program,  upon  request  of the
Investor, the Company shall use its commercially reasonable efforts to cause its
transfer  agent  to  electronically  transmit  the  Securities  by crediting the
account of the Investor's prime broker (which shall be specified by the Investor
a reasonably sufficient time in advance) with DTC through its Deposit Withdrawal
Agent  Commission  ("DWAC")  system.

     The  Company  understands that a delay in the issuance of Securities beyond
the  Closing  Date  could  result  in  economic loss to the Investor.  After the
Effective  Date,  as  compensation  to  the  Investor for such loss, the Company
agrees  to  pay  late  payments  to the Investor for late issuance of Securities
(delivery  of  Securities  after the applicable Closing Date) in accordance with
the  following  schedule  (where  "No. of Days Late" is defined as the number of
days  beyond  the  Closing  Date):

     Late  Payment  For  Each
No.  of  Days  Late               $10,000  of  Common  Stock

          1                         $100
          2                         $200
          3                         $300
          4                         $400
          5                         $500
          6                         $600
          7                         $700
          8                         $800
          9                         $900
          10                         $1,000
          Over  10                    $1,000  +  $200  for  each
                              Business  Day  late  beyond  10  days

The  Company  shall  pay any payments incurred under this Section in immediately
available funds upon demand.  Nothing herein shall limit the Investor's right to
pursue  actual  damages  for  the  Company's  failure  to  issue and deliver the
Securities  to  the Investor, except to the extent that such late payments shall
constitute  payment  for  and  offset  any  such  actual  damages alleged by the
Investor,  and  any  Buy  In  Adjustment  Amount.

<PAGE>
(i)  Overall  Limit on Common Stock Issuable. Notwithstanding anything contained
herein  to the contrary, if during the Open Period the Company becomes listed on
an  exchange that limits the number of shares of Common Stock that may be issued
without  shareholder approval, then the number of Shares issuable by the Company
and  purchasable by the Investor,  shall not exceed that number of the shares of
Common  Stock  that  may  be  issuable  without shareholder approval, subject to
appropriate  adjustment for stock splits, stock dividends, combinations or other
similar  recapitalization  affecting the Common Stock (the "Maximum Common Stock
Issuance"), unless the issuance of Shares, in excess of the Maximum Common Stock
Issuance  shall  first  be  approved by the Company's shareholders in accordance
with  applicable  law  and  the  By-laws and Amended and Restated Certificate of
Incorporation  of  the Company, if such issuance of shares of Common Stock could
cause a delisting on the Principal Market. The parties understand and agree that
the  Company's  failure  to seek or obtain such shareholder approval shall in no
way adversely affect the validity and due authorization of the issuance and sale
of  Securities  or  the  Investor's  obligation in accordance with the terms and
conditions  hereof  to  purchase  a  number of Shares in the aggregate up to the
Maximum  Common  Stock Issuance limitation, and that such approval pertains only
to the applicability of the Maximum Common Stock Issuance limitation provided in
this  Section  2(i).

     (j)  For  the  purpose  of this Agreement, the term "Valuation Event" means
the  Company  taking  any  of the following actions at any time during a Pricing
Period:

     (i)  the  subdivision  or  combinations  of  the  Company's  Common  Stock;

(ii)  the payment of a dividend or any other distribution with respect to shares
of  the  Company's  Common  Stock;

     (iii)  the  issuance  of  any  options  or other rights to subscribe for or
purchase  Common  Stock  ("Options")  or  any  securities  convertible  into  or
exchangeable  for  Common  Stock ("Convertible Securities"), the price per share
for which Common Stock is shall be less than the bid price in effect immediately
prior  to  such  issuance  of  such  Options  or  Convertible  Securities;

     (iv)  the  issuance of shares of Common Stock other than as provided in the
foregoing subsections (i) through (iii), at a price per share less, or for other
consideration  lower,  than  the  bid  price in effect immediately prior to such
issuance,  or  without  consideration;  or

     (v)   the  distribution  of  its assets or evidences of indebtedness to the
holders  of  Common  Stock  as  a dividend in liquidation or by way of return of
capital  or  other than as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any distribution to such holders
made  in respect of the sale of all or substantially all of the Company's assets
(other  than  under  the circumstances provided for in the foregoing subsections
(i)  through  (iv)).

     (k)  The Company agrees that it shall not take any action that would result
in  a  Valuation  Event  occurring  during  a  Pricing  Period.

     (l)  Governmental or Criminal Actions.  During the Open Period, the Company
or  any  of  its  management or board of directors ("Insiders") shall not be the
cause  for  an  investigation  by  any  governmental agencies whether foreign or
domestic.  All  Insiders  shall also not be charged with any criminal activities
whether  it be foreign or domestic, securities related or non-securities related
for  the  Open  Period.

Section  3.  INVESTOR'S  REPRESENTATIONS,  WARRANTIES  AND  COVENANTS.

     The  Investor  represents and warrants to the Company, and covenants, that:

     (a)   Sophisticated  Investor.  The Investor has, by reason of its business
and  financial  experience,  such  knowledge,  sophistication  and experience in
financial  and  business matters and in making investment decisions of this type
that  it  is  capable of (i) evaluating the merits and risks of an investment in
the  Securities  and making an informed investment decision; (ii) protecting its
own  interest;  and  (iii)  bearing  the economic risk of such investment for an
indefinite  period  of  time.

     (b)  Authorization;  Enforcement.  This Agreement has been duly and validly
authorized,  executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to  applicable  bankruptcy,  insolvency, reorganization, moratorium, liquidation
and  other  similar laws relating to, or affecting generally, the enforcement of
applicable  creditors'  rights  and  remedies.

     (c)  Section  9  of  the  1934 Act.  During the term of this Agreement, the
Investor  will  comply with the provisions of Section 9 of the 1934 Act, and the
rules  promulgated thereunder, with respect to transactions involving the Common
Stock.   The Investor agrees not to short, either directly or indirectly through
its  affiliates,  principals  or advisors, the Company's common stock during the
term  of  this  Agreement.

     (d)  Accredited  Investor.  Investor  is  an  "Accredited Investor" as that
term  is  defined  in  Rule  501(a)(3)  of  Regulation  D  of  the  1933  Act.

     (e)  No  Conflicts.  The  execution,  delivery  and  performance  of  the
Transaction  Documents  by  the Investor and the consummation by the Investor of
the  transactions contemplated hereby and thereby will not result in a violation
of  Partnership  Agreement  or  other  organizational documents of the Investor.

     (f)   Opportunity  to  Discuss.  The  Investor  has  had  an opportunity to
discuss  the  business, management and financial affairs of the Company with the
Company's  management  to  a  level  of satisfactory conditions for this type of
investment.

     (g)  Investment  Purposes.  The  Investor  is purchasing the Securities for
its own account for investment purposes and not with a view towards distribution
and agrees to resell or otherwise dispose of the Securities solely in accordance
with  the  registration  provisions of the 1933 Act (or pursuant to an exemption
from  such  registration  provisions).

     (h)  No  Registration  as a Broker or Dealer.  The Investor is not and will
not  be  required  to be registered as a "broker or "dealer" under the 1934 Act,
either  as  a  result  of its execution and performance of its obligations under
this  Agreement  or  otherwise.

     (i)  Good Standing.  The Investor is a Limited Partnership, duly organized,
validly  existing  and  in  good  standing  in  the  State  of  Delaware.

(j)     Tax Liabilities.  The Investor understands that it is liable for its own
tax  liabilities.

     (k)  Regulation  M.  The  Investor  will comply with Regulation M under the
1934  Act,  if  applicable

Section  4.  REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY.

     Except  as  set  forth in the Schedules attached hereto, or as disclosed on
the Company's SEC Documents, the Company represents and warrants to the Investor
that:

     (a)  Organization  and  Qualification.  The  Company  is a corporation duly
organized  and  validly existing in good standing under the laws of the State of
Nevada,  and  has  the  requisitecorporate  power  and  authorization to own its
properties  and  to  carry  on  its business as now being conducted. Each of the
Company  and  its  Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property  or the nature of the business conducted by it makes such qualification
necessary,  except  to  the  extent that the failure to be so qualified or be in
good  standing  would  not  have  a  Material  Adverse  Effect.  As used in this
Agreement,  "Material  Adverse  Effect" means any material adverse effect on the
business,  properties,  assets,  operations,  results  of  operations, financial
condition  or  prospects of the Company and its Subsidiaries, if any, taken as a
whole,  or  on  the  transactions  contemplated  hereby or by the agreements and
instruments  to  be  entered into in connection herewith, or on the authority or
ability  of  the  Company  to  perform  its  obligations  under  the Transaction
Documents  (as  defined  in  Section  1  and  4(b),  below).

     (b)  Authorization;  Enforcement;  Compliance  with  Other  Instruments.

     (i)  The  Company  has the requisite corporate power and authority to enter
into  and perform this Agreement, the Registration Rights Agreement, and each of
the  other  agreements entered into by the parties hereto in connection with the
transactions  contemplated  by  this  Agreement  (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof.

(ii)  The execution and delivery of the Transaction Documents by the Company and
the  consummation  by  it  of  the transactions contemplated hereby and thereby,
including  without  limitation  the reservation for issuance and the issuance of
the Securities pursuant to this Agreement, have been duly and validly authorized
by  the  Company's Board of Directors and no further consent or authorization is
required  by  the  Company,  its  Board  of  Directors,  or  its  shareholders.

(iii)  The  Transaction  Documents  have  been  duly  and  validly  executed and
delivered  by  the  Company.

(iv)  The  Transaction Documents constitute the valid and binding obligations of
the  Company  enforceable  against  the  Company in accordance with their terms,
except  as such enforceability may be limited by general principles of equity or
applicable  bankruptcy,  insolvency,  reorganization, moratorium, liquidation or
similar  laws relating to, or affecting generally, the enforcement of creditors'
rights  and  remedies.

     (c) Capitalization.  As of the date hereof, the authorized capital stock of
the  Company  consists of (i) 200,000,000 shares of Common Stock, .001 par value
per  share,  of  which  as  of the date hereof, 20,722,656 shares are issued and
outstanding.  All  of  such  outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable.  Except as disclosed in
the Company's publicly available filings with Periodic Filings, (i) no shares of
the  Company's  capital  stock  are  subject  to  preemptive rights or any other
similar  rights  or  any  liens  or  encumbrances  suffered  or permitted by the
Company;  (ii)  there  are  no  outstanding  debt securities; (iii) there are no
outstanding  shares  of  capital  stock,  options,  warrants,  scrip,  rights to
subscribe  to,  calls or commitments of any character whatsoever relating to, or
securities  or  rights  convertible  into,  any  shares  of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements  by  which  the Company or any of its Subsidiaries is or may become
bound  to  issue additional shares of capital stock of the Company or any of its
Subsidiaries  or  options,  warrants,  scrip,  rights  to subscribe to, calls or
commitments  of  any  character  whatsoever relating to, or securities or rights
convertible  into,  any  shares  of  capital  stock of the Company or any of its
Subsidiaries;  (iv)  there  are  no  agreements  or arrangements under which the
Company  or  any of its Subsidiaries is obligated to register the sale of any of
their  securities under the 1933 Act (except the Registration Rights Agreement);
(v)  there  are  no  outstanding  securities  of  the  Company  or  any  of  its
Subsidiaries  which  contain any redemption or similar provisions, and there are
no  contracts,  commitments, understandings or arrangements by which the Company
or  any  of  its Subsidiaries is or may become bound to redeem a security of the
Company  or any of its Subsidiaries; (vi) there are no securities or instruments
containing  anti-dilution  or  similar  provisions that will be triggered by the
issuance  of  the  Securities  as described in this Agreement; (vii) the Company
does  not  have  any  stock  appreciation  rights  or  "phantom  stock" plans or
agreements  or  any similar plan or agreement; and (viii) there is no dispute as
to  the classification of any shares of the Company's capital stock. The Company
has  furnished to the Investor, or the Investor has had access through EDGAR to,
true  and  correct  copies  of the Company's Amended and Restated Certificate of
Incorporation,  as  in  effect  on  the  date  hereof  (the  "Certificate  of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"),  and the terms of all securities convertible into or exercisable for
Common  Stock and the material rights of the holders thereof in respect thereto.

