Document:

SECURITIES PURCHASE AGREEMENT

     SECURITIES  PURCHASE AGREEMENT (this "Agreement"), dated as of February 10,
                                           ---------
2004, by and between CITADEL SECURITY SOFTWARE INC., a Delaware corporation (the
"Company"),  and  each of the entities whose names appear on the signature pages
 -------
hereof.  Such  entities  are  each  referred  to  herein  as  an "Investor" and,
                                                                  --------
collectively,  as  the  "Investors".
                         ---------

     The  Company  wishes  to sell to each Investor, and each Investor wishes to
purchase,  on  the  terms  and  subject  to  the  conditions  set  forth in this
Agreement,  shares  of Series A 5.0% Convertible Preferred Stock (the "Preferred
                                                                       ---------
Stock"), which shall have the rights and privileges set forth in the Certificate
-----
of Designations, Preferences and Rights in the form attached hereto as Exhibit A
                                                                       ---------
(the "Certificate of Designation"), and a Warrant in the form attached hereto as
      --------------------------
Exhibit  B (a "Warrant" and, collectively, the "Warrants").  Each Warrant issued
----------     -------                          --------
to  an  Investor  will  entitle  such Investor to purchase a number of shares of
Common Stock equal to (i) the purchase price of the Preferred Stock purchased by
such  Investor  at the Closing (as defined below) divided by (ii) the Conversion
                                                  ----------
Price  (as defined below) in effect on the Closing Date (as defined below) times
                                                                           -----
(iii)  forty  percent  (40%).  The Warrants will have an exercise price equal to
$5.15  per  share  (subject  to  adjustment  as  provided  therein).

     The  shares  of  Common  Stock into which the shares of Preferred Stock are
convertible  are referred to herein as the "Conversion Shares" and the shares of
                                            -----------------
Common  Stock  into which the Warrants are exercisable are referred to herein as
the  "Warrant  Shares". The Preferred Stock, the Conversion Shares, the Warrants
      ---------------
and  the Warrant Shares are collectively referred to herein as the "Securities".
                                                                    ----------

     The  Company has agreed to effect the registration of the Conversion Shares
and  the  Warrant  Shares  under  the  Securities  Act  of 1933, as amended (the
"Securities  Act"),  pursuant  to  a  Registration  Rights Agreement in the form
 ---------------
attached hereto as Exhibit C (the "Registration Rights Agreement").  The sale of
                   ---------       -----------------------------
the  Preferred  Stock  and  the Warrants by the Company to the Investors will be
effected in reliance upon the exemption from securities registration afforded by
the  provisions  of  Regulation  D  ("Regulation  D"),  as  promulgated  by  the
                                      -------------
Securities  and Exchange Commission (the "Commission") under the Securities Act.
                                          ----------

     In  consideration  of  the  mutual promises made herein, and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged,  the  Company  and  each  Investor  hereby  agree  as  follows:

<PAGE>
1.   PURCHASE  AND  SALE  OF  PREFERRED  STOCK  AND  WARRANTS.
     --------------------------------------------------------

     1.1     Purchase  of  Preferred  Stock  and  Warrants.  Upon  the terms and
             ---------------------------------------------
subject  to  the  satisfaction or waiver of the conditions set forth herein, the
Company  agrees  to  sell and each Investor agrees to purchase (i) the number of
shares  of Preferred Stock set forth below such Investor's name on the signature
pages hereof and (ii) a Warrant.  The purchase price for the Preferred Stock and
Warrant  being purchased by an Investor (the "Purchase Price") shall be equal to
                                              --------------
$15,000,000,  provided  that  the Purchase Price shall be allocated between such
Preferred  Stock  and  Warrant  as  may  be  agreed between the Company and such
Investor.  The  date  on  which  the  closing  of  the  purchase and sale of the
Preferred  Stock  and Warrants occurs (the "Closing") is hereinafter referred to
                                            -------
as  the  "Closing  Date".  The  Closing  will  be  deemed to occur when (A) this
          -------------
Agreement  and  the  other  Transaction  Documents  (as defined below) have been
executed  and  delivered  by  the Company and each investor (if applicable), (B)
each  of  the  conditions  to  Closing  described  in  Section 5 hereof has been
satisfied or waived as specified therein and (C) full payment of each Investor's
Purchase Price has been made by such Investor to the Company by wire transfer of
immediately  available  funds  against  physical delivery by the Company of duly
executed  certificates representing the Preferred Stock and Warrant purchased by
such  Investor  at  the  Closing.

     1.2     Certain  Definitions.  When  used herein, the following terms shall
             --------------------
have  the  respective  meanings  indicated:

               "Affiliate"  means,  as to any Person (the "subject Person"), any
                ---------                                  --------------
other  Person (a) that directly or indirectly through one or more intermediaries
controls  or  is  controlled  by,  or is under direct or indirect common control
with,  the  subject Person, (b) that directly or indirectly beneficially owns or
holds  ten  percent  (10%)  or more of any class of voting equity of the subject
Person,  or  (c)  ten  percent  (10%)  or  more of the voting equity of which is
directly or indirectly beneficially owned or held by the subject Person. For the
purposes  of  this  definition,  "control"  when used with respect to any Person
                                  -------
means  the  power to direct the management and policies of such Person, directly
or  indirectly,  whether  through  the  ownership  of voting securities, through
representation on such Person's Board of Directors or other management committee
or  group,  by  contract  or  otherwise.

               "Business Day" means any day other than a Saturday, a Sunday or a
                ------------
day on which the New York Stock Exchange or commercial banks located in New York
City  are  authorized  or  permitted  by  law  to  close.

               "Closing"  and  "Closing  Date"  have  the  respective  meanings
                -------         -------------
specified  in  Section  1.1  hereof.

               "Closing  Bid  Price"  shall mean, for the Common Stock as of any
                -------------------
date,  the  closing bid price on such date for the Common Stock on the Principal
Market  as  reported  by  Bloomberg  Financial  Markets ("Bloomberg"), or if the
                                                          ---------
Principal  Market  begins  to  operate  on an extended hours basis, and does not
designate  the  closing bid price, then the last bid price at 4:00 p.m. (eastern
time),  as  reported  by  Bloomberg,  or if the foregoing do not apply, the last
closing  bid

                                        2
<PAGE>
price  of  the  Common  Stock  in  the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price  is  reported for such security by Bloomberg, the last closing trade price
for  such  security as reported by Bloomberg, or, if no last closing trade price
is reported for such security by Bloomberg, the average of the bid prices of any
market  makers for such security as reported in the "pink sheets" by Pink Sheets
LLC  (formerly  the  National  Quotation Bureau, Inc.). If the Closing Bid Price
cannot  be  calculated for the Common Stock on such date on any of the foregoing
bases,  then  the  Company  shall  submit  such  calculation  to  an independent
investment  banking firm of national reputation, and shall cause such investment
banking  firm  to  perform  such  determination  and notify the Company and each
Investor  of  the  results  of determination no later than two (2) Business Days
from  the  time  such  calculation  was  submitted  to  it  by the Company. Such
investment  banking  firm's  determination  shall  be  deemed  conclusive absent
manifest  error. All such determinations shall be appropriately adjusted for any
stock  dividend,  stock  split  or other similar transaction during such period.

               "Common Stock" means the common stock, par value $0.01 per share,
                ------------
of  the  Company.

               "Conversion  Price"  has the meaning specified in the Certificate
                -----------------
of  Designation.
               "Debt" means, as to any Person at any time: (a) all indebtedness,
                ----
liabilities  and  obligations  of  such  Person  for  borrowed  money;  (b)  all
indebtedness,  liabilities  and  obligations  of such Person to pay the deferred
purchase  price  of  Property or services, except trade accounts payable of such
Person  arising in the ordinary course of business that are not past due by more
than  90 days; (c) all capital lease obligations of such Person; (d) all Debt of
others  guaranteed  by  such  Person;  (e)  all  indebtedness,  liabilities  and
obligations secured by a Lien existing on Property owned by such Person, whether
or  not  the  indebtedness, liabilities or obligations secured thereby have been
assumed by such Person or are non-recourse to such Person; (f) all reimbursement
obligations  of  such  Person  (whether  contingent  or otherwise) in respect of
letters  of  credit,  bankers'  acceptances,  surety  or other bonds and similar
instruments;  and  (g)  all  indebtedness,  liabilities  and obligations of such
Person  to  redeem  or  retire  shares  of  capital  stock  of  such  Person.

               "Disclosure  Documents"  has the meaning specified in Section 3.4
                ---------------------
hereof.

               "Effective  Date"  has  the meaning set forth in the Registration
                ---------------
Rights  Agreement.

               "Environmental  Law"  means any federal, state, provincial, local
                ------------------
or  foreign  law,  statute,  code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction issued,
promulgated,  approved  or  entered  thereunder,  relating  to  pollution or the
protection,  cleanup  or restoration of the environment or natural resources, or
to  the  public  health  or  safety, or otherwise governing the generation, use,
handling,  collection,  treatment, storage, transportation, recovery, recycling,
discharge  or  disposal  of  hazardous  materials.

               "ERISA"  means  the  Employee  Retirement  Income Security Act of
                -----
1974,  as amended, and the regulations and published interpretations thereunder.

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<PAGE>
               "Exchange  Act"  means  the  Securities  Exchange Act of 1934, as
                -------------
amended  (or  any  successor  act), and the rules and regulations thereunder (or
respective  successors  thereto).

               "Exercise  Price"  shall  have  the  meaning  specified  in  the
                ---------------
Warrants.

               "GAAP" means generally accepted accounting principles, applied on
                ----
a  consistent  basis,  as set forth in (i) opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants, (ii) statements
of  the  Financial  Accounting  Standards  Board  (iii)  interpretations  of the
Commission  and  the  Staff  of  the  Commission  and  each  of their respective
successors  and  which  are  applicable  in  the circumstances as of the date in
question.  Accounting  principles  are  applied on a "consistent basis" when the
accounting principles applied in a current period are comparable in all material
respects  to  those  accounting  principles  applied  in  a  preceding  period.

               "Governmental  Authority"  means  any  nation  or government, any
                -----------------------
state,  provincial  or  political  subdivision thereof and any entity exercising
executive,  legislative,  judicial, regulatory or administrative functions of or
pertaining  to  government,  including  without  limitation  any stock exchange,
securities  market  or  self-regulatory  organization.

               "Governmental  Requirement"  means  any  law,  statute,  code,
                -------------------------
ordinance,  order,  rule,  regulation,  judgment, decree, injunction, franchise,
license  or  other  directive  or  requirement  of  any  federal, state, county,
municipal, parish, provincial or other Governmental Authority or any department,
commission,  board,  court,  agency or any other instrumentality of any of them.

               "Intellectual Property" means any U.S. or foreign patents, patent
                ---------------------
rights,  patent  applications,  trademarks,  trade  names,  service marks, brand
names,  logos  and  other  trade  designations (including unregistered names and
marks),  trademark  and  service mark registrations and applications, copyrights
and copyright registrations and applications, inventions, invention disclosures,
protected  formulae,  formulations,  processes, methods, trade secrets, computer
software, computer programs and source codes, manufacturing research and similar
technical  information, engineering know-how, customer and supplier information,
assembly  and  test  data  drawings  or  royalty  rights.

               "Lien"  means,  with  respect  to  any  Property, any mortgage or
                ----
mortgages,  pledge,  hypothecation,  assignment,  deposit  arrangement, security
interest,  tax lien, financing statement, pledge, charge, or other lien, charge,
easement,  encumbrance,  preference,  priority  or  other  security agreement or
preferential  arrangement of any kind or nature whatsoever on or with respect to
such  Property  (including,  without  limitation,  any conditional sale or other
title  retention  agreement having substantially the same economic effect as any
of  the  foregoing).

               "Market Price" means, as of a particular date, the average of the
                ------------
Closing  Bid  Prices  for the Common Stock occurring during the ten (10) Trading
Day  period ending on (and including) the Trading Day immediately preceding such
date;  provided that such amount shall not be greater than the Closing Bid Price
for  the  Trading  Day  immediately  preceding  such  date.

                                        4
<PAGE>
               "Material Adverse Effect" means an effect that has a material and
                -----------------------
adverse  effect  on  (i)  the  consolidated  business,  operations,  properties,
financial  condition,  prospects or results of operations of the Company and its
Subsidiaries  taken as a whole or (ii) the ability of the Company to perform its
obligations  under  the  Certificate of Designation, this Agreement or the other
Transaction  Documents  (as  defined  below).

               "Material  Contracts"  means,  as  to  the Company, any agreement
                -------------------
required  pursuant  to Item 601 of Regulation S-B or Item 601 of Regulation S-K,
as applicable, promulgated under the Securities Act to be filed as an exhibit to
any report, schedule, registration statement or definitive proxy statement filed
or  required  to  be filed by the Company with the Commission under the Exchange
Act  or  any  rule  or  regulation  promulgated  thereunder,  and  any  and  all
amendments,  modifications,  supplements,  renewals  or  restatements  thereof.

               "NASD" means the National Association of Securities Dealers, Inc.
                ----

               "Pension  Plan"  means  an  employee  benefit plan (as defined in
                -------------
ERISA)  maintained  by  the  Company  for employees of the Company or any of its
Affiliates.

               "Permitted  Liens"  means  the  following:
                ----------------

               (a)     encumbrances  consisting  of  easements,  rights-of-way,
     zoning  restrictions  or  other restrictions on the use of real Property or
     imperfections  to  title  that  do  not  (individually or in the aggregate)
     materially  impair the ability of the Company or any of its Subsidiaries to
     use  such  Property in its businesses, and none of which is violated in any
     material  respect  by  existing  or  proposed  structures  or  land  use;

               (b)     Liens  for  taxes,  assessments  or  other  governmental
     charges  that are not delinquent or which are being contested in good faith
     by appropriate proceedings, which proceedings have the effect of preventing
     the forfeiture or sale of the Property subject to such Liens, and for which
     adequate  reserves  (as  determined  in  accordance  with  GAAP)  have been
     established;  and

               (c)     Liens  of mechanics, materialmen, warehousemen, carriers,
     landlords  or  other  similar statutory Liens securing obligations that are
     not  yet  due  and are incurred in the ordinary course of business or which
     are  being  contested  in  good  faith  by  appropriate  proceedings, which
     proceedings  have  the  effect  of preventing the forfeiture or sale of the
     Property  subject to such Liens, for which adequate reserves (as determined
     in  accordance  with GAAP) have been established and which have been bonded
     over  and  omitted  from  the  Title  Policy.

               "Person"  means  any individual, corporation, trust, association,
                ------
company,  partnership,  joint  venture,  limited  liability company, joint stock
company,  Governmental  Authority  or  other  entity.

                                        5
<PAGE>
               "Property"  means  property  and/or  assets of all kinds, whether
                --------
real,  personal or mixed, tangible or intangible (including, without limitation,
all  rights  relating  thereto).

               "Principal  Market"  means  the  principal  exchange or market on
                -----------------
which  the  Common  Stock  is  listed  or  traded.

               "Purchase Price" has the meaning specified in Section 1.1 hereof.
                --------------

               "Registrable  Securities"  has  the  meaning  set  forth  in  the
                -----------------------
Registration  Rights  Agreement.

               "Registration  Statement"  has  the  meaning  set  forth  in  the
                -----------------------
Registration  Rights  Agreement.

               "Securities"  has  the  meaning specified in the preamble to this
                ----------
Agreement.
                    "Subsidiary"  means,  with  respect  to  any  Person,  any
                     ----------
corporation  or  other  entity  of  which at least a majority of the outstanding
shares  of  stock  or  other  ownership  interests  having  by the terms thereof
ordinary  voting power to elect a majority of the board of directors (or Persons
performing  similar  functions)  of  such corporation or entity (irrespective of
whether  or  not  at  the time, in the case of a corporation, stock of any other
class  or  classes  of such corporation shall have or might have voting power by
reason  of  the  happening  of  any  contingency)  is  at  the  time directly or
indirectly owned or controlled by such Person or one or more of its Subsidiaries
or  by  such  Person  and  one  or  more  of  its  Subsidiaries.

               "Trading  Day"  means  any  day  on  which  the  Common  Stock is
                ------------
purchased  and  sold  on  the  Principal  Market.

               "Transaction  Documents"  means  (i)  this  Agreement,  (ii)  the
                ----------------------
Warrants,  (iii)  the  Registration  Rights  Agreement,  and  (iv)  all  other
agreements,  documents  and  other  instruments  executed and delivered by or on
behalf  of  the  Company  or  any  of  its  officers  at  the  Closing.