     (d)  Issuance  of  Shares.  The  Company has reserved 40,000,000 Shares for
issuance  pursuant  to  this Agreement has been duly authorized and reserved for
issuance  (subject to adjustment pursuant to the Company's covenant set forth in
Section  5(f)  below)  pursuant  to this Agreement.  Upon issuance in accordance
with  this  Agreement,  the  Securities  will  be validly issued, fully paid and
non-assessable  and  free  from all taxes, liens and charges with respect to the
issue  thereof.  In the event the Company cannot register a sufficient number of
Shares  for  issuance  pursuant to this Agreement, the Company will use its best
efforts  to authorize and reserve for issuance the number of Shares required for
the  Company  to  perform  its  obligations  hereunder  as  soon  as  reasonably
practicable.

     (e)  No  Conflicts.  The  execution,  delivery  and  performance  of  the
Transaction  Documents by the Company and the consummation by the Company of the
transactions  contemplated hereby and thereby will not (i) result in a violation
of  the  Certificate  of  Incorporation,  any  Certificate  of  Designations,
Preferences  and  Rights  of  any  outstanding  series of preferred stock of the
Company  or the By-laws; or (ii) conflict with, or constitute a material default
(or  an event which with notice or lapse of time or both would become a material
default)  under,  or  give  to  others  any  rights  of  termination, amendment,
acceleration  or  cancellation  of,  any material agreement, contract, indenture
mortgage,  indebtedness  or  instrument  to  which  the  Company  or  any of its
Subsidiaries  is a party, or result in a violation of any law, rule, regulation,
order,  judgment or decree (including United States federal and state securities
laws  and  regulations  and the rules and regulations of the Principal Market or
principal  securities  exchange  or  trading market on which the Common Stock is
traded  or  listed)  applicable  to the Company or any of its Subsidiaries or by
which  any  property or asset of the Company or any of its Subsidiaries is bound
or  affected.  Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries  is  in  violation  of  any  term  of,  or  in  default  under, the
Certificate  of  Incorporation, any Certificate of Designations, Preferences and
Rights  of  any  outstanding  series  of  preferred  stock of the Company or the
By-laws  or  their  organizational  charter  or  by-laws,  respectively,  or any
contract,  agreement,  mortgage,  indebtedness, indenture, instrument, judgment,
decree  or order or any statute, rule or regulation applicable to the Company or
its  Subsidiaries,  except  for  possible  conflicts,  defaults,  terminations,
amendments,  accelerations,  cancellations  and  violations  that  would  not
individually or in the aggregate have a Material Adverse Effect. The business of
the  Company  and  its  Subsidiaries  is  not  being conducted, and shall not be
conducted,  in  violation  of  any  law,  statute,  ordinance,  rule,  order  or
regulation  of  any  governmental  authority  or  agency,  regulatory  or
self-regulatory  agency,  or court, except for possible violations the sanctions
for  which  either  individually  or  in the aggregate would not have a Material
Adverse  Effect.  Except  as  specifically contemplated by this Agreement and as
required  under the 1933 Act, the Company is not required to obtain any consent,
authorization,  permit  or  order of, or make any filing or registration (except
the  filing of a registration statement) with, any court, governmental authority
or  agency,  regulatory  or self-regulatory agency or other third party in order
for  it  to  execute,  deliver  or  perform  any  of  its  obligations under, or
contemplated  by,  the Transaction Documents in accordance with the terms hereof
or  thereof.  All  consents,  authorizations,  permits,  orders,  filings  and
registrations  which the Company is required to obtain pursuant to the preceding
sentence  have  been obtained or effected on or prior to the date hereof and are
in  full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which  might give rise to any of the foregoing. The Company is not, and will not
be,  in  violation  of  the  listing  requirements of the Principal Market as in
effect  on  the date hereof and on each of the Closing Dates and is not aware of
any  facts  which  would reasonably lead to delisting of the Common Stock by the
Principal  Market  in  the  foreseeable  future.

     (f)  SEC  Documents;  Financial Statements.  Since at least September 30th,
2003,  the Company has filed all reports, schedules, forms, statements and other
documents  required  to  be  filed  by it with the SEC pursuant to the reporting
requirements  of  the  1934  Act  (all  of the foregoing filed prior to the date
hereof  and all exhibits included therein and financial statements and schedules
thereto  and  documents  incorporated  by  reference  therein  being hereinafter
referred  to  as the "SEC Documents"). The Company has delivered to the Investor
or  its  representatives,  or  they  have  had access through EDGAR to, true and
complete  copies  of  the  SEC  Documents. As of their respective dates, the SEC
Documents  complied  in  all material respects with the requirements of the 1934
Act  and  the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with  the  SEC,  contained any untrue statement of a material fact or omitted to
state  a  material  fact  required to be stated therein or necessary to make the
statements  therein,  in  light of the circumstances under which they were made,
not misleading. As of their respective filing dates, the financial statements of
the  Company  included  in the SEC Documents complied as to form in all material
respects  with  applicable  accounting  requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared  in  accordance  with  generally  accepted  accounting  principles,
consistently  applied,  during  the  periods  involved  (except  (i)  as  may be
otherwise  indicated  in such financial statements or the notes thereto, or (ii)
in  the  case  of  unaudited  interim statements, to the extent they may exclude
footnotes  or  may be condensed or summary statements) and fairly present in all
material  respects the financial position of the Company as of the dates thereof
and  the  results  of  its  operations and cash flows for the periods then ended
(subject,  in  the  case  of  unaudited  statements,  to  normal  year-end audit
adjustments).  No  other  written  information  provided  by or on behalf of the
Company  to  the Investor which is not included in the SEC Documents, including,
without  limitation,  information referred to in Section 4(d) of this Agreement,
contains  any untrue statement of a material fact or omits to state any material
fact  necessary to make the statements therein, in the light of the circumstance
under  which  they are or were made, not misleading. Neither the Company nor any
of  its  Subsidiaries  or  any of their officers, directors, employees or agents
have  provided  the  Investor with any material, nonpublic information which was
not  publicly  disclosed  prior  to  the date hereof and any material, nonpublic
information  provided  to the Investor by the Company or its Subsidiaries or any
of  their  officers,  directors,  employees  or agents prior to any Closing Date
shall  be  publicly  disclosed  by  the  Company  prior  to  such  Closing Date.

     (g)  Absence of Certain Changes.  Except as set forth in the SEC Documents,
the  Company  does  not intend to change the business operations of the Company.
The  Company  has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its  Subsidiaries  have  any  knowledge  or reason to believe that its creditors
intend  to  initiate  involuntary  bankruptcy  proceedings.

     (h)  Absence  of  Litigation.  Except  as  set  forth in the SEC Documents,
there  is no action, suit, proceeding, inquiry or investigation before or by any
court,  public  board,  government  agency, self-regulatory organization or body
pending  or, to the knowledge of the executive officers of Company or any of its
Subsidiaries,  threatened  against or affecting the Company, the Common Stock or
any  of  the  Company's  Subsidiaries  or  any of the Company's or the Company's
Subsidiaries'  officers  or  directors  in their capacities as such, in which an
adverse  decision  could  have  a  Material  Adverse  Effect.

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

     (j)  No  Undisclosed  Events,  Liabilities,  Developments or Circumstances.
Except  as  set  forth  in the SEC Documents, since November 24, 2003, no event,
liability,  development  or  circumstance  has  occurred  or  exists,  or to the
Company's knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries  or  their  respective  business,  properties,  assets,  prospects,
operations or financial condition, that would be required to be disclosed by the
Company  under applicable securities laws on a registration statement filed with
the  SEC relating to an issuance and sale by the Company of its Common Stock and
which  has  not  been  publicly  announced.

     (k) Employee Relations.  Neither the Company nor any of its Subsidiaries is
involved  in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of  its  Subsidiaries  is  a party to a collective bargaining agreement, and the
Company  and  its  Subsidiaries  believe that relations with their employees are
good.  No  executive  officer  (as  defined  in Rule 501(f) of the 1933 Act) has
notified  the Company that such officer intends to leave the Company's employ or
otherwise  terminate  such  officer's  employment  with  the  Company.

     (l)  Intellectual Property Rights.  The Company and its Subsidiaries own or
possess  adequate rights or licenses to use all trademarks, trade names, service
marks,  service  mark  registrations,  service  names,  patents,  patent rights,
copyrights,  inventions, licenses, approvals, governmental authorizations, trade
secrets  and  rights  necessary  to  conduct  their respective businesses as now
conducted.  Except  as  set  forth  the  SEC  Documents,  none  of the Company's
trademarks,  trade  names,  service  marks,  service mark registrations, service
names,  patents,  patent  rights,  copyrights,  inventions, licenses, approvals,
government  authorizations,  trade secrets or other intellectual property rights
necessary  to  conduct  its  business as now or as proposed to be conducted have
expired  or  terminated, or are expected to expire or terminate within two years
from  the  date  of this Agreement. The Company and its Subsidiaries do not have
any  knowledge  of  any  infringement  by  the  Company  or  its Subsidiaries of
trademark,  trade  name  rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or  other  similar  rights  of  others, or of any such development of similar or
identical  trade  secrets  or technical information by others and, except as set
forth  on  the SEC Documents, there is no claim, action or proceeding being made
or brought against, or to the Company's knowledge, being threatened against, the
Company  or  its  Subsidiaries  regarding trademark, trade name, patents, patent
rights,  invention,  copyright,  license,  service names, service marks, service
mark  registrations, trade secret or other infringement; and the Company and its
Subsidiaries  are unaware of any facts or circumstances which might give rise to
any  of  the foregoing. The Company and its Subsidiaries have taken commercially
reasonable  security  measures to protect the secrecy, confidentiality and value
of  all  of  their  intellectual  properties.

     (m)  Environmental  Laws.  The Company and its Subsidiaries (i) are, to the
knowledge  of  management  of  the  Company,  in  compliance  with  any  and all
applicable  foreign,  federal,  state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances  or  wastes,  pollutants or contaminants ("Environmental Laws"); (ii)
have,  to  the  knowledge  of  management  of the Company, received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to  conduct  their  respective  businesses;  and (iii) are in compliance, to the
knowledge  of  the  Company,  with  all terms and conditions of any such permit,
license  or approval where, in each of the three foregoing cases, the failure to
so  comply  would  have,  individually  or  in the aggregate, a Material Adverse
Effect.

     (n)  Title.  The  Company  and  its  Subsidiaries  have good and marketable
title  in  fee  simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects  except  such  as  are  described in the SEC 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 or any of its
Subsidiaries.  Any  real property and facilities held under lease by the Company
or  any  of  its  Subsidiaries  are  held  by  them  under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with  the use made and proposed to be made of such property and buildings by the
Company  and  its  Subsidiaries.

     (o)  Insurance.  The  Company  and  each of its Subsidiaries are insured by
insurers  of  recognized  financial responsibility against such losses and risks
and  in  such  amounts  as  management  of the Company reasonably believes to be
prudent  and  customary  in  the  businesses  in  which  the  Company  and  its
Subsidiaries  are  engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any  such Subsidiary has any reason to believe that it will not be able to renew
its  existing  insurance coverage as and when such coverage expires or to obtain
similar  coverage  from  similar  insurers  as  may be necessary to continue its
business  at  a  cost  that  would  not  have  a  Material  Adverse  Effect.