     1.3     Other  Definitional  Provisions.  All definitions contained in this
             -------------------------------
Agreement  are  equally applicable to the singular and plural forms of the terms
defined.  The  words  "hereof",  "herein"  and  "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any  particular  provision  of  this  Agreement.

2.     REPRESENTATIONS  AND  WARRANTIES  OF  EACH  INVESTOR.
       ----------------------------------------------------

     Each  Investor hereby makes the following representations and warranties to
the  Company  and agrees with the Company that, as of the date of this Agreement
and  as  of  the  Closing  Date:

     2.1     Authorization;  Enforceability.  Such  Investor is duly and validly
             ------------------------------
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
jurisdiction  of  its  incorporation  or  organization  as

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<PAGE>
set  forth  below  such  Investor's  name  on the signature page hereof with the
requisite  corporate  power  and  authority  to purchase the Preferred Stock and
Warrant  and  to  execute and deliver this Agreement. This Agreement constitutes
such  Investor's valid and legally binding obligation, enforceable in accordance
with  its  terms,  subject  to (i) applicable bankruptcy, insolvency, fraudulent
transfer,  reorganization,  moratorium  or  other  similar  laws  of  general
application  relating  to  or  affecting  the  enforcement  of creditors' rights
generally  and  (ii)  general  principles  of  equity.

     2.2     Accredited  Investor.  Such  Investor  is an accredited investor as
             --------------------
that term is defined in Rule 501 of Regulation D, and is acquiring the Preferred
Stock and Warrants solely for its own account as a principal (or for accounts as
to  which it exercises investment discretion) and not with a present view to the
public  resale  or  distribution  of all or any part thereof, except pursuant to
sales  that  are exempt from the registration requirements of the Securities Act
and/or  sales  registered  under  the  Securities Act; provided, however that in
making  such representation, such Investor does not agree to hold the Securities
for  any  minimum  or  specific term and reserves the right to sell, transfer or
otherwise  dispose  of  the  Securities  at  any  time  in  accordance  with the
provisions  of  this  Agreement  and  with  Federal  and  state  securities laws
applicable  to  such  sale,  transfer  or  disposition.

     2.3     Information.  The  Company  has  provided  such  Investor  with
             -----------
information  regarding  the  business, operations and financial condition of the
Company,  and  has  granted to such Investor the opportunity to ask questions of
and  receive  answers  from  representatives  of  the  Company,  its  officers,
directors, employees and agents concerning the Company and materials relating to
the  terms  and  conditions  of the purchase and sale of the Preferred Stock and
Warrants  hereunder.  Neither  such  information  nor  any  other  investigation
conducted  by such Investor or any of its representatives shall modify, amend or
otherwise  affect such Investor's right to rely on the Company's representations
and  warranties  contained  in  this  Agreement.

     2.4     Limitations  on  Disposition.  Such  Investor  acknowledges  that,
             ----------------------------
except as provided in the Registration Rights Agreement, the Securities have not
been  and  are  not  being  registered  under  the Securities Act and may not be
transferred  or  resold  without registration under the Securities Act or unless
pursuant  to  an  exemption  therefrom.

     2.5     Legend.  Such  Investor  understands  that  the  certificates
             ------
representing  the  Securities  may  bear  at  issuance  a  restrictive legend in
substantially  the  following  form:

          "The  securities  represented  by  this  certificate  have  not  been
          registered  under  the  Securities  Act  of  1933,  as  amended  (the
          "Securities Act"), or the securities laws of any state, and may not be
          offered  or  sold unless a registration statement under the Securities
          Act  and  applicable state securities laws shall have become effective
          with  regard  thereto,  or  an  exemption  from registration under the
          Securities  Act  and  applicable state securities laws is available in
          connection  with  such  offer  or  sale."

          Notwithstanding  the  foregoing, it is agreed that, as long as (A) the
resale  or  transfer  (including  without  limitation  a  pledge)  of any of the
Securities  is  registered  pursuant to an effective registration statement, (B)
such  Securities have been sold pursuant to Rule 144 under the Securities Act or
any  successor  provision  ("Rule  144"),  subject  to receipt by the Company of
                             ---------

                                        7
<PAGE>
customary  documentation  in  connection  therewith,  or (C) such Securities are
eligible  for  resale  under  Rule  144(k)  or  any  successor  provision,  such
Securities shall be issued without any legend or other restrictive language and,
with  respect to Securities upon which such legend is stamped, the Company shall
issue  new  certificates  without  such  legend  to  the  holder  upon  request.

     2.6     Reliance  on  Exemptions.  Such  Investor  understands  that  the
             ------------------------
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws  and  that  the  Company  is  relying  upon  the  truth and accuracy of the
representations  and  warranties of such Investor set forth in this Section 2 in
order  to  determine  the availability of such exemptions and the eligibility of
such  Investor  to  acquire  the  Securities.

     2.7     Non-Affiliate Status; Common Stock Ownership.  Such Investor is not
             --------------------------------------------
an  Affiliate  of  the  Company  or  of  any other Investor and is not acting in
association  or  concert  with  any  other Investor in regard to its purchase of
Preferred  Stock  and  Warrants  or  otherwise  in  regard to the Company.  Such
Investor's  investment in Preferred Stock and Warrants is not for the purpose of
acquiring,  directly  or indirectly, control of, and it has no intent to acquire
or exercise control of, the Company or to influence the decisions or policies of
the  Company's  Board  of  Directors.

     2.8     No Short Position in Company Securities.  Neither such Investor nor
             ---------------------------------------
any  person  trading  on  its behalf or at its direction has established a short
position  in  the  Common Stock or any other securities of the Company as of the
Trading  Day  immediately  preceding  the  Closing  Date.

     2.9     Fees.  Such  Investor  is  not obligated to pay any compensation or
             ----
other  fee,  cost  or  related  expenditure to any underwriter, broker, agent or
other  representative  in  connection with the transactions contemplated hereby.

3.     REPRESENTATIONS  AND  WARRANTIES  OF  THE  COMPANY     The Company hereby
       --------------------------------------------------
makes  the  following representations and warranties to each Investor and agrees
with  each Investor that, as of the date of this Agreement and as of the Closing
Date:

     3.1     Organization, Good Standing and Qualification.  Each of the Company
             ---------------------------------------------
and  its  Subsidiaries  is duly organized, validly existing and in good standing
under  the laws of the jurisdiction of its incorporation or organization and has
all  requisite  power  and  authority to carry on its business as now conducted.
Each  of the Company and its Subsidiaries is duly qualified to transact business
and  is  in  good  standing  in  each jurisdiction in which it conducts business
except  where  the  failure so to qualify has not had or would not reasonably be
expected  to  have  a  Material  Adverse  Effect.

     3.2     Authorization;  Consents.  The  Company has the requisite corporate
             ------------------------
power  and  authority to adopt and file the Certificate of Designation, to enter
into  and  perform its obligations under the Transaction Documents, to issue and
sell  the  Preferred  Stock and the Warrants to the Investors in accordance with
the  terms hereof and thereof, to issue the Conversion Shares upon conversion of
the  Preferred  Stock  and  to  issue  the  Warrant  Shares upon exercise of the
Warrants.  All  corporate  action  on  the  part of the Company by its officers,
directors  and  stockholders  necessary  for  the  authorization,  execution and
delivery  of,  and  the performance by the Company of its obligations under, the

                                        8
<PAGE>
Certificate  of Designation and the Transaction Documents has been taken, and no
further  consent  or  authorization  of  the  Company,  its  Board of Directors,
stockholders,  any  Governmental  Authority  or  organization  (other  than such
approval  as  may  be  required  under  the  Securities Act and applicable state
securities  laws  in respect of the Registration Rights Agreement), or any other
person  or  entity is required (pursuant to any rule of the National Association
of  Securities  Dealers ("NASD") or otherwise). The Company's Board of Directors
has  determined,  at  a  duly  convened meeting or pursuant to unanimous written
consent,  that  the issuance and sale of the Securities, and the consummation of
the  transactions  contemplated  hereby, the other Transaction Documents and the
Certificate  of  Designation  (including  without  limitation  the  issuance  of
Conversion  Shares and Warrant Shares) are in the best interests of the Company.

     3.3     Enforcement.  Each  of  the  Transaction  Documents  has  been duly
             -----------
executed  and  delivered  by  the  Company and constitutes the valid and legally
binding obligation of the Company, enforceable against it in accordance with its
terms,  subject  to  (i) applicable bankruptcy, insolvency, fraudulent transfer,
moratorium, reorganization or other similar laws of general application relating
to  or affecting the enforcement of creditors' rights generally and (ii) general
principles  of  equity.

     3.4     Disclosure  Documents;  Agreements;  Financial  Statements;  Other
             ------------------------------------------------------------------
Information.  The  Company  filed  with  the  Commission all reports, schedules,
-----------
registration  statements  and  definitive  proxy statements that the Company was
required  to  file  with  the  Commission  on  or  after  December  31,  2002
(collectively,  the  "Disclosure  Documents").  The  Company is not aware of any
                      ---------------------
event  occurring  on  or  prior  to  the  date  of  the  Closing (other than the
transactions  effected hereby) that would require the filing of, or with respect
to  which  the  Company  intends  to  file,  a  Form 8-K after the Closing. Each
Disclosure  Document,  as of the date of the filing thereof with the Commission,
complied in all material respects with the requirements of the Securities Act or
Exchange  Act,  as  applicable,  and  the  rules  and  regulations  promulgated
thereunder  and, as of the date of such filing (or if amended or superseded by a
filing  prior  to  the date of this Agreement, then on the date of such filing),
such  Disclosure  Document  (including  all  exhibits  and schedules thereto and
documents incorporated by reference therein) did not contain an untrue statement
of  material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which  they  were  made,  not misleading.  All documents required to be filed as
exhibits  to the Disclosure Documents have been filed as required. Except as set
forth  in  the  Disclosure Documents or any schedule or exhibit attached hereto,
the  Company has no liabilities, contingent or otherwise, other than liabilities
incurred  in the ordinary course of business which, under GAAP, are not required
to  be  reflected  in  such  financial  statements  included  in  the Disclosure
Documents  and  which, individually or in the aggregate, are not material to the
consolidated business or financial condition of the Company and its Subsidiaries
taken as a whole.  As of their respective dates, the financial statements of the
Company included in the Disclosure Documents complied as to form in all material
respects  with  applicable  accounting  requirements and the published rules and
regulations  of  the  Commission with respect thereto. Such financial statements
have been prepared in accordance with GAAP consistently applied at the times and
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

                                        9
<PAGE>
adjustments).

     3.5     Capitalization;  Debt  Schedule.  The capitalization of the Company
             -------------------------------
as  of  the  date  hereof, including its authorized capital stock, the number of
shares  issued  and  outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company's stock option plans and agreements, the number
of  shares issuable and reserved for issuance pursuant to securities (other than
the  Preferred  Stock  and  Warrants)  exercisable  for,  or convertible into or
exchangeable  for  any shares of Common Stock and the number of shares initially
to  be reserved for issuance upon conversion of the Preferred Stock and exercise
of  the  Warrants  is set forth on Schedule 3.5 hereto.  All of such outstanding
                                   ------------
shares  of  capital  stock  have been, or upon issuance will be, validly issued,
fully paid and non-assessable. No shares of the capital stock of the Company are
subject  to preemptive rights or any other similar rights of the stockholders of
the Company or any Liens created by or through the Company.  Except as disclosed
on Schedule 3.5, or as contemplated herein, as of the date of this Agreement and
   ------------
as  of  the  date  of  the  Closing, there are no outstanding options, warrants,
scrip,  rights to subscribe to, calls or commitments of any character whatsoever
relating  to,  or  securities  or  rights  convertible  into  or  exercisable or
exchangeable  for,  any  shares  of  capital  stock of the Company or any of its
Subsidiaries, 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 (whether pursuant to anti-dilution, "reset" or other
similar provisions). The Company has no material Debt outstanding as of the date
hereof.

     3.6     Due  Authorization;  Valid Issuance.  The shares of Preferred Stock
             -----------------------------------
are  duly authorized and, when issued, sold and delivered in accordance with the
terms  hereof,  (i) will be duly and validly issued, free and clear of any Liens
imposed by or through the Company, (ii) assuming the accuracy of each Investor's
representations  in  this  Agreement,  will  be  issued,  sold  and delivered in
compliance  with all applicable Federal and state securities laws and (iii) will
be  entitled  to  all  rights,  preferences  and  privileges  described  in  the
Certificate  of Designation.  The Warrants are duly authorized and, when issued,
sold  and  delivered  in  accordance with the terms hereof, (i) will be duly and
validly  issued,  fully  paid  and  nonassessable,  free  and clear of any Liens
imposed  by  or  through  the  Company  and  (ii)  assuming the accuracy of each
Investor's representations in this Agreement, will be issued, sold and delivered
in  compliance  with  all  applicable  Federal  and  state  securities laws. The
Conversion Shares are duly authorized and reserved for issuance and, when issued
in accordance with the terms of the Certificate of Designation, will be duly and
validly  issued,  fully  paid  and  nonassessable,  free  and clear of any Liens
imposed  by  or  through the Company. The Warrant Shares are duly authorized and
reserved  for  issuance  and,  when  issued  in accordance with the terms of the
Warrants,  will  be  duly and validly issued, fully paid and nonassessable, free
and  clear  of  any  Liens  imposed  by  or  through  the  Company.

     3.7     No Conflict with Other Instruments.  Neither the Company nor any of
             ----------------------------------
its  Subsidiaries  is  in  violation  of  any  provisions  of its Certificate of
Incorporation,  Bylaws  or  any  other  governing document or in default (and no
event has occurred which, with notice or lapse of time or both, would constitute
a  default)  under  any provision of any instrument or contract to which it is a
party  or  by  which  it  or  any of its Property is bound, or, to the Company's
knowledge,  in  violation  of  any  provision  of  any  Governmental Requirement
applicable  to  it,  except  for  violations  of any provision of a Governmental
Requirement  that  has  not  had  or  would not reasonably be expected to have a
Material  Adverse  Effect.

                                       10
<PAGE>
The  (i)  execution,  delivery  and  performance of this Agreement and the other
Transaction  Documents,  (ii) filing of and performance of its obligations under
the  Certificate  of  Designation  and  (iii)  consummation  of the transactions
contemplated  hereby  and thereby (including without limitation, the issuance of
the  Preferred  Stock  and  the  Warrants  and  the reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) will not result in any
violation  referred  to  in  the  previous  sentence  or  be in conflict with or
constitute,  with  or without the passage of time and giving of notice, either a
default  under  any  such  provision,  instrument  or contract or an event which
results  in the creation of any Lien upon any assets of the Company or of any of
its  Subsidiaries  or  the  triggering of any preemptive or anti-dilution rights
(including  without limitation pursuant to any "reset" or similar provisions) or
rights  of first refusal or first offer, or any other rights that would allow or
permit  the  holders  of  the  Company's securities to purchase shares of Common
Stock  or  other  securities  of  the Company (whether pursuant to a shareholder
rights  plan  provision  or  otherwise), on the part of holders of the Company's
securities,  other  than  such  rights  as  are  disclosed  on  Schedule  3.7
                                                                ------------
hereto  or  in  the  Disclosure  Documents.

     3.8     Financial  Condition;  Taxes;  Litigation.
             -----------------------------------------

          3.8.1  Except  as  disclosed  on  Schedule  3.8  hereto, the Company's
                                          ---------------
financial condition is, in all material respects, as described in the Disclosure
Documents,  except  for  changes  in  the ordinary course of business and normal
year-end  adjustments  that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and its Subsidiaries
taken  as a whole.  Except as otherwise described in the Disclosure Documents or
Schedule  3.8,  there  has  been no (i) material adverse change to the Company's
-------------
business,  operations,  properties, financial condition, prospects or results of
operations  since  the  date  of  the  Company's most recent unaudited financial
statements  contained  in the Disclosure Documents or (ii) change by the Company
in its accounting principles, policies and methods except as required by changes
in  GAAP.

          3.8.2  Except  as  disclosed  on  Schedule 3.8 hereto, the Company and
                                            ------------
each  of  its  Subsidiaries has prepared in good faith and duly and timely filed
all  tax  returns  required  to be filed by it and such returns are complete and
accurate  in  all material respects and the Company and each of its Subsidiaries
has  paid  all taxes required to have been paid by it, except for taxes which it
reasonably  disputes in good faith or the failure of which to pay has not had or
would not reasonably be expected to have a Material Adverse Effect.  The Company
has  no  liability with respect to taxes that accrued on or before September 30,
2003 in excess of the amounts accrued with respect thereto that are reflected in
the financial statements included in the Disclosure Documents filed prior to the
date  hereof.