     (p)  Regulatory  Permits.  The  Company  and  its Subsidiaries have in full
force  and  effect  all certificates, approvals, authorizations and permits from
the  appropriate  federal,  state,  local  or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective  properties  and  assets and conduct their respective businesses, and
neither  the  Company  nor  any  such  Subsidiary  has  received  any  notice of
proceedings  relating to the revocation or modification of any such certificate,
approval,  authorization  or  permit,  except  for such certificates, approvals,
authorizations  or  permits  which  if  not  obtained,  or  such  revocations or
modifications  which,  would  not  have  a  Material  Adverse  Effect.

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

     (r)  No  Materially Adverse Contracts, Etc.  Neither the Company nor any of
its  Subsidiaries  is  subject  to  any  charter,  corporate  or  other  legal
restriction,  or  any  judgment,  decree, order, rule or regulation which in the
judgment  of  the  Company's officers has or is expected in the future to have a
Material  Adverse  Effect.  Neither the Company nor any of its Subsidiaries is a
party  to  any  contract  or  agreement  which  in the judgment of the Company's
officers  has  or  is  expected  to  have  a  Material  Adverse  Effect.

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

     (t)  Certain  Transactions.  Except as set forth in the SEC Documents filed
at  least  ten  days  prior  to  the  date  hereof  and  except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of  business  upon  terms  no  less favorable than the Company could obtain from
third  parties  and  other  than the grant of stock options disclosed in the SEC
Documents,  none  of  the  officers,  directors,  or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other  than  for  services as employees, officers and directors), including any
contract,  agreement  or  other  arrangement  providing  for  the  furnishing of
services to or by, providing for rental of real or personal property to or from,
or  otherwise  requiring  payments  to  or  from  any  officer, director or such
employee  or,  to  the  knowledge  of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial  interest  or  is  an  officer,  director,  trustee  or  partner.

     (u)  Dilutive  Effect.  The  Company  understands and acknowledges that the
number  of  Shares  issuable  upon  purchases  pursuant  to  this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance  wherein  the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period.  The Company's
executive officers and directors have studied and fully understand the nature of
the  transactions  contemplated by this Agreement and recognize that they have a
potential dilutive effect.  The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of  the  Company.  The  Company  specifically acknowledges that, subject to such
limitations  as  are  expressly  set  forth  in  the  Transaction Documents, its
obligation  to  issue  Shares  of  Common  Stock upon purchases pursuant to this
Agreement  is  absolute and unconditional regardless of the dilutive effect that
such  issuance  may have on the ownership interests of other shareholders of the
Company.

     (v)   Right  of  First  Refusal.  The  Company  shall  not,  directly  or
indirectly, without the prior written consent of Investor offer, sell, grant any
option  to purchase, or otherwise dispose of (or announce any offer, sale, grant
or  any  option  to  purchase  or  other disposition) any of its Common Stock or
securities convertible into Common Stock at a price that is less than the market
price of the Common Stock at the time of issuance of such security or investment
(a  "Subsequent  Financing")  for a period of one year after the Effective Date,
except (i) the granting of options or warrants to employees, officers, directors
and  consultants,  and  the issuance of Shares upon exercise of options granted,
under  any stock option plan heretofore or hereafter duly adopted by the Company
or  for services rendered or to be rendered; (ii) Shares issued upon exercise of
any  currently  outstanding  warrants  or  options  and  upon  conversion of any
currently  outstanding  convertible debenture or convertible preferred stock, in
each  case  disclosed  pursuant  to  Section  4(c);  (iii)  securities issued in
connection  with  the  capitalization  or  creation  of  a  joint venture with a
strategic  partner;  (iv) Shares issued to pay part or all of the purchase price
for  the  acquisition  by  the Company of another entity (which, for purposes of
this  clause (iv), shall not include an individual or group of individuals); and
(v)  Shares  issued  in  a  bona  fide  public  offering  by  the Company of its
securities,  unless  (A)  the Company delivers to Investor a written notice (the
"Subsequent  Financing  Notice")  of  its  intention  to  effect such Subsequent
Financing, which Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the person with whom such Subsequent Financing shall be
effected,  and  attached  to  which  shall  be  a  term  sheet
or  similar  document relating thereto; and (B) Investor shall not have notified
the  Company  by  5:00  p.m.  (New York time) on the fifth Trading Day after its
receipt  of  the  Subsequent  Financing  Notice  of  its willingness to provide,
subject  to  completion  of  mutually acceptable documentation, financing to the
Company on substantially the terms set forth in the Subsequent Financing Notice.
If Investor shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing  substantially  upon  the  terms set forth in the Subsequent Financing
Notice;  provided  that  the  Company  shall  provide  Investor  with  a  second
Subsequent  Financing  Notice,  and Investor shall again have the right of first
refusal  set forth above in this Section, if the Subsequent Financing subject to
the  initial Subsequent Financing Notice shall not have been consummated for any
reason  on the terms set forth in such Subsequent Financing Notice within thirty
Trading  Days  after  the  date  of the initial Subsequent Financing Notice. The
rights granted to Investor in this Section are not subject to any prior right of
first  refusal  given  to  any  other  person  disclosed  on  Schedule  4(c).

     (w)  Lock-up.  The  Company  shall cause its officers, insiders, directors,
affiliates  or other related parties to refrain from selling Common Stock during
each  Pricing  Period.

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

     (y)  No  brokers, finders or financial advisory fees or commissions will be
payable  by  the  Company  with  respect to the transaction contemplated by this
Agreement  other  than  described  in  Section  12  (m)  of  this  Agreement.

Section  5.  COVENANTS  OF  THE  COMPANY

     (a)  Best  Efforts.  The  Company shall use commercially reasonable efforts
timely  to  satisfy  each of the conditions to be satisfied by it as provided in
Section  7  of  this  Agreement.

     (b)  Blue  Sky.  The  Company  shall,  at  its sole cost and expense, on or
before  each  of  the  Closing  Dates,  take  such  action  as the Company shall
reasonably  determine  is  necessary  to  qualify  the Securities for, or obtain
exemption  for  the Securities for, sale to the Investor at each of the Closings
pursuant  to  this  Agreement  under applicable securities or "Blue Sky" laws of
such states of the United States, as reasonably specified by Investor, and shall
provide  evidence of any such action so taken to the Investor on or prior to the
Closing  Date.

     (c)  Reporting  Status.  Until  the  earlier to occur of (i) the first date
which  is  after the date this Agreement is terminated pursuant to Section 9 and
on  which  the  Holders  (as  that  term  is  defined in the Registration Rights
Agreement)  may  sell all of the Securities without restriction pursuant to Rule
144(k)  promulgated under the 1933 Act (or successor thereto); and (ii) the date
on  which  (A)  the  Holders  shall  have  sold all the Securities; and (B) this
Agreement has been terminated pursuant to Section 9 (the "Registration Period"),
the Company shall file all reports required to be filed with the SEC pursuant to
the  1934  Act,  and  the  Company shall not terminate its status as a reporting
company  under  the  1934  Act.

     (d)  Use  of  Proceeds.  The Company will use the proceeds from the sale of
the  Shares  (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes or for
other  purposes  deemed  fit  by  the  Company's  Board  of  Directors.

     (e)  Financial  Information.  The  Company  agrees to make available to the
Investor  via  EDGAR  or  other  electronic  means the following to the Investor
during  the  Registration  Period:  (i)  within  five (5) Trading Days after the
filing  thereof  with  the SEC, a copy of its Annual Reports on Form 10-KSB, its
Quarterly  Reports  on  Form  10-QSB,  any  Current  Reports on Form 8-K and any
Registration  Statements  or  amendments filed pursuant to the 1933 Act; (ii) on
the  same  day  as  the  release thereof, facsimile copies of all press releases
issued  by  the  Company or any of its Subsidiaries; (iii) copies of any notices
and other information made available or given to the shareholders of the Company
generally,  contemporaneously with the making available or giving thereof to the
shareholders;  and  (iv)  within  two  (2)  calendar  days of filing or delivery
thereof, copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of  Securities  Dealers,  Inc.,  unless  such  information is material nonpublic
information.

     (f)  Reservation of Shares.  Subject to the following sentence, the Company
shall  take  all  action necessary to at all times have authorized, and reserved
for  the  purpose  of issuance, a sufficient number of Shares of Common Stock to
provide  for  the  issuance  of  the Securities hereunder. In the event that the
Company  determines  that  it  does  not  have a sufficient number of authorized
Shares  to  reserve and keep available for issuance as described in this Section
5(f),  the  Company  shall  use  its  best  efforts  to  increase  the number of
authorized  Shares by seeking shareholder approval for the authorization of such
additional  shares.

     (g)  Listing.  The  Company  shall promptly secure and maintain the listing
of  all  of  the  Registrable  Securities (as defined in the Registration Rights
Agreement) upon the Principal Market and each other national securities exchange
and  automated  quotation  system, if any, upon which shares of Common Stock are
then  listed  (subject  to official notice of issuance) and shall maintain, such
listing of all Registrable Securities from time to time issuable under the terms
of  the  Transaction  Documents.  The  Company shall maintain the Common Stock's
authorization for quotation on the Principal Market. Neither the Company nor any
of  its Subsidiaries shall take any action which would be reasonably expected to
result  in  the  delisting  or  suspension  of the Common Stock on the Principal
Market  (excluding  suspensions  of not more than one trading day resulting from
business  announcements  by  the Company). The Company shall promptly provide to
the  Investor  copies  of  any  notices  it  receives  from the Principal Market
regarding  the  continued  eligibility  of  the Common Stock for listing on such
automated  quotation  system  or  securities exchange. The Company shall pay all
fees  and  expenses  in  connection  with  satisfying its obligations under this
Section  5(g).

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

     (i)  Filing of Form 8-K.  On or before the date which is three Trading Days
after  the  Execution  Date, the Company shall file a Current Report on Form 8-K
with  the  SEC  describing  the  terms  of  the  transaction contemplated by the
Transaction  Documents  in  the form required by the 1934 Act, if such filing is
required.

     (j)  Corporate  Existence.  The  Company  shall  use  its  best  efforts to
preserve  and  continue  the  corporate  existence  of  the  Company.

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

     (l)  Reimbursement. If (i) Investor becomes involved in any capacity in any
action,  proceeding  or investigation brought by any shareholder of the Company,
in  connection  with  or  as  a  result  of the consummation of the transactions
contemplated  by  the  Transaction Documents, or if Investor is impleaded in any
such  action,  proceeding or investigation by any person (other than as a result
of  a  breach of the Investor's representations and warranties set forth in this
Agreement);  or  (ii)  Investor  becomes involved in any capacity in any action,
proceeding  or investigation brought by the SEC against or involving the Company
or  in  connection  with  or as a result of the consummation of the transactions
contemplated by the Transaction Documents (other than as a result of a breach of
the  Investor's  representations and warranties set forth in this Agreement), or
if  Investor is impleaded in any such action, proceeding or investigation by any
person,  then  in  any  such  case,  the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition,  other  than  with  respect to any matter in which Investor is a named
party, the Company will pay to Investor the charges, as reasonably determined by
Investor,  for  the  time  of  any  officers or employees of Investor devoted to
appearing  and  preparing  to  appear as witnesses, assisting in preparation for
hearings,  trials  or  pretrial matters, or otherwise with respect to inquiries,
hearing,  trials,  and  other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this section shall
be  in  addition  to  any  liability which the Company may otherwise have, shall
extend upon the same terms and conditions to any affiliates of Investor that are
actually  named  in  such  action,  proceeding  or  investigation, and partners,
directors,  agents,  employees, attorneys, accountants, auditors and controlling
persons  (if  any),  as the case may be, of Investor and any such affiliate, and
shall be binding upon and inure to the benefit of any successors of the Company,
Investor  and  any  such  affiliate  and  any  such  person.