          3.8.3  Neither  the Company nor any of its Subsidiaries is the subject
of any pending or, to the Company's knowledge, threatened inquiry, investigation
or  administrative  or  legal  proceeding  by  the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission, the NASD,
any  state  securities  commission  or  other  Governmental  Authority.

          3.8.4  Except  as  described  in the Disclosure Documents, there is no
material  claim,  litigation  or  administrative  proceeding pending, or, to the
Company's  knowledge,  threatened or contemplated, against the Company or any of
its Subsidiaries, or against any officer, director or employee of the Company or
any  such  Subsidiary  in  connection  with  such person's employment

                                       11
<PAGE>
therewith.  Neither  the  Company  nor  any of its Subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree of
any  court  or  government  agency  or  instrumentality  which  has had or would
reasonably  be  expected  to  have  a  Material  Adverse  Effect.

     3.9     Form  S-1  or  Form  SB-2.  The Company is eligible to register the
             -------------------------
Conversion  Shares and Warrant Shares for resale in a secondary offering by each
Investor  on  a  registration  statement  on  Form  S-1  or  Form SB-2 under the
Securities  Act.  To  the  Company's  knowledge,  there  exist  no  facts  or
circumstances (including without limitation any required approvals or waivers of
any  circumstances  that  may  delay  or  prevent  the obtaining of accountant's
consents) that could reasonably be expected to prohibit or delay the preparation
and  filing  of  a  registration statement on Form S-1 or Form SB-2 that will be
available  for  the  resale  of all Conversion Shares and Warrant Shares by each
Investor.

     3.10     Acknowledgement  of  Dilution.  The  Company acknowledges that the
              -----------------------------
issuance of the Conversion Shares upon conversion of the Preferred Stock and the
issuance  of  the  Warrant  Shares  upon  exercise of the Warrants may result in
dilution  of  the  outstanding  shares  of  Common  Stock, which dilution may be
substantial  under  certain market conditions.  The Company further acknowledges
its obligation to issue Conversion Shares upon conversion of the Preferred Stock
in  accordance  with  the  terms of the Certificate of Designation, and to issue
Warrant Shares upon exercise of the Warrants in accordance with the terms of the
Warrants,  regardless  of  the  effect  of  any  such  dilution.

     3.11     Intellectual Property.  The Company and its Subsidiaries each owns
              ---------------------
or possesses, licenses or can acquire or make use of, without undue expense, all
Intellectual  Property that is necessary or appropriate for the operation of its
businesses  as  presently conducted and as proposed to be conducted, without any
known  conflict with the rights of others.  The consummation of the transactions
contemplated  by  this  Agreement,  the  other  Transaction  Documents  and  the
Certificate  of Designation will not materially alter or impair, individually or
in  the  aggregate,  any  of  such  rights  of  the  Company.  To  the Company's
knowledge, except as described in the Disclosure Documents or Schedule 3.11, (i)
none  of  its  current  products  or  services  infringes  upon any Intellectual
Property  of  any other Person, and no claim or litigation is pending or, to the
knowledge of the Company, threatened against the Company contesting its right to
sell  or otherwise use any product or material or service which has had or would
reasonably be expected to have a Material Adverse Effect and (ii) the use by the
Company  of  any  material Intellectual Property does not infringe the rights of
any  third  party  to  such  Intellectual  Property.  Except as described in the
Disclosure  Documents,  there is no violation by the Company with respect to any
material Intellectual Property owned or used by the Company. Except as described
in  the Disclosure Documents, the Company's rights to such Intellectual Property
are  valid  and  enforceable  and  no  registration relating thereto has lapsed,
expired  or  terminated  or is the subject of any claim or proceeding that could
result  in  any  such  lapse,  expiration  or  termination.  The Company and its
Subsidiaries  each  has  complied  in all material respects with its obligations
pursuant  to any agreement relating to the Intellectual Property Rights that are
the  subject  of  licenses  granted  by  third  parties.

     3.12     Registration Rights; Rights of Participation.  Except as described
              --------------------------------------------
on  Schedule  3.12 hereto, (A) the Company has not granted or agreed to grant to
    --------------
any  person or entity any rights (including "piggy-back" registration rights) to
have  any  securities of the Company registered with the

                                       12
<PAGE>
Commission  or  any other governmental authority which has not been satisfied in
full  prior  to  the date hereof and (B) no person or entity, including, but not
limited  to,  current  or  former  stockholders  of  the  Company, underwriters,
brokers,  agents  or  other  third  parties,  has  any  right  of first refusal,
preemptive  right,  right  of  participation, anti-dilutive right or any similar
right  to  participate  in,  or  to  receive  securities of the Company or other
consideration  as  a result of, the transactions contemplated by this Agreement,
the  other  Transaction  Documents  or  the  Certificate  of  Designation.

     3.13     Solicitation;  Other Issuances of Securities.  Neither the Company
              --------------------------------------------
nor any of its Subsidiaries or Affiliates, nor any person acting on its or their
behalf,  (i)  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  Securities,  (ii) has, directly or indirectly, made any offers or
sales  of  any  security  or solicited any offers to buy any security, under any
circumstances  that  would  require  registration  of  the  Securities under the
Securities  Act  or (iii) has issued any shares of Common Stock or shares of any
series  of  preferred stock or other securities or instruments convertible into,
exchangeable  for or otherwise entitling the holder thereof to acquire shares of
Common  Stock  which would be integrated with the sale of the Securities to such
Investor or the issuance of the Conversion Shares for purposes of the Securities
Act  or  of  any  applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the NASD, nor will the Company or
any  of  its  Subsidiaries  or  Affiliates  take  any action or steps that would
require  registration of any of the Securities under the Securities Act or cause
the  offering  of  the  Securities  to  be  so  integrated with other offerings.

     3.14     Fees.  Except as described on Schedule 3.14 hereto, the Company is
              ----                          -------------
not  obligated to pay any compensation or other fee, cost or related expenditure
to any underwriter, broker, agent or other representative in connection with the
transactions  contemplated  hereby. The Company will indemnify and hold harmless
such  Investor  from and against any claim by any person or entity alleging that
such  Investor  is  obligated to pay any such compensation, fee, cost or related
expenditure  in  connection  with  the  transactions  contemplated  hereby.

     3.15     Foreign  Corrupt  Practices.  To  the  knowledge  of  the Company,
              ---------------------------
neither  the  Company,  nor  any  of its Subsidiaries nor any director, officer,
agent,  employee  or  other  person  acting  on  behalf  of  the  Company or any
Subsidiary,  has  (i)  used  any  corporate funds for any unlawful contribution,
gift,  entertainment  or other unlawful expenses relating to political activity,
(ii)  made  any  direct  or indirect unlawful payment to any foreign or domestic
government  official or employee, or (iii) violated any provision of the Foreign
Corrupt  Practices  Act  of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government  official  or  employee.

     3.16     Employees.  Except  as  set forth in Schedule 3.16, each executive
              ---------
officer  (as defined in Rule 501(f) of the Securities Act) of the Company (each,
a  "Key  Employee")  is  currently serving in the capacity indicated in the most
    -------------
recently filed Disclosure Documents. The Company has no knowledge of any fact or
circumstance  (including  without  limitation  (i) the terms of any agreement to
which  such  person  is a party or any litigation in which such person is or may
become  involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that would
limit  or  prevent  any such person from serving in such capacity on

                                       13
<PAGE>
a  full-time basis in the foreseeable future, or of any intention on the part of
any such person to limit or terminate his or her employment with the Company. No
Key Employee has borrowed money pursuant to a currently outstanding loan that is
secured by Common Stock or any right or option to receive Common Stock. There is
no  strike,  labor  dispute  or union organization activities pending or, to the
knowledge  of  the Company, threatened between it and its employees. None of the
Company's  employees  belong  to  any  union  or collective bargaining unit. The
Company  has  complied  in all material respects with all applicable federal and
state  equal  opportunity  and  other  laws  related  to  employment.

     3.17     Environment.  Except  as disclosed in the Disclosure Documents (i)
              -----------
the  Company  and  its  Subsidiaries have no liabilities under any Environmental
Law,  nor  do  any  factors exist that are reasonably likely to give rise to any
such  liability,  affecting any of the properties owned or leased by the Company
or  any  of  its Subsidiaries that, individually or in the aggregate, has had or
would  reasonably be expected to have a Material Adverse Effect and (ii) neither
the  Company  nor  any  of  the  Subsidiaries has violated any Environmental Law
applicable  to  it  now  or  previously in effect, other than such violations or
infringements that, individually or in the aggregate, have not had and would not
reasonably  be  expected  to  have  a  Material  Adverse  Effect.

     3.18     ERISA.  Except as described on Schedule 3.18, the Company does not
              -----                          -------------
maintain  or contribute to, or have any obligation under, any Pension Plan.  The
Company  is in compliance in all material respects with the presently applicable
provisions  of  ERISA  and  the  United States Internal Revenue Code of 1986, as
amended,  with respect to each Pension Plan except in any such case for any such
matters  that,  individually  or  in  the aggregate, have not had, and would not
reasonably  be  expected  to  have,  a  Material  Adverse  Effect.

     3.19     Disclosure.  No  written  statement,  information,  report,
              ----------
representation  or warranty made by the Company in any Transaction Document, the
Certificate of Designation or furnished to such Investor by or (to the knowledge
of  the  Company)  on  behalf  of the Company in connection with the Transaction
Documents  or  the  Certificate  of Designation or such Investor's due diligence
investigation of the Company contains any untrue statement of a material fact or
omits  to  state  any  material  fact necessary to make the statements herein or
therein,  in light of the circumstances in which made, not misleading.  There is
no fact known to the Company, which has had a Material Adverse Effect, and there
is  no  fact  known  to the Company which could reasonably be expected to have a
Material  Adverse  Effect  except  as may have been disclosed in writing to such
Investor.  Except  with  respect  to information provided under a non-disclosure
agreement  and  which  will be included in the press release or Annual Report on
Form  10-KSB referred to in Section 4.1 hereof, the Company has not disclosed to
such  Investor  any  event,  circumstance or fact that would constitute material
non-public  information  as  of  the date of this Agreement or the Closing Date.
The  Company  acknowledges  and  agrees that following the issuance of the press
release  and Annual Report on Form 10-KSB in accordance with Section 4.1 hereof,
such  Investor  will  not possess any material non-public information concerning
the  Company,  and  that  such  Investor  is  relying  on  the  representations,
acknowledgements  and  agreements  made  by  the Company in this Section 3.19 in
making  trading  and  other  decisions  concerning  the  Company's  securities.

                                       14
<PAGE>
     3.20     Insurance.  The  Company  maintains  insurance  for itself and its
              ---------
Subsidiaries  in  such amounts and covering such losses and risks as the Company
believes  to  be  reasonably  prudent in relation to the businesses in which the
Company  and  its  Subsidiaries  are engaged. No notice of cancellation has been
received  for  any of such policies and the Company is in compliance with all of
the  terms and conditions thereof.  The Company has no reason to believe that it
will  not  be  able  to  renew  its existing insurance coverage as and when such
coverage  expires  or to obtain similar coverage from similar insurers as may be
necessary  to  continue  its  business  without  a significant increase in cost.
Without  limiting  the  generality  of  the  foregoing,  the  Company  maintains
Director's  and  Officer's  insurance  in an amount not less than $2 million for
each  covered  occurrence.

     3.21     Property.  The  Company  and  its  Subsidiaries  have  good  and
              --------
marketable  title  in  fee  simple  to  all  of  its  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, except for Permitted Liens.  Any Property held under lease by the Company
and  its  Subsidiaries  are held by them under valid, subsisting and enforceable
leases  with  such  exceptions as are not material and do not interfere with the
use  made  or  proposed  to  be  made  of  such  Property by the Company and its
Subsidiaries.  Neither  the  Company  nor  any  of its Subsidiaries own any real
Property.

     3.22     Regulatory  Permits.  The Company and its Subsidiaries possess all
              -------------------
certificates,  authorizations  and  permits  issued  by the appropriate federal,
state  or  foreign  regulatory authorities necessary to conduct their respective
businesses  other  than  where  the  failure  to  possess  such  certificates,
authorizations  or  permits,  individually or in the aggregate, have not had and
would  not reasonably be expected to have a Material Adverse Effect, and neither
the  Company  nor  any  such  Subsidiary  has received any notice of proceedings
relating  to  the  revocation  or  modification  of  any  such  certificate,
authorization  or  permit.

     3.23     Exchange  Act  Registration.  The  Company's  Common  Stock  is
              ---------------------------
registered  pursuant  to  Section  12(g) of the Exchange Act and the Company has
taken  no  action  designed  to,  or  which, to the knowledge of the Company, is
likely  to  have the effect of, terminating the registration of the Common Stock
under  the  Exchange  Act.

     3.24     Investment  Company  Status.  The  Company is not, and immediately
              ---------------------------
after  receipt  of payment for the Preferred Stock and the Warrants issued under
this Agreement will not be, an "investment company" or an entity "controlled" by
                                ------------------                ----------
an  "investment  company"  within  the  meaning of the Investment Company Act of
     -------------------
1940,  as amended (the "Investment Company Act"), and shall conduct its business
                        ----------------------
in  a  manner  so that it will not become subject to the Investment Company Act.

     3.25     Transfer  Taxes.  No  stock  transfer  or  other taxes (other than
              ---------------
income  taxes)  are required to be paid in connection with the issuance and sale
of  any  of  the  Securities,  other  than  such taxes for which the Company has
established  appropriate  reserves  and  intends to pay in full on or before the
Closing.

     3.26     Internal  Controls and Procedures.  The Company maintains internal
              ---------------------------------
accounting  controls, policies and procedures, and such books and records as are
reasonably designed to provide

                                       15
<PAGE>
reasonable  assurance  that  (i)  all  transactions  to which the Company or any
Subsidiary  is  a  party  or by which its properties are bound are effected by a
duly  authorized  employee  or  agent  of  the Company, supervised by and acting
within  the  scope  of the authority granted by the Company's senior management;
(ii)  the  recorded  accounting of the Company's consolidated assets is compared
with  existing  assets at regular intervals; and (iii) all transactions to which
the  Company or any Subsidiary is a party, or by which its properties are bound,
are  recorded  (and  such  records  maintained)  in accordance with all material
Government  Requirements  and  as may be necessary or appropriate to ensure that
the  financial  statements  of the Company are prepared in accordance with GAAP.

     3.27     Embargoed  Person.  At all times while any Preferred Stock remains
              -----------------
outstanding:  (a)  none  of  the  funds  or  other  assets  of the Company shall
constitute  property of, or shall be beneficially owned, directly or indirectly,
by  any person subject to trade restrictions under United States law, including,
but  not  limited to, the International Emergency Economic Powers Act, 50 U.S.C.
Sec. 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and
any  Executive  Orders  or  regulations promulgated under any such United States
laws  (each,  an  "Embargoed  Person"),  with  the  result  that the investments
                   -----------------
evidenced  by  the  Securities  are  or  would  be  in  violation of law; (b) no
Embargoed Person shall have any interest of any nature whatsoever in the Company
with the result that the investments evidenced by the Securities are or would be
in  violation  of law; and (c) none of the funds of the Company shall be derived
from any unlawful activity with the result that the investments evidenced by the
Securities  are  or  would  be  in  violation  of  law.

     3.28     No  Other  Agreements.  Except  as set forth in Schedule 3.28, the
              ---------------------
Company  has  not,  directly  or  indirectly, entered into any agreement with or
granted  any  right  to  any Investor relating to the terms or conditions of the
transactions  contemplated  by  the  Transaction Documents or the Certificate of
Designation,  except  as expressly set forth in the Transaction Documents or the
Certificate  of  Designation.