Section  6.  COVER.  If  the  number  of  Shares  represented by any Put Notices
become  restricted or are no longer freely trading for any reason, and after the
applicable  Closing  Date, the Investor purchases, in an open market transaction
or  otherwise,  the  Company's  Common Stock (the "Covering Shares") in order to
make  delivery  in  satisfaction  of a sale of Common Stock by the Investor (the
"Sold  Shares"),  which  delivery  such  Investor  anticipated to make using the
Shares represented by the Put Notice  (a "Buy-In"), the Company shall pay to the
Investor  the  Buy-In  Adjustment  Amount  (as  defined  below).  The  "Buy-In
Adjustment  Amount"  is  the  amount  equal  to  the  excess, if any, of (a) the
Investor's  total  purchase  price (including brokerage commissions, if any) for
the  Covering  Shares over (b) the net proceeds (after brokerage commissions, if
any)  received  by  the  Investor from the sale of the Sold Shares.  The Company
shall  pay the Buy-In Adjustment Amount to the Investor in immediately available
funds  immediately  upon demand by the Investor.  By way of illustration and not
in  limitation of the foregoing, if the Investor purchases Common Stock having a
total  purchase  price  (including  brokerage commissions) of $11,000 to cover a
Buy-In with respect to the Common Stock it sold for net proceeds of $10,000, the
Buy-In  Adjustment  Amount  which  the  Company  will  be required to pay to the
Investor  will  be  $1,000.

Section  7.  CONDITIONS  OF  THE  COMPANY'S  OBLIGATION  TO  SELL.

     The obligation hereunder of the Company to issue and sell the Securities to
the  Investor  is further subject to the satisfaction, at or before each Closing
Date,  of each of the following conditions set forth below. These conditions are
for  the  Company's sole benefit and may be waived by the Company at any time in
its  sole  discretion.

     (a)  The  Investor  shall  have  executed  each  of  this Agreement and the
Registration  Rights  Agreement  and  delivered  the  same  to  the  Company.

     (b)  The  Investor  shall  have delivered to the Company the Purchase Price
for the Securities being purchased by the Investor at the Closing (after receipt
of  confirmation of delivery of such Securities) by wire transfer of immediately
available  funds  pursuant  to  the  wire  instructions provided by the Company.

     (c)  The  representations  and warranties of the Investor shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made  at that time (except for representations and warranties that speak as of a
specific  date),  and  the Investor shall have performed, satisfied and complied
with  the  covenants,  agreements  and  conditions  required  by the Transaction
Documents  to  be  performed,  satisfied  or complied with by the Investor at or
prior  to  such  Closing  Date.

     (d)  No  statute,  rule,  regulation,  executive  order,  decree, ruling or
injunction  shall  have  been  enacted,  entered, promulgated or endorsed by any
court  or  governmental  authority of competent jurisdiction which prohibits the
consummation  of  any  of  the  transactions  contemplated  by  this  Agreement.

     (e)  No Valuation Event shall have occurred since the applicable Put Notice
Date.

Section  8.  FURTHER  CONDITIONS  OF  THE  INVESTOR'S  OBLIGATION  TO  PURCHASE.

     The  obligation of the Investor hereunder to purchase Securities is subject
to  the  satisfaction,  on or before each Closing Date, of each of the following
conditions  set  forth  below.

     (a)  The  Company shall have executed each of the Transaction Documents and
delivered  the  same  to  the  Investor.

     (b)  The  Common  Stock  shall be authorized for quotation on the Principal
Market  and  trading  in  the  Common Stock shall not have been suspended by the
Principal  Market  or  the  SEC,  at  any  time beginning on the date hereof and
through  and including the respective Closing Date (excluding suspensions of not
more  than one Trading Day resulting from business announcements by the Company,
provided  that such suspensions occur prior to the Company's delivery of the Put
Notice  related  to  such  Closing).

     (c)  The  representations  and  warranties of the Company shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made  at  that time (except for (i) representations and warranties that speak as
of a specific date and (ii) with respect to the representations made in Sections
4(g),  (h)  and  (j) and the third sentence of Section 4(k) hereof, events which
occur  on  or  after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten Trading Days prior to the applicable Put Notice
Date)  and  the  Company  shall  have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction Documents to be
performed,  satisfied  or complied with by the Company on or before such Closing
Date.  The  Investor may request an update as of such Closing Date regarding the
representation  contained  in  Section  4(c)  above.

     (d)   The  Company  shall  have  executed and delivered to the Investor the
certificates  representing,  or have executed electronic book-entry transfer of,
the  Securities  (in  such  denominations  as such Investor shall request) being
purchased  by  the  Investor  at  such  Closing.

     (e)  The  Board  of Directors of the Company shall have adopted resolutions
consistent  with Section 4(b)(ii) above (the "Resolutions") and such Resolutions
shall  not  have  been  amended  or  rescinded  prior  to  such  Closing  Date.

     (f)  reserved.

     (g)  No  statute,  rule,  regulation,  executive  order,  decree, ruling or
injunction  shall  have  been  enacted,  entered, promulgated or endorsed by any
court  or  governmental  authority of competent jurisdiction which prohibits the
consummation  of  any  of  the  transactions  contemplated  by  this  Agreement.

     (h)  The Registration Statement shall be effective on each Closing Date and
no  stop  order suspending the effectiveness of the Registration statement shall
be  in  effect  or  shall be pending or threatened. Furthermore, on each Closing
Date  (i)  neither  the Company nor Investor shall have received notice that the
SEC  has  issued  or  intends  to  issue  a  stop  order  with  respect  to such
Registration  Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of such Registration Statement, either temporarily or permanently,
or  intends  or  has  threatened  to  do so (unless the SEC's concerns have been
addressed  and  Investor  is  reasonably  satisfied  that  the  SEC no longer is
considering or intends to take such action), and (ii) no other suspension of the
use or withdrawal of the effectiveness of such Registration Statement or related
prospectus  shall  exist.

     (i)  At  the  time  of  each Closing, the Registration Statement (including
information  or  documents incorporated by reference therein) and any amendments
or supplements thereto shall 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  or  which  would require public
disclosure  or  an  update  supplement  to  the  prospectus.

     (j)  If applicable, the shareholders of the Company shall have approved the
issuance  of  any  Shares  in  excess  of  the  Maximum Common Stock Issuance in
accordance  with  Section  2(i).

     (k)  The  conditions  to  such Closing set forth in Section 2(f) shall have
been  satisfied  on  or  before  such  Closing  Date.

     (l)  The  Company shall have certified to the Investor the number of Shares
of  Common  Stock  outstanding  when  a  Put  Notice  is  given to the Investor.

Section  9.  TERMINATION.  This  Agreement  shall  terminate  upon  any  of  the
following  events:

     (i)  when  the  Investor  has purchased an aggregate of Ten Million Dollars
($10,000,000)  in  the  Common  Stock of the Company pursuant to this Agreement;
provided  that the Company's representations, warranties and covenants contained
in  this  Agreement  insofar  as  applicable  to  the  transactions  consummated
hereunder  prior  to  such  termination,  shall  survive the termination of this
Agreement  for  the  period  of  any  applicable  statute  of  limitations;

     (ii)  on the date which is thirty-six (36) months after the Effective Date;

     (iii)  if  the  Company shall file or consent by answer or otherwise to the
entry  of an order for relief or approving a petition for relief, reorganization
or  arrangement  or  any other petition in bankruptcy for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or shall make
an  assignment  for  the  benefit  of  its  creditors,  or  shall consent to the
appointment  of  a  custodian,  receiver,  trustee or other officer with similar
powers  of  itself  or  of  any  substantial  part  of its property, or shall be
adjudicated  a  bankrupt  or  insolvent,  or shall take corporate action for the
purpose  of  any  of  the  foregoing, or if a court or governmental authority of
competent  jurisdiction  shall  enter an order appointing a custodian, receiver,
trustee  or other officer with similar powers with respect to the Company or any
substantial  part of its property or an order for relief or approving a petition
for  relief  or  reorganization  or  any  other  petition  in  bankruptcy or for
liquidation  or  to  take  advantage  of any bankruptcy or insolvency law, or an
order  for  the dissolution, winding up or liquidation of the Company, or if any
such  petition  shall  be  filed  against  the  Company;

     (iv)  if  the  Company  shall  issue  or  sell  any  equity  securities  or
securities  convertible  into,  or  exchangeable for, equity securities or enter
into  any  other equity financing facility during the Open Period, other than in
compliance  with  Section  4(v);

Section  10.  SUSPENSION.  This  Agreement  shall  be  suspended upon any of the
following  events,  and  shall  remain  suspended until such event is rectified:

     (i)  the trading of the Common Stock is suspended by the SEC, the Principal
Market or the NASD for a period of five consecutive Trading Days during the Open
Period;

     (ii)     the  Company  shall  not  have  filed  with  the  SEC  the initial
Registration  Statement with respect to the resale of the Registrable Securities
in accordance with the terms of the initial Registration Rights Agreement within
60  calendar  days of the date hereof or the Registration Statement has not been
declared  effective  within  180  calendar  days  of  the  date  hereof;  or

     (iii)  The  Common  Stock  ceases  to  be  registered under the 1934 Act or
listed  or  traded  on  the Principal Market.  Upon the occurrence of one of the
above-described  events,  the Company shall send written notice of such event to
the  Investor.

Section  11.  INDEMNIFICATION.  In  consideration  of  the  parties  mutual
obligations set forth in the Transaction Documents, each of the parties (in such
capacity,  an  "Indemnitor")  shall defend, protect, indemnify and hold harmless
the  the  other  and all of the other party's shareholders, officers, directors,
employees,  counsel,  and  direct or indirect investors and any of the foregoing
person's  agents  or other representatives (including, without limitation, those
retained  in  connection  with  the transactions contemplated by this Agreement)
(collectively,  the  "Indemnitees") from and against any and all actions, causes
of  action,  suits,  claims,  losses,  costs,  penalties,  fees, liabilities and
damages,  and expenses in connection therewith (irrespective of whether any such
Indemnitee  is  a  party  to  the  action for which indemnification hereunder is
sought),  and  including  reasonable  attorneys'  fees  and  disbursements  (the
"Indemnified  Liabilities"),  incurred  by  any  Indemnitee  as  a result of, or
arising  out  of,  or  relating  to  (i)  any misrepresentation or breach of any
representation  or  warranty  made  by  the Indemnitor or any other certificate,
instrument  or  document  contemplated hereby or thereby; (ii) any breach of any
covenant, agreement or obligation of the Indemnitor contained in the Transaction
Documents  or any other certificate, instrument or document  contemplated hereby
or  thereby; or (iii) any cause of action, suit or claim brought or made against
such  Indemnitee  by  a  third  party  and  arising out of or resulting from the
execution,  delivery, performance or enforcement of the Transaction Documents or
any  other  certificate,  instrument or document contemplated hereby or thereby,
except  insofar  as  any such misrepresentation, breach or any untrue statement,
alleged  untrue statement, omission or alleged omission is made in reliance upon
and  in  conformity  with  written  information furnished to Indemnitor which is
specifically  intended  for  use  in  the  preparation  of any such Registration
Statement,  preliminary  prospectus, prospectus or amendments to the prospectus.
To  the  extent  that  the  foregoing  undertaking  by  the  Indenitor  may  be
unenforceable for any reason, the Indemnitor shall make the maximum contribution
to  the payment and satisfaction of each of the Indemnified Liabilities which is
permissible  under  applicable  law.  The  indemnity provisions contained herein
shall  be  in  addition  to any cause of action or similar rights Indemnitor may
have,  and  any liabilities the Indemnitor or the Indemnitees may be subject to.

Section  12.  GOVERNING  LAW;  MISCELLANEOUS.

     (a)  Governing  Law. This Agreement shall be governed by and interpreted in
accordance  with the laws of the Commonwealth of Massachusetts without regard to
the principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive  jurisdiction  of  the state and federal courts sitting in the City of
Boston,  County  of Suffolk, for the adjudication of any dispute hereunder or in
connection  herewith  or  with  any transaction contemplated hereby or discussed
herein,  and  hereby  irrevocably  waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that  it  is  not personally subject to the
jurisdiction  of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each  party hereby irrevocably waives personal service of process and
consents  to  process  being  served  in  any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service  of process and notice thereof. Nothing contained herein shall be deemed
to  limit  in any way any right to serve process in any manner permitted by law.
If  any  provision  of  this  Agreement shall be invalid or unenforceable in any
jurisdiction,  such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity  or  enforceability  of  any  provision  of this Agreement in any other
jurisdiction.