4.     COVENANTS  OF  THE  COMPANY  AND  EACH  INVESTOR.
       ------------------------------------------------

     4.1     The  Company  agrees with each Investor that it will, following the
Closing:

               (a)     file  a  Form  D with respect to the Securities issued at
the Closing as required under Regulation D and to provide a copy thereof to such
Investor  promptly  after  such  filing;

               (b)     take  such  action  as  the Company reasonably determines
upon  the  advice  of  counsel  is  necessary to qualify the Preferred Stock and
Warrants  issued  at  the  Closing for sale under applicable state or "blue-sky"
laws  or  obtain  an exemption therefrom, and shall provide evidence of any such
action  to  such  Investor  at  such  Investor's  request;  and

               (c)     (i)  on  or  prior  to  9:30  a.m.  (eastern time) on the
Business  Day  immediately  following  the  Closing  Date, issue a press release
disclosing  (A)  the  material  terms  of  this  Agreement  and the transactions
contemplated  by  this  Agreement  and  (B)  the  Company's financial results of
operations  for  the  fiscal year ended December 31, 2003 and guidance for 2004,

                                       16
<PAGE>
(ii) within one (1) Business Day following the Closing, file with the Commission
a Current Report on Form 8-K disclosing the material terms of this Agreement and
the  transactions  contemplated hereby and including as exhibits this Agreement,
the  other  Transaction  Documents and the Certificate of Designation; provided,
                                                                       --------
however,  that  Satellite Asset Management, L.P. and each Investor named therein
-------
shall  have  a  reasonable  opportunity  to review and comment on any such press
release  or  Form  8-K  prior to the issuance or filing thereof and (iii) timely
file  with  the  Commission  its  Annual Report on Form 10-KSB incorporating all
other material non-public information disclosed to the Investor. Thereafter, the
Company  shall timely file any filings and notices required by the Commission or
applicable  law  with  respect  to  the  transactions  contemplated  hereby.

     4.2     The  Company  agrees  that  it will, as long as any Investor or any
Affiliate  of  such  Investor  beneficially  owns  any  Securities:

               (a)     maintain  its  corporate  existence  in  good  standing;

               (b)     maintain,  keep  and  preserve  all  of  its  Properties
necessary  in the proper conduct of its businesses in good repair, working order
and  condition (ordinary wear and tear excepted) and make all necessary repairs,
renewals  and replacements and improvements thereto, except where the failure to
do  so  would  not  reasonably  be  expected  to  have,  individually  or in the
aggregate,  a  Material  Adverse  Effect;

               (c)     pay  or  discharge  before  becoming  delinquent  (a) all
taxes,  levies, assessments and governmental charges imposed on it or its income
or  profits or any of its Property and (b) all lawful claims for labor, material
and  supplies,  which,  if unpaid, might become a Lien upon any of its Property,
except  where  the  failure  to  do so would not reasonably be expected to have,
individually  or in the aggregate, a Material Adverse Effect; provided, however,
                                                              --------  -------
that  the  Company  shall  not  be  required  to pay or discharge any tax, levy,
assessment  or  governmental  charge,  or claim for labor, material or supplies,
whose  amount,  applicability  or  validity  is being contested in good faith by
appropriate proceedings being diligently pursued and for which adequate reserves
have  been  established  under  GAAP;

               (d)     comply  with  all Governmental Requirements applicable to
the  operation of its business, except for instances of noncompliance that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse  Effect;

               (e)     comply  with  all  agreements,  documents and instruments
binding  on  it  or  affecting  its  Properties  or business, including, without
limitation,  all  Material Contracts, except for instances of noncompliance that
would  not  reasonably  be expected to have, individually or in the aggregate, a
Material  Adverse  Effect;

               (f)     provide  such  Investor with copies of all materials sent
to  its  stockholders,  in each such case promptly after the filing thereof with
the  Commission;

               (g)     timely  file  with the Commission all reports required to
be filed pursuant to the Exchange Act and refrain from terminating its status as
an  issuer  required  by the Exchange Act to

                                       17
<PAGE>
file  reports  thereunder  even  if the Exchange Act or the rules or regulations
thereunder  would  permit  such  termination;  and

               (h)     until  the  Effective Date of the Registration Statement,
restrict  the  Key  Employees  from selling shares of Common Stock other than as
agreed to by the Company and Satellite Asset Management, L.P. in connection with
any  10b-5(1)  trading  plans.

     4.3     Reservation  of  Common  Stock.  The  Company shall, on the Closing
             ------------------------------
Date,  have  authorized  and  reserved  for  issuance,  free from any preemptive
rights,  a  number  of  shares of Common Stock at least equal to one hundred and
fifty  percent  (150%)  of the maximum number of shares of Common Stock issuable
upon (A) conversion of the outstanding Preferred Stock in full at the Conversion
Price then in effect and (B) exercise of the outstanding Warrants in full at the
Exercise  Price  then  in  effect,  in  each  such  case  without  regard to any
limitation  or  restriction on such conversion or exercise that may be set forth
in  the  Certificate  of Designation or the Warrants (the "Reserved Amount"). In
                                                           ---------------
the  event  that,  as  a  result of an adjustment to the Conversion Price of the
Preferred  Stock  or  the  Exercise  Price  for  the  Warrants  (pursuant  to
anti-dilution  adjustments  or  otherwise), the Reserved Amount is less than one
hundred  and  twenty  five  percent 125% of the number of shares of Common Stock
then  issuable upon conversion of all of the Preferred Stock and exercise of all
of  the  Warrants  then  outstanding  (without  regard  to  any  limitation  or
restriction  on  such  conversion  or  exercise  that  may  be  set forth in the
Preferred  Stock  or  the  Warrants),  the  Company shall take action (including
without  limitation  seeking  stockholder  approval  for  the  authorization  or
reservation of additional shares of Common Stock) as soon as practicable (but in
no  event  later  than  the  tenth  (10th)  business  day  or, in the event that
stockholder  approval  is required, the sixtieth (60th) day following such date)
to  increase the Reserved Amount to no less than 150% of the number of shares of
Common  Stock  into  which such outstanding Preferred Stock are then convertible
and such outstanding Warrants are exercisable.  The Company shall not reduce the
number  of shares reserved for issuance hereunder without the written consent of
the  holders  of  seventy-five  percent (75%) of the Registrable Securities into
which  all  of the Preferred Stock and Warrants then outstanding are convertible
or  exercisable  (without  regard  to  any  limitation  on  such  conversion  or
exercise).  The  initial  Reserved  Amount shall be allocated pro rata among the
Investors  based  on  the principal amount of the Preferred Stock issued to each
Investor  at  the  Closing.  Each  increase  in  the  Reserved  Amount  shall be
allocated  pro  rata  among  the  Holders  based  on  the  amount of Registrable
Securities  into  which  all  of  the  Preferred Stock and Warrants held by such
Holder  at  the  time  of  such increase are convertible or exercisable (without
regard  to  any  limitation on such conversion or exercise). In the event that a
Holder  shall  sell  or otherwise transfer any of such Holder's Preferred Stock,
each  transferee  shall  be  allocated  a  pro rata portion of such transferor's
Reserved  Amount.  Any portion of the Reserved Amount which remains allocated to
any  person  or  entity  which  does  not  hold  any  Preferred  Stock  shall be
reallocated to the remaining Holders pro rata based on the amount of Registrable
Securities into which all of the outstanding Preferred Stock and Warrants at the
time  of  such  increase  are  convertible or exercisable (without regard to any
limitation  on  such  conversion  or  exercise).

     4.4     Use  of Proceeds.  The Company shall use the proceeds from the sale
             ----------------
of  the Preferred Stock and Warrants for general corporate purposes only, in the
ordinary  course  of  its  business and consistent with past practice; provided,
however,  that the Company may not use such proceeds to repurchase or redeem any
securities  issued by the Company or any Subsidiary or to repay any loan

                                       18
<PAGE>
made  to  or  incurred  by  any  Affiliate  of  the  Company.

     4.5     Use of Investor Name.  Except as may be required by applicable law,
             --------------------
the  Company  shall  not use, directly or indirectly, any Investor's name or the
name  of any of its affiliates in any advertisement, announcement, press release
or  other similar communication unless it has received the prior written consent
of  any  Investor  for the specific use contemplated or as otherwise required by
applicable  law  or  regulation.