     (b)  Legal  Fees; and Miscellaneous Fees.  Except as otherwise set forth in
the  Transaction  Documents,  the Company shall pay the fees and expenses of its
advisers,  counsel,  the  accountants  and  other experts, if any, and all other
expenses  incurred  by  such  party  incident  to  the negotiation, preparation,
execution,  delivery  and performance of this Agreement. Any attorneys' fees and
expenses  incurred  by  either the Company or by the Investor in connection with
the  preparation,  negotiation, execution and delivery of any amendments to this
Agreement  or  relating to the enforcement of the rights of any party, after the
occurrence  of any breach of the terms of this Agreement by another party or any
default  by another party in respect of the transactions contemplated hereunder,
shall  be  paid  on  demand  by  the  party  which breached the Agreement and/or
defaulted,  as  the case may be. The Company shall pay all stamp and other taxes
and  duties  levied  in  connection  with  the  issuance  of  any  Securities.

     (c)  Counterparts.  This  Agreement  may  be  executed  in  two (2) or more
identical  counterparts,  all  of  which  shall  be  considered one and the same
agreement  and shall become effective when counterparts have been signed by each
party  and  delivered  to  the  other party; provided that a facsimile signature
shall  be  considered  due  execution  and  shall  be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a  facsimile  signature.

     (d)  Headings;  Singular/Plural.  The  headings  of  this Agreement are for
convenience  of  reference  and  shall  not  form  part  of,  or  affect  the
interpretation  of,  this  Agreement.  Whenever  required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.

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

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

     (g)  Notices.  Any notices or other communications required or permitted to
be given under the terms of this Agreement must be in writing and will be deemed
to  have  been  delivered (i) upon receipt, when delivered personally; (ii) upon
receipt,  when  sent  by  facsimile  (provided  confirmation  of transmission is
mechanically or electronically generated and kept on file by the sending party);
or  (iii)  one  (1)  day  after  deposit  with a nationally recognized overnight
delivery  service,  in  each case properly addressed to the party to receive the
same.  The  addresses  and  facsimile  numbers for such communications shall be:

     If  to  the  Company:

Payment  Data  Systems,  Inc.
12500  San  Pedro
Suite  120
San  Antonio,  TX  78232
Telephone:        210-249-4100
Facsimile:     210-249-4130

     If  to  the  Investor:

          Dutchess  Private  Equities  fund,  LP
          312  Stuart  Street
     Boston,  MA  02116
          Telephone:     617-960-3582
          Facsimile:     617-960-3772

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

     (h)  No  Assignment.  This  Agreement  may  not  be  assigned.

     (i)  No  Third  Party  Beneficiaries.  This  Agreement  is intended for the
benefit  of  the  parties  hereto  and  is  not  for the benefit of, nor may any
provision  hereof  be  enforced  by,  any  other  person.

     (j)  Survival.  The  representations  and warranties of the Company and the
Investor  contained  in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section 11,
shall  survive  each  of  the  Closings  and  the termination of this Agreement.

     (k)  Publicity.  The  Company and Investor shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the  transactions  contemplated  hereby  and no party shall issue any such press
release  or  otherwise  make any such public statement without the prior written
consent  of  the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties  with  prior  notice  of  such  public  statement.  Notwithstanding  the
foregoing,  the Company shall not publicly disclose the name of Investor without
the  prior  written  consent  of such Investor, except to the extent required by
law.  Investor  acknowledges  that  this  Agreement  and  all  or  part  of  the
Transaction  Documents  may be deemed to be "material contracts" as that term is
defined by Item 601(b)(10) of Regulation S-B, and that the Company may therefore
be  required  to  file  such  documents  as  exhibits to reports or registration
statements  filed  under  the  1933 Act or the 1934 Act. Investor further agrees
that  the  status of such documents and materials as material contracts shall be
determined  solely  by  the  Company,  in  consultation  with  its  counsel.

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

     (m)  Placement  Agent.  The  Company  agrees  to  pay  Charleston  Capital
Corporation,  ("Charleston")  a  registered broker dealer, $10,000.  The $10,000
shall be payable from 1% (one percent) of the Put Amount on each draw toward the
fee.  Charleston  Capital  Corporation  will  also act as an unaffiliated broker
dealer.  The  Investor shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other persons or entities for fees
of  a  type  contemplated in this Section that may be due in connection with the
transactions  contemplated  by  the  Transaction  Documents.  The  Company shall
indemnify  and hold harmless the Investor, their employees, officers, directors,
agents,  and  partners,  and  their  respective affiliates, from and against all
claims,  losses,  damages,  costs  (including  the  costs  of  preparation  and
attorney's  fees)  and  expenses  incurred  in  respect  of  any such claimed or
existing  fees,  as  such  fees  and  expenses  are  incurred.

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

     (o)  Remedies.  The  Investor  and each holder of the Shares shall have all
rights  and  remedies  set  forth  in this Agreement and the Registration Rights
Agreement  and  all  rights and remedies which such holders have been granted at
any  time under any other agreement or contract and all of the rights which such
holders  have under any law. Any person having any rights under any provision of
this  Agreement  shall  be entitled to enforce such rights specifically (without
posting  a  bond or other security), to recover damages by reason of any default
or  breach  of  any  provision  of  this  Agreement,  including  the recovery of
reasonable attorneys fees and costs, and to exercise all other rights granted by
law.

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

     (q)  Pricing  of  Common  Stock.  For  purposes  of this Agreement, the bid
price  of  the  Common  Stock  in  this  Agreement  shall  be  as  reported  on
Bloomberg.com.

                                    -     * *

                     SIGNATURE PAGE OF INVESTMENT AGREEMENT

     The  signature  of  the  authorized representative of the on this Signature
Page  evidences  the Company's agreement to be bound by the terms and conditions
of the Investment Agreement and the Registration Rights Agreement as of the date
first  written  above.

     The undersigned signatory hereby certifies that he has read and understands
the  Investment  Agreement,  and the representations made by the Company in this
Investment Agreement are true and accurate, and on behalf of the Company, agrees
to  be  bound  by  its  terms.

DUTCHESS  PRIVATE  EQUITIES  FUND,  L.P.
     BY  ITS  GENERAL  PARTNER,
DUTCHESS  CAPITAL  MANAGEMENT,  LLC

     By:____________________________
     Douglas  H.  Leighton,  Managing  Member

PAYMENT  DATA  SYSTEMS,  INC.

By__________________________________
   Michael  Long,  Chief  Executive  Officer

                                LIST OF EXHIBITS
                                -----------------

EXHIBIT  A               Registration  Rights  Agreement
EXHIBIT  B               Opinion  of  Company's  Counsel
EXHIBIT  C               [reserved]
EXHIBIT  D               Broker  Representation  Letter
EXHIBIT  E               Board  Resolution
EXHIBIT  F               Put  Notice
EXHIBIT  G               Put  Settlement  Sheet

                                LIST OF SCHEDULES
                                -----------------

Schedule  4(a)                 Subsidiaries
Schedule  4(c)                 Capitalization
Schedule  4(e)                 Conflicts
Schedule  4(g)                 Material  Changes
Schedule  4(h)                 Litigation
Schedule  4(l)                  Intellectual  Property
Schedule  4(n)                 Liens
Schedule  4(t)                  Certain  Transactions

                              EXHIBIT  A
                         EXHIBIT  B

                                    EXHIBIT D

                              [BROKER'S LETTERHEAD]

Date
Via  Facsimile

Attention:
______________________
______________________
______________________

                         Re: Payment Data Systems, Inc.

Dear  __________________:

It  is  our understanding that the Form______ Registration Statement bearing SEC
File  Number  (  ___-______) filed by Payment Data Systems, Inc.on Form _____ on
__________,  2004  was  declared  effective  on  _________,  2004.

This  letter  shall  confirm  that  ______________ shares of the common stock of
Payment  Data  Systems,  Inc. are being sold on behalf of __________________ and
that we shall comply with the prospectus delivery requirements set forth in that
Registration  Statement  by  filing  the  same  with  the  purchaser.

If  you  have  any  questions  please  do  not  hesitate  to  call.

Sincerely,

______________________

cc:  .

     EXHIBIT  E

EXHIBIT  F

Date:

RE:  Put  Notice  Number  __

Dear  Mr.  Leighton,

This  is  to  inform  you that as of today, Payment Data Systems, Inc., a Nevada
corporation (the "Company"), hereby elects to exercise its right pursuant to the
Investment  Agreement to require Dutchess Private Equities Fund, LP. to purchase
shares  of  its  common  stock.   The  Company  hereby  certifies  that:

The  amount  of  this  put  is  $__________.

The  Pricing  Period  runs  from  ________  until  _______.

The  current  number  of  shares  issued  and outstanding as of the Company are:

____________________

Regards,

________________________
Michael  Long
Payment  Data  Systems,  Inc.

                                    EXHIBIT G

                              PUT SETTLEMENT SHEET
Date:

Michael,

Pursuant  to  the  Put  given  by Payment Data Systems, Inc. to Dutchess Private
Equities  Fund, L.P. on _________________ 200x, we are now submitting the amount
of  common  shares  for  you  to  issue  to  Dutchess.

Please  have  a  certificate  baring  no  restrictive legend totaling __________
shares  issued  to  Dutchess  Private Equities Fund, LP immediately and send via
DWAC  to  the  following  account:

XXXXXX

If  not  DWAC  eligible,  please  send  Fedex  Priority  Overnight  to:

XXXXXX

Once  these shares are received by us, we will break have the funds wired to the
Company.

Regards,

Douglas  H.  Leighton

                                                                  Date     Price

                                          Date of Day 1     Closing Bid of Day 1
                                          Date of Day 2     Closing Bid of Day 2
                                          Date of Day 3     Closing Bid of Day 3
                                          Date of Day 4     Closing Bid of Day 4
                                          Date of Day 5     Closing Bid of Day 5

Lowest  1  (one)  Closing  Bid  in  Pricing  Period

Put  Amount

Amount  Wired  to  Company

Purchase  Price  (95%  (ninety-five  percent))

Amount  of  Shares  Due

The  undersigned has completed this Put as of this ___th day of _________, 20xx.

Payment  Data  Systems,  Inc.

________________________________
Michael  Long,  CEO

                          SCHEDULE 4(c)  CAPITALIZATION

                             SCHEDULE 4(e) CONFLICTS

                         SCHEDULE 4(g)  MATERIAL CHANGES

                            SCHEDULE 4(h)  LITIGATION

                      SCHEDULE 4(l)  INTELLECTUAL PROPERTY

                              SCHEDULE 4(n)  LIENS

                       SCHEDULE 4(t)  CERTAIN TRANSACTIONSEXHIBIT 10.9

                          REGISTRATION RIGHTS AGREEMENT

Registration  Rights  Agreement  (the "Agreement"), dated as of June 4, 2004, by
and  between  Payment Data Systems, Inc., a corporation organized under the laws
of  State  of  Nevada, with its principal executive office at with its principal
executive  office  at  Primary Business Systems, 12500 San Pedro, Suite 120, San
Antonio,  TX  78216 (the "Company"), and Dutchess Private Equities Fund, L.P., a
Delaware  limited  partnership  with  its principal office at 312 Stuart Street,
Boston,  MA  02116  (the  "Investor").

Whereas,  in connection with the Investment Agreement by and between the Company
and the Investor of even date herewith (the "Investment Agreement"), the Company
has  agreed  to issue and sell to the Investor an indeterminate number of shares
of the Company's Common Stock, .001 par value per share (the "Common Stock"), to
be  purchased  pursuant  to the terms and subject to the conditions set forth in
the  Investment  Agreement;  and

Whereas, to induce the Investor to execute and deliver the Investment Agreement,
the  Company  has  agreed  to  provide  certain  registration  rights  under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any  similar  successor  statute  (collectively, the "1933 Act"), and applicable
state  securities  laws,  with  respect  to  the shares of Common Stock issuable
pursuant  to  the  Investment  Agreement.

Now  therefore,  in  consideration  of  the  foregoing  premises  and the mutual
covenants  contained  hereinafter and other good and valuable consideration, the
receipt  and  sufficiency  of which are hereby acknowledged, the Company and the
Investor  hereby  agree  as  follows:

SECTION  1.  DEFINITIONS.

As  used  in  this  Agreement,  the  following  terms  shall  have the following
meanings:

"Execution  Date"  means  the  date  first  written  above.

"Investor"  means  Dutchess  Private  Equities  Fund,  L.P.,  a Delaware limited
partnership.

"Person"  means  a  corporation,  a limited liability company, an association, a
partnership,  an  organization,  a  business,  an  individual, a governmental or
political  subdivision  thereof  or  a  governmental  agency.

"Potential Material Event" means any of the following: (I) the possession by the
Company  of  material  information  not  ripe  for  disclosure in a Registration
Statement, which shall be evidenced by determinations in good faith by the Board
of  Directors  of  the  Company  that  disclosure  of  such  information  in the
Registration  Statement  would be detrimental to the business and affairs of the
Company, or (II) any material engagement or activity by the Company which would,
in  the  good  faith  determination of the Board of Directors of the Company, be
adversely affected by disclosure in a Registration Statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors  of  the  Company  that the Registration Statement would be materially
misleading  absent  the  inclusion  of  such  information.

"Principal  Market" shall mean The American Stock Exchange, National Association
of  Securities  Dealer's,  Inc.  Over-the-Counter electronic bulletin board, the
Nasdaq  National Market or The Nasdaq SmallCap Market whichever is the principal
market  on  which  the  Common  Stock  is  listed.

"Register," "Registered," and "Registration" refer to a registration effected by
preparing  and filing one or more Registration Statements in compliance with the
1933  Act  and  pursuant  to  Rule  415 under the 1933 Act or any successor rule
providing  for  offering  securities on a continuous basis ("Rule 415"), and the
declaration  or  ordering  of effectiveness of such Registration Statement(s) by
the  United  States  Securities  and  Exchange  Commission  (the  "SEC").

"Registrable Securities" means (I) the shares of Common Stock issued or issuable
pursuant  to  the  Investment  Agreement,  and  (II) any shares of capital stock
issued  or  issuable  with  respect to such shares of Common Stock, if any, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, which have not been (X) included in a Registration Statement
that  has  been  declared  effective  by the SEC or (Y) sold under circumstances
meeting  all  of the applicable conditions of Rule 144 (or any similar provision
then  in  force)  under  the  1933  Act.

"Registration  Statement"  means  a  registration statement of the Company filed
under  the  1933  Act  covering  the  Registrable  Securities.

All  capitalized  terms  used in this Agreement and not otherwise defined herein
shall  have  the  same  meaning ascribed to them as in the Investment Agreement.

SECTION  2.  REGISTRATION.

(A)  On  or  before  the  execution  of  this  Agreement, the Company shall have
provided  a  draft  of  the  Registration  Statement  covering  the  Registrable
Securities  to  the Investor. The Company shall, as soon as practicable, but not
later than fifteen calendar days following the Execution Date, file with the SEC
a  Registration  Statement  or Registration Statements (as is necessary) on Form
SB-2  (or,  if  such  form is unavailable for such a registration, on such other
form as is available for such a registration), covering the resale of all of the
Registrable  Securities,  which  Registration  Statement(s) shall state that, in
accordance  with  Rule  416  promulgated  under  the 1933 Act, such Registration
Statement  also  covers such indeterminate number of additional shares of Common
Stock  as  may  become  issuable  upon  stock splits, stock dividends or similar
transactions.  The Company shall initially register for resale 40,000,000 shares
of  Common Stock which would be issuable on the date preceding the filing of the
Registration  Statement  based  on the closing bid price of the Company's Common
Stock  on  such date and the amount reasonably calculated that represents Common
Stock  issuable to other parties as set forth in the Investment Agreement except
to  the  extent  that  the  SEC  requires  the  share  amount to be reduced as a
condition  of  effectiveness.

(B)  The  Company  shall  use  commercially  reasonable  efforts  to  have  the
Registration  Statement(s) declared effective by the SEC within 90 calendar days
after  the  Execution  Date.

(C)  The  Company agrees not to include any other securities in the Registration
Statement  covering  the Registrable Securities without Investor's prior written
consent  which  Investor  may  withhold in its sole discretion. Furthermore, the
Company  agrees that it will not file any other Registration Statement for other
securities,  until thirty calendar days after the Registration Statement for the
Registrable  Securities  is  declared  effective  by  the  SEC.

SECTION  3.  RELATED  OBLIGATIONS.

At  such  time  as  the  Company is obligated to prepare and file a Registration
Statement  with  the  SEC  pursuant to Section 2(a), the Company will effect the
registration  of  the  Registrable  Securities  in  accordance with the intended
method  of disposition thereof and, with respect thereto, the Company shall have
the  following  obligations:

(A)  The  Company  shall  use  commercially  reasonable  efforts  to  cause such
Registration  Statement  relating  to  the  Registrable  Securities  to  become
effective  within  90  days  after  the  Execution  Date  and  shall  keep  such
Registration  Statement  effective until the earlier to occur of (I) the date as
of  which  the  Investor  may  sell  all  of  the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto);  or  (II)  the  date on which (A) the Investor shall have sold all the
Registrable  Securities;  and  (B)  the  Investor  has  no  right to acquire any
additional  shares  of  Common  Stock  under  the  Investment  Agreement  (the
"Registration  Period"). The Registration Statement (including any amendments or
supplements  thereto  and  prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be  stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. The Company shall use its
best  efforts  to  respond  to  all SEC comments within seven business days from
receipt  of such comments by the Company. The Company shall use its best efforts
to  cause  the  Registration Statement relating to the Registrable Securities to
become  effective  no  later  than three business days after notice from the SEC
that  the  Registration Statement may be declared effective. The Investor agrees
to  provide  all  information  which  it  is  required  by law to provide to the
Company,  including  the  intended  method  of  disposition  of  the Registrable
Securities,  and  the Company's obligations set forth above shall be conditioned
on  the  receipt  of  such  information.

(B)  The  Company shall prepare and file with the SEC such amendments (including
post-effective  amendments)  and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which prospectus
is  to  be  filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary  to keep such Registration Statement effective during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act with
respect  to the disposition of all Registrable Securities of the Company covered
by  such  Registration  Statement  until  such  time  as all of such Registrable
Securities  shall  have been disposed of in accordance with the intended methods
of  disposition  by  the  Investor  thereof  as  set  forth in such Registration
Statement.  In  the  event  the  number  of  shares of Common Stock covered by a
Registration  Statement  filed  pursuant  to  this  Agreement  is  at  any  time
insufficient to cover all of the Registrable Securities, the Company shall amend
such  Registration Statement, or file a new Registration Statement (on the short
form  available  therefor,  if  applicable),  or both, so as to cover all of the
Registrable  Securities,  in each case, as soon as practicable, but in any event
within  30  calendar days after the necessity therefor arises (based on the then
Purchase  Price  of  the  Common  Stock  and other relevant factors on which the
Company  reasonably  elects  to  rely),  assuming  the  Company  has  sufficient
authorized  shares  at  that  time,  and if it does not, within 30 calendar days
after  such shares are authorized. The Company shall use commercially reasonable
efforts  to  cause  such  amendment  and/or new Registration Statement to become
effective  as  soon  as  practicable  following  the  filing  thereof.

(C)  The  Company  shall  make  available  to  the  Investor  whose  Registrable
Securities  are  included  in  any  Registration Statement and its legal counsel
without charge (I) promptly after the same is prepared and filed with the SEC at
least  one  copy  of  such  Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by  reference  and  all  exhibits,  the prospectus included in such Registration
Statement  (including  each  preliminary  prospectus)  and, with regards to such
Registration  Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its representatives; (II) upon the effectiveness of
any  Registration  Statement,  the  Company  shall  make available copies of the
prospectus  included  in  such  Registration  Statement  and  all amendments and
supplements  thereto;  and  (III)  such other documents, including copies of any
preliminary  or  final  prospectus,  as the Investor may reasonably request from
time  to  time  in  order  to  facilitate  the  disposition  of  the Registrable
Securities.

(D)  The  Company  shall use commercially reasonable efforts to (I) register and
qualify  the  Registrable  Securities  covered by a Registration Statement under
such  other securities or "blue sky" laws of such states in the United States as
any  Investor reasonably requests; (II) prepare and file in those jurisdictions,
such  amendments  (including  post-effective amendments) and supplements to such
registrations  and  qualifications  as  may  be  necessary  to  maintain  the
effectiveness  thereof  during  the  Registration  Period; (III) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect  at  all  times  during  the Registration Period, and (IV) take all other
actions  reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required  in connection therewith or as a condition thereto to (X) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), or (Y) subject itself to general taxation in any such
jurisdiction.  The  Company  shall  promptly  notify  each  Investor  who  holds
Registrable  Securities  of  the receipt by the Company of any notification with
respect  to  the  suspension  of the registration or qualification of any of the
Registrable  Securities  for sale under the securities or "blue sky" laws of any
jurisdiction  in  the  United  States  or  its  receipt  of actual notice of the
initiation  or  threatening  of  any  proceeding  for  such  purpose.

(E)  As  promptly as practicable after becoming aware of such event, the Company
shall  notify each Investor in writing of the happening of any event as a result
of which the prospectus included in a Registration Statement, as then in effect,
includes  an untrue statement of a material fact or omission to state a material
fact  required to be stated therein or necessary to make the statements therein,
in  light  of  the  circumstances  under  which  they  were made, not misleading
("Registration  Default")  and  use  all  diligent efforts to promptly prepare a
supplement  or  amendment  to  such  Registration  Statement  and take any other
necessary  steps  to cure the Registration Default, (which, if such Registration
Statement  is  on Form S-3, may consist of a document to be filed by the Company
with  the  SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as
defined below) and to be incorporated by reference in the prospectus) to correct
such  untrue statement or omission, and make available copies of such supplement
or  amendment  to  each  Investor.  The  Company shall also promptly notify each
Investor  (I)  when  a prospectus or any prospectus supplement or post-effective
amendment  has  been  filed,  and  when  a  Registration  Statement  or  any
post-effective  amendment  has  become  effective  (the  Company  will  prepare
notification  of  such effectiveness which shall be delivered to the Investor on
the  same  day  of  such effectiveness and by overnight mail), additionally, the
Company  will promptly provide to the Investor a copy of the effectiveness order
prepared  by  the SEC once it is received by the Company; (II) of any request by
the  SEC  for  amendments  or supplements to a Registration Statement or related
prospectus  or  related  information,  (III)  of  the  Company's  reasonable
determination  that a post-effective amendment to a Registration Statement would
be  appropriate,  (IV)  in  the  event  the  Registration Statement is no longer
effective,  or  (V)  if  Registration  Statement  is  stale  as  a result of the
Company's  failure  to  timely  file  its  financials  or otherwise. The Company
acknowledges  that  its  failure  to  cure  the  Registration Default within ten
business  days  will cause the Investor to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include a provision for liquidated damages, such provision being described as
"late  payments"  under  Section  2(h)  of  the Investment Agreement between the
parties. The parties acknowledge and agree that the liquidated damages provision
set  forth in this section represents the parties' good faith effort to quantify
such  damages  and,  as  such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. It is the intention of
the parties that interest payable under any of the terms of this Agreement shall
not  exceed  the  maximum  amount  permitted under any applicable law. If a law,
which  applies  to  this  Agreement  which  sets the maximum interest amount, is
finally  interpreted  so  that  the  interest  in connection with this Agreement
exceeds  the  permitted  limits, then: (1) any such interest shall be reduced by
the  amount necessary to reduce the interest to the permitted limit; and (2) any
sums  already  collected  (if  any)  from the Company which exceed the permitted
limits  will  be  refunded  to the Company. The Investor may choose to make this
refund  by  reducing the amount that the Company owes under this Agreement or by
making  a direct payment to the Company. If a refund reduces the amount that the
Company  owes  the Investor, the reduction will be treated as a partial payment.
In  case  any  provision  of  this  Agreement  is  held  by a court of competent
jurisdiction  to  be  excessive  in scope or otherwise invalid or unenforceable,
such  provision shall be adjusted rather than voided, if possible, so that it is
enforceable  to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Agreement will not in any way be affected or
impaired  thereby.

(F)  The  Company  shall  use  commercially  reasonable  efforts  to prevent the
issuance  of  any  stop  order  or  other  suspension  of  effectiveness  of  a
Registration  Statement,  or  the  suspension of the qualification of any of the
Registrable  Securities  for  sale  in any jurisdiction and, if such an order or
suspension  is  issued,  to obtain the withdrawal of such order or suspension at
the  earliest  possible  moment and to notify the Investor who holds Registrable
Securities  being  sold of the issuance of such order and the resolution thereof
or  its  receipt  of actual notice of the initiation or threat of any proceeding
for  such  purpose.

(G)  The  Company shall permit the Investor and one legal counsel, designated by
the  Investor,  to  review  and  comment  upon  a Registration Statement and all
amendments  and  supplements thereto at least three business days prior to their
filing  with  the SEC, and not file any document in a form to which such counsel
reasonably  objects.  The  Company  may request to shorten the Investor's review
period  and  the  Investor  will,  if  possible,  attempt  to  comply  with  the
accelerated review period. The Company shall not submit to the SEC a request for
acceleration  of  the effectiveness of a Registration Statement or file with the
SEC  a Registration Statement or any amendment or supplement thereto without the
prior  approval  of  such  counsel,  which  approval  shall  not be unreasonably
withheld.

(H)  Reserved

(I)  Reserved

(J)  The  Company  shall  hold  in  confidence  and  not  make any disclosure of
information  concerning a Investor provided to the Company unless (I) disclosure
of  such  information  is  necessary  to comply with federal or state securities
laws, (II) the disclosure of such information is necessary to avoid or correct a
misstatement  or  omission  in  any Registration Statement, (III) the release of
such  information  is  ordered  pursuant  to  a  subpoena  or  other  final,
non-appealable  order  from  a  court  or  governmental  body  of  competent
jurisdiction,  or (IV) such information has been made generally available to the
public  other  than  by  disclosure  in violation of this Agreement or any other
agreement.  The  Company  agrees that it shall, upon learning that disclosure of
such  information  concerning  a  Investor  is  sought  in  or  by  a  court  or
governmental  body of competent jurisdiction or through other means, give prompt
written  notice  to  such  Investor  and  allow such Investor, at the Investor's
expense,  to undertake appropriate action to prevent disclosure of, or to obtain
a  protective  order  for,  such  information.

(K)  The  Company  shall  use  commercially  reasonable  efforts  to  maintain
designation  and  quotation  of  all  the  Registrable Securities covered by any
Registration  Statement  on the Principal Market. If, despite the Company's best
efforts,  the  Company  is unsuccessful in satisfying the preceding sentence, it
shall  use  commercially  reasonable  efforts  to  cause  all  the  Registrable
Securities  covered  by  any  Registration  Statement to be listed on each other
national  securities  exchange  and automated quotation system, if any, on which
securities of the same class or series issued by the Company are then listed, if
any,  if  the listing of such Registrable Securities is then permitted under the
rules of such exchange or system. The Company shall pay all fees and expenses in
connection  with  satisfying  its  obligation  under  this  Section  3(k).

(L)  The  Company  shall  cooperate  with  the Investor to facilitate the prompt
preparation  and  delivery  of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement  and  enable such certificates to be in such denominations or amounts,
as  the  case  may  be,  as  the  Investor  may  reasonably  request.

(M)  The  Company  shall  provide  a  transfer  agent  for  all  the Registrable
Securities not later than the effective date of the first Registration Statement
filed  pursuant  hereto.

(N)  If  requested  by the Investor, the Company shall (I) as soon as reasonably
practical  incorporate  in  a  prospectus supplement or post-effective amendment
such  information  as  such  Investor  reasonably  determine  should be included
therein  relating  to  the  sale  and  distribution  of  Registrable Securities,
including,  without  limitation, information with respect to the offering of the
Registrable  Securities  to  be  sold  in  such offering; (II) make all required
filings  of  such  prospectus  supplement or post-effective amendment as soon as
reasonably  possible  after  being notified of the matters to be incorporated in
such  prospectus  supplement  or  post-effective  amendment;  and
(III)  supplement or make amendments to any Registration Statement if reasonably
requested  by  such  Investor.

(O)  The  Company  shall  use  commercially  reasonable  efforts  to  cause  the
Registrable  Securities  covered  by the applicable Registration Statement to be
registered  with  or approved by such other governmental agencies or authorities
as  may  be  necessary  to  consummate  the  disposition  of  such  Registrable
Securities.

(P)  The  Company  shall otherwise use commercially reasonable efforts to comply
with  all  applicable  rules  and  regulations of the SEC in connection with any
registration  hereunder.

(Q)  Within  one  business  day  after the Registration Statement which includes
Registrable  Securities  is  declared  effective  by  the SEC, the Company shall
deliver  to  the  transfer agent for such Registrable Securities, with copies to
the  Investor,  confirmation  that such Registration Statement has been declared
effective  by  the  SEC.

(R)  At or prior to the date of the first Put Notice (as that term is defined in
the Investment Agreement) and at such other times as the Investor may reasonably
request,  the Company shall cause to be delivered a certification from the Chief
Executive  Officer  of  the  Company  setting  forth that the Company's periodic
filings,  including  any  amendments  thereto,  with the Securities and Exchange
Commission  truthfully  and  accurately  set forth the financial position of the
Company  when  filed.

(S)  The  Company  shall take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of Registrable Securities pursuant to
a  Registration  Statement.

SECTION  4.  OBLIGATIONS  OF  THE  INVESTOR.

(A)  At least five calendar days prior to the first anticipated filing date of a
Registration  Statement  the Company shall notify the Investor in writing of the
information the Company requires from each such Investor if such Investor elects
to  have  any  of  such  Investor's  Registrable  Securities  included  in  such
Registration  Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to  the Registrable Securities of a particular Investor that such Investor shall
furnish  in  writing  to  the  Company  such  information  regarding itself, the
Registrable  Securities held by it and the intended method of disposition of the
Registrable  Securities held by it as shall reasonably be required to effect the
registration  of such Registrable Securities and shall execute such documents in
connection  with  such  registration as the Company may reasonably request. Each
Investor  covenants  and agrees that, in connection with any sale of Registrable
Securities  by it pursuant to a Registration Statement, it shall comply with the
"Plan  of  Distribution"  section  of  the  current  prospectus relating to such
Registration  Statement.

(B)  The  Investor, by such Investor's acceptance of the Registrable Securities,
agrees  to  cooperate with the Company as reasonably requested by the Company in
connection  with  the  preparation  and  filing  of  any  Registration Statement
hereunder,  unless  such  Investor  has  notified the Company in writing of such
Investor's  election  to  exclude  all of such Investor's Registrable Securities
from  such  Registration  Statement.

(C) The Investor agrees that, upon receipt of written notice from the Company of
the  happening  of  any event of the kind described in Section 3(f) or the first
sentence  of  3(e),  such  Investor  will immediately discontinue disposition of
Registrable  Securities  pursuant to any Registration Statement(s) covering such
Registrable  Securities  until  such  Investor's  receipt  of  the copies of the
supplemented  or  amended  prospectus  contemplated by Section 3(f) or the first
sentence  of  3(e).

SECTION  5.  EXPENSES  OF  REGISTRATION.

All  expenses,  other than underwriting discounts and commissions and other than
as  set  forth  in  the  Investment  Agreement,  incurred  in  connection  with
registrations including comments, filings or qualifications pursuant to Sections
2  and  3,  including,  without  limitation,  all  registration,  listing  and
qualifications fees, printing and accounting fees, and fees and disbursements of
counsel  for  the  Company  or  for  the  Investor shall be paid by the Company.

SECTION  6.  INDEMNIFICATION.

In the event any Registrable Securities are included in a Registration Statement
under  this  Agreement:

(A)  To  the fullest extent permitted by law, the Company will, and hereby does,
indemnify,  hold  harmless  and  defend each Investor who holds such Registrable
Securities,  the  directors,  officers,  partners,  employees,  counsel, agents,
representatives  of,  and each Person, if any, who controls, any Investor within
the  meaning  of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the  "1934  Act")  (each, an "Indemnified Person"), against any losses, claims,
damages,  liabilities,  judgments,  fines, penalties, charges, costs, attorneys'
fees,  amounts  paid  in settlement or expenses, joint or several (collectively,
"Claims"),  incurred in investigating, preparing or defending any action, claim,
suit,  inquiry,  proceeding, investigation or appeal taken from the foregoing by
or  before any court or governmental, administrative or other regulatory agency,
body  or  the  SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may  become  subject  insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (I)
any  untrue  statement  or  alleged  untrue  statement  of  a material fact in a
Registration  Statement or any post-effective amendment thereto or in any filing
made  in  connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which the Investor has requested
in  writing that the Company register or qualify the Shares ("Blue Sky Filing"),
or  the  omission  or  alleged  omission to state a material fact required to be
stated  therein  or  necessary  to  make the statements therein, in light of the
circumstances under which the statements therein were made, not misleading, (II)
any untrue statement or alleged untrue statement of a material fact contained in
the  final  prospectus  (as  amended  or  supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission  to  state  therein  any material fact necessary to make the statements
made  therein,  in light of the circumstances under which the statements therein
were  made,  not  misleading, or (III) any violation or alleged violation by the
Company  of  the  1933  Act,  the  1934  Act,  any other law, including, without
limitation,  any  state  securities  law,  or  any rule or regulation thereunder
relating  to  the  offer  or  sale  of  the Registrable Securities pursuant to a
Registration  Statement  (the matters in the foregoing clauses (i) through (iii)
being,  collectively,  "Violations").  Subject  to the restrictions set forth in
Section  6(c)  with  respect  to  the number of legal counsel, the Company shall
reimburse  the  Investor  and  each  such  controlling  person, promptly as such
expenses  are incurred and are due and payable, for any reasonable legal fees or
other  reasonable  expenses incurred by them in connection with investigating or
defending  any  such  Claim.  Notwithstanding anything to the contrary contained
herein,  the indemnification agreement contained in this Section 6(a): (I) shall
not  apply  to  a Claim arising out of or based upon a Violation which is due to
the  inclusion in the Registration Statement of the information furnished to the
Company  by  any  Indemnified  Person  expressly  for use in connection with the
preparation  of  the  Registration  Statement  or  any such amendment thereof or
supplement  thereto;  (II)  shall  not  be available to the extent such Claim is
based  on  (A)  a failure of the Investor to deliver or to cause to be delivered
the prospectus made available by the Company or (B) the Indemnified Person's use
of  an  incorrect  prospectus  despite  being promptly advised in advance by the
Company  in writing not to use such incorrect prospectus; (III) any claims based
on  the  manner  of sale of the Registrable Securities by the Investor or of the
Investor's  failure  to  register  as a dealer under applicable securities laws;
(IV)  any  omission  of  the Investor to notify the Company of any material fact
that  should  be  stated in the Registration Statement or prospectus relating to
the  Investor  or  the manner of sale; and (V) any amounts paid in settlement of
any  Claim  if  such settlement is effected without the prior written consent of
the  Company,  which  consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on  behalf  of  the  Indemnified  Person  and  shall  survive  the resale of the
Registrable  Securities  by the Investor pursuant to the Registration Statement.

(B)  In  connection  with  any  Registration  Statement  in  which a Investor is
participating,  each  such  Investor  agrees to severally and jointly indemnify,
hold  harmless  and  defend, to the same extent and in the same manner as is set
forth  in Section 6(a), the Company, each of its directors, each of its officers
who  signs  the  Registration  Statement,  each Person, if any, who controls the
Company  within  the  meaning  of the 1933 Act or the 1934 Act and the Company's
agents  (collectively  and  together with an Indemnified Person, an "Indemnified
Party"),  against  any  Claim  or  Indemnified  Damages to which any of them may
become  subject,  under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim  or  Indemnified  Damages arise out of or are based upon any Violation, in
each  case  to the extent, and only to the extent, that such Violation is due to
the inclusion in the Registration Statement of the written information furnished
to  the  Company  by  such  Investor  expressly  for use in connection with such
Registration  Statement;  and,  subject  to  Section  6(c),  such  Investor will
reimburse  any legal or other expenses reasonably incurred by them in connection
with  investigating  or  defending  any  such Claim; provided, however, that the
indemnity  agreement  contained  in  this  Section  6(b)  and the agreement with
respect  to  contribution contained in Section 7 shall not apply to amounts paid
in  settlement  of  any  Claim  if such settlement is effected without the prior
written  consent  of  such  Investor,  which  consent  shall not be unreasonably
withheld;  provided,  further,  however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not  exceed  the  net  proceeds  to  such  Investor  as  a result of the sale of
Registrable  Securities  pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on  behalf  of  such  Indemnified  Party  and  shall  survive  the resale of the
Registrable  Securities  by the Investor pursuant to the Registration Statement.
Notwithstanding  anything  to the contrary contained herein, the indemnification
agreement  contained  in  this  Section  6(b)  with  respect  to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement  or  omission of material fact contained in the preliminary prospectus
were  corrected  on  a  timely  basis  in  the  prospectus,  as  then amended or
supplemented.  This  indemnification  provision  shall  apply separately to each
Investor  and  liability  hereunder  shall  not  be  joint  and  several.

(C)  Promptly  after receipt by an Indemnified Person or Indemnified Party under
this  Section  6  of  notice  of  the  commencement  of any action or proceeding
(including  any  governmental  action  or  proceeding)  involving  a Claim, such
Indemnified  Person or Indemnified Party shall, if a Claim in respect thereof is
to  be  made against any indemnifying party under this Section 6, deliver to the
indemnifying  party  a  written  notice  of  the  commencement  thereof, and the
indemnifying  party  shall  have the right to participate in, and, to the extent
the  indemnifying  party  so  desires, jointly with any other indemnifying party
similarly  noticed,  to  assume  control  of  the  defense  thereof with counsel
mutually  satisfactory  to  the indemnifying party and the Indemnified Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person  or Indemnified Party shall have the right to retain its own
counsel  with the fees and expenses to be paid by the indemnifying party, if, in
the  reasonable  opinion  of  counsel  retained  by  the  Indemnified  Person or
Indemnified  Party,  the  representation by counsel of the Indemnified Person or
Indemnified  Party  and  the  indemnifying  party  would be inappropriate due to
actual  or  potential  differing  interests  between  such Indemnified Person or
Indemnified  Party  and  any  other  party  represented  by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for  the Indemnified Persons or the Indemnified Parties, as applicable, and such
counsel  shall  be  selected  by  the  Investor, if the Investor are entitled to
indemnification  hereunder,  or  the  Company,  if  the  Company  is entitled to
indemnification  hereunder,  as applicable. The Indemnified Party or Indemnified
Person  shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or Claim by the indemnifying party and
shall  furnish to the indemnifying party all information reasonably available to
the  Indemnified  Party  or  Indemnified  Person which relates to such action or
Claim.  The  indemnifying  party shall keep the Indemnified Party or Indemnified
Person  fully  appraised  at  all  times  as to the status of the defense or any
settlement  negotiations  with  respect  thereto. No indemnifying party shall be
liable  for  any  settlement of any action, claim or proceeding effected without
its  written  consent,  provided, however, that the indemnifying party shall not
unreasonably  withhold,  delay  or  condition its consent. No indemnifying party
shall,  without  the  consent  of  the  Indemnified Party or Indemnified Person,
consent  to  entry  of  any  judgment  or  enter  into  any  settlement or other
compromise which does not include as an unconditional term thereof the giving by
the  claimant  or plaintiff to such Indemnified Party or Indemnified Person of a
release  from  all liability in respect to such Claim. Following indemnification
as  provided  for  hereunder,  the indemnifying party shall be surrogated to all
rights  of the Indemnified Party or Indemnified Person with respect to all third
parties,  firms or corporations relating to the matter for which indemnification
has  been  made. The failure to deliver written notice to the indemnifying party
within  a  reasonable  time  of  the  commencement  of any such action shall not
relieve  such  indemnifying  party of any liability to the Indemnified Person or
Indemnified  Party  under  this  Section  6,  except  to  the  extent  that  the
indemnifying  party  is  prejudiced  in  its  ability  to  defend  such  action.

(D)  The  indemnity  agreements contained herein shall be in addition to (I) any
cause  of action or similar right of the Indemnified Party or Indemnified Person
against  the  indemnifying  party  or  others,  and  (II)  any  liabilities  the
indemnifying  party  may  be  subject  to  pursuant  to  the  law.

SECTION  7.  CONTRIBUTION.

To  the  extent  any  indemnification  by an indemnifying party is prohibited or
limited  by  law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6  to  the  fullest  extent  permitted  by  law; provided, however, that: (I) no
contribution  shall  be  made under circumstances where the maker would not have
been  liable  for indemnification under the fault standards set forth in Section
6;  (II)  no  seller  of  Registrable  Securities  guilty  of  fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled  to  contribution from any seller of Registrable Securities who was not
guilty  of fraudulent misrepresentation; and (III) contribution by any seller of
Registrable  Securities shall be limited in amount to the net amount of proceeds
received  by  such  seller  from  the  sale  of  such  Registrable  Securities.

SECTION  8.  REPORTS  UNDER  THE  1934  ACT.

With  a  view  to  making  available  to  the  Investor the benefits of Rule 144
promulgated  under  the  1933 Act or any other similar rule or regulation of the
SEC  that  may at any time permit the Investor to sell securities of the Company
to  the  public  without  registration  ("Rule  144"),  the  Company  agrees to:

(A)  make  and  keep public information available, as those terms are understood
and  defined  in  Rule  144;

(B)  file  with  the  SEC  in  a  timely  manner all reports and other documents
required  of  the  Company  under  the  1933 Act and the 1934 Act so long as the
Company  remains  subject to such requirements (it being understood that nothing
herein  shall  limit  the  Company's  obligations  under  Section  5(c)  of  the
Investment  Agreement)  and  the  filing  of such reports and other documents is
required  for  the  applicable  provisions  of  Rule  144;  and

(C)  furnish  to the Investor, promptly upon request, (I) a written statement by
the  Company  that  it has complied with the reporting requirements of Rule 144,
the  1933  Act  and  the  1934  Act,  (II)  a  copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the  Company, and (III) such other information as may be reasonably requested to
permit  the  Investor  to  sell  such  securities  pursuant  to Rule 144 without
registration.

SECTION  9.  NO  ASSIGNMENT  OF  REGISTRATION  RIGHTS.

            THE RIGHTS UNDER THIS AGREEMENT SHALL NOT BE ASSIGNABLE.

SECTION  10.  AMENDMENT  OF  REGISTRATION  RIGHTS.

Provisions of this Agreement may be amended only with the written consent of the
Company and Investor. No such amendment shall be effective to the extent that it
applies  to  less  than  all  of  the  Investor  of  the Registrable Securities.

SECTION  11.  MISCELLANEOUS.

(A)  Any notices or other communications required or permitted to be given under
the  terms of this Agreement that must be in writing will be deemed to have been
delivered  (I)  upon receipt, when delivered personally; (II) upon receipt, when
sent  by  facsimile  (provided a confirmation of transmission is mechanically or
electronically  generated  and  kept on file by the sending party); or (III) one
day  after  deposit  with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile  numbers  for  such  communications  shall  be:

If  to  the  Company:

Payment  Data  Systems,  Inc.
12500  San  Pedro,  Suite  120
San  Antonio,  TX  78216
Telephone:  210-249-4100
Facsimile:  210-249-4130

If  to  the  Investor:

Dutchess  Private  Equities  Fund,  LP  312  Stuart  St,  Third  Floor
Boston,  MA  02116
Telephone:  617-960-3570
Facsimile:  617-960-3772

Each  party  shall provide five business days prior notice to the other party of
any  change  in  address,  phone  number  or  facsimile  number.

(B) Failure of any party to exercise any right or remedy under this Agreement or
otherwise,  or  delay  by  a party in exercising such right or remedy, shall not
operate  as  a  waiver  thereof.

(C)  The  laws  of  the  Commonwealth  of  Massachusetts shall govern all issues
arising  from  or  related to this Agreement without regard to the principles of
conflict  of  laws.  Each  party  hereby  irrevocably  submits  to the exclusive
jurisdiction  of  the  state  and  federal courts sitting in the City of Boston,
County  of  Suffolk,  for  the  adjudication  of  any  dispute  hereunder  or in
connection  herewith  or  with  any transaction contemplated hereby or discussed
herein,  and  hereby  irrevocably  waives, and agrees not to assert in any suit,
action  or  proceeding,  any  claim  that  it  is  not personally subject to the
jurisdiction  of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each  party hereby irrevocably waives personal service of process and
consents  to  process  being  served  in  any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service  of process and notice thereof. Nothing contained herein shall be deemed
to  limit  in any way any right to serve process in any manner permitted by law.
If  any  provision  of  this  Agreement shall be invalid or unenforceable in any
jurisdiction,  such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity  or  enforceability  of  any  provision  of this Agreement in any other
jurisdiction.

(D) This Agreement and the Transaction Documents constitute the entire agreement
among  the parties hereto with respect to the subject matter hereof and thereof.
There  are  no  restrictions,  promises,  warranties or undertakings, other than
those  set  forth  or  referred  to  herein  and  therein.

(E)  This Agreement and the Transaction Documents supersede all prior agreements
and  understandings  among the parties hereto with respect to the subject matter
hereof  and  thereof.

(F)  The  headings  in  this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. Whenever required by the
context  of  this Agreement, the singular shall include the plural and masculine
shall  include  the feminine. This Agreement shall not be construed as if it had
been  prepared  by  one  of  the  parties,  but rather as if all the parties had
prepared  the  same.

(G)  This  Agreement may be executed in two or more identical counterparts, each
of  which  shall be deemed an original but all of which shall constitute one and
the  same  agreement. This Agreement, once executed by a party, may be delivered
to  the other party hereto by facsimile transmission of a copy of this Agreement
bearing  the  signature  of  the  party  so  delivering  this  Agreement.

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

*  *  *

                 SIGNATURE PAGE OF REGISTRATION RIGHTS AGREEMENT

Agreed  as  of  the  date  first  written  above.

DUTCHESS  PRIVATE  EQUITIES  FUND,  L.P.
BY  ITS  GENERAL  PARTNER,
DUTCHESS  CAPITAL  MANAGEMENT,  LLC

     /s/  Douglas  Leighton
By:____________________________
Douglas  H.  Leighton,  Managing  Member

PAYMENT  DATA  SYSTEMS,  INC.

   /s/  Michael  Long
By__________________________________
    Michael  Long,  Chief  Executive  Officer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00068-of-00352.parquet"}]]