     4.6     Company's  Instructions  to  Transfer  Agent.  On  or  prior to the
             --------------------------------------------
Closing  Date,  the  Company  shall  execute  and  deliver  irrevocable  written
instructions  to the transfer agent for its Common Stock (the "Transfer Agent"),
                                                               --------------
and  provide each Investor with a copy thereof, directing the Transfer Agent (i)
to  issue  certificates  representing  Conversion  Shares upon conversion of the
Preferred  Stock  and  receipt  of  a valid Conversion Notice (as defined in the
Certificate  of  Designation)  from an Investor, in the amount specified in such
Conversion  Notice,  in  the name of such Investor or its nominee, (ii) to issue
certificates representing Warrant Shares upon exercise of the Warrants and (iii)
to  deliver  such  certificates  to  such  Investor  no  later than the close of
business  on  the third (3rd) Business Day following the related Conversion Date
(as  defined  in the Certificate of Designation) or Exercise Date (as defined in
the  Warrants), as the case may be.  Such certificates may bear legends pursuant
to  applicable  provisions  of this Agreement or applicable law.  As long as the
Company  shall  instruct the transfer agent that, in lieu of delivering physical
certificates  representing shares of Common Stock to an Investor upon conversion
of the Preferred Stock, or exercise of the Warrants, and as long as the Transfer
Agent  is  a  participant in the Depository Trust Company ("DTC") Fast Automated
                                                            ---
Securities Transfer program, and such Investor has not informed the Company that
it  wishes  to receive physical certificates therefor, and no legend is required
to  appear  on any physical certificate if issued, the transfer agent may effect
delivery  of  Conversion  Shares  or  Warrant  Shares,  as  the  case may be, by
crediting  the  account of such Investor or its nominee at DTC for the number of
shares  for which delivery is required hereunder within the time frame specified
above  for  delivery of certificates.  The Company represents to and agrees with
each  Investor  that it will not give any instruction to the Transfer Agent that
will  conflict  with  the  foregoing  instruction  or  otherwise  restrict  such
Investor's  right to convert the Preferred Stock or to receive Conversion Shares
in  accordance  with  the terms of the Certificate of Designation or to exercise
the  Warrant or to receive Warrant Shares upon exercise of the Warrants.  In the
event  that  the  Company's  relationship  with  the  Transfer  Agent  should be
terminated  for  any reason, the Company shall use its best efforts to cause the
Transfer Agent to continue acting as transfer agent pursuant to the terms hereof
until  such time that a successor transfer agent is appointed by the Company and
receives  the  instructions  described  above.

     4.7     No  Adverse Action. The Company and its Subsidiaries shall refrain,
             ------------------
while  any  shares of Preferred Stock are outstanding, from taking any action or
entering into any arrangement which in any way materially and adversely violates
the  terms  of  the  Preferred  Stock  or  a  Warrant.

     4.8     Limitations  on  Disposition.  Each  Investor  shall  not  sell,
             ----------------------------
transfer,  assign  or  dispose  of  any  Securities,  unless:

                                       19
<PAGE>
          (a)     there  is  then  in effect an effective registration statement
under the Securities Act covering such proposed disposition and such disposition
is  made  in  accordance  with  such  registration  statement;  or

          (b)     such  Investor has notified the Company in writing of any such
disposition  and  furnished  the  Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of  such  Securities  under  the Securities Act; provided, however, that no such
                                                 --------  -------
opinion  of  counsel  will  be  required (A) if the sale, transfer or assignment
complies  with  federal and state securities laws and is made to an Affiliate of
such  Investor  which  is also an accredited investor as that term is defined in
Rule  501  of  Regulation  D,  (B)  if  the sale, transfer or assignment is made
pursuant  to  Rule  144  and  such  Investor  provides the Company with evidence
reasonably  satisfactory  to the Company and its legal counsel that the proposed
transaction  satisfies  the requirements of Rule 144 or (C) in connection with a
bona  fide  pledge or hypothecation of any Securities under a margin arrangement
with  a  broker-dealer  or  other  financial  institution.

     4.9     Limitations  on  Conversion  and  Exercise.  No  Investor  shall be
             ------------------------------------------
permitted  to  convert its Preferred Stock or exercise its Warrant if and to the
extent  that  the number of Conversion Shares and/or Warrant Shares to be issued
pursuant  to such conversion and/or exercise (the "Issuable Shares"), when added
                                                   ---------------
to  the  aggregate  number of Issuable Shares issued such Investor and all other
Investors  pursuant  to all prior conversions and exercises, would exceed 19.99%
of the Common Stock outstanding on the Issue Date (subject to adjustments upon a
stock  split,  stock  dividend or similar event) (the "Cap Amount"), except that
                                                       ----------
such  limitation  shall not apply in the event that the Company obtains approval
of  the  holders  of a majority of the outstanding Common Stock for issuances of
Common Stock in excess of such amount or the Investors holding a majority of the
Preferred  Stock  then  outstanding  obtain  an  opinion  of  counsel reasonably
satisfactory  to the Company and its counsel that such approval is not required.
Until  such approval is obtained, no Investor shall be issued Issuable Shares in
an  amount  greater  than  the product of (A) the Cap Amount multiplied by (B) a
                                                             -------------
fraction,  the  numerator  of  which  is the number of shares of Preferred Stock
purchased by such Holder and the denominator of which is the aggregate amount of
all  of  the  shares  of  Preferred  Stock purchased by all Investors under this
Agreement  (the "Allocation Amount").  In the event that any Investor shall sell
                 -----------------
or  otherwise  transfer  any of such Investor's Preferred Stock or Warrants, the
remaining  Issuable  Shares constituting such transferring Investor's Allocation
Amount  shall  be allocated between the transferring Investor and transferee pro
rata  in  proportion  to  the  number  of  Registrable Shares issuable under the
Preferred Stock and/or Warrants transferred to such transferee and the number of
Registrable  Shares  issuable under the Preferred Stock and/or Warrants retained
by such transferring Investor.  In the event that any Investor shall convert and
exercise  all  of  such Investor's Preferred Stock and Warrants into a number of
Issuable Shares which, in the aggregate, is less than such Investor's Allocation
Amount,  then  the  difference between such Investor's Allocation Amount and the
number of Issuable Shares actually issued to such Investor shall be allocated to
the respective Allocation Amounts of the remaining Investors on a pro rata basis
in  proportion  to  the  number  of  Registrable  Shares then issuable under the
Preferred  Stock  and  Warrants  held by each such Investor.  From and after the
Effective  Date,  in  the event that any Investor's Allocation Amount represents
one  hundred  and  fifty  percent  (150%)  or less of (A) the number of Issuable
Shares  into  which  the Preferred Stock and Warrants then held by such Investor
are  convertible  and/or  exercisable  plus  (B)  the  number of Issuable Shares
                                       ----
previously  issued

                                       20
<PAGE>
to  such  Investor,  such  Investor shall have the right to require the Company,
upon  written  notice  delivered by such Investor to the Company, (x) to prepare
and  file with the Commission, within ten (10) days after receiving such notice,
a  proxy  statement  in which the Company seeks the approval of its shareholders
for  the  transactions described herein, the other Transaction Documents and the
Certificate  of  Designation  (the "Proxy Statement"), (y) in the event that the
                                    ---------------
Company  is notified that the Commission has no comments on the Proxy Statement,
to deliver the Proxy Statement to its shareholders and to hold a special meeting
of  shareholders  for  the purpose of voting on the matters described therein (a
"Special  Meeting")  within  forty-five  (45)  days  after  receiving  such
 ----------------
notification,  and  (z) in the event that the Company receives comments from the
Commission  on the Proxy Statement, to respond accurately and completely to each
such  comment within ten (10) Business Days of being notified of such comment by
the  Commission, and to deliver the Proxy Statement to its shareholders and hold
a Special Meeting within thirty five (35) days after receiving notification from
the  Commission  that  it  has  no  further  comments  on  the Proxy Statement).

     4.10     Disclosure of Information.  The Company agrees that it will not at
              -------------------------
any  time disclose material non-public information to any Investor without first
receiving  such  Investor's  written  consent  to  such  disclosure.

     4.11     Breach of Representation.  In the event that any representation or
              ------------------------
warranty  made  by the Company is untrue or incorrect in any material respect as
of the date made and such representation or warranty, if capable of being cured,
is not cured within five (5) Business Days following written notice thereof from
any  Investor, the Company shall pay such Investor (on a pro rata basis based on
the  amount  of  Preferred  Stock  purchased in the event there is more than one
Investor) the amount of up to $100,000 per occurrence (not to exceed $500,000 in
the  aggregate for all such occurrences); provided that in the event the damages
or  dollar amount related to such untrue or incorrect representation or warranty
are  quantifiable  and  less  than  $100,000,  the Company shall pay such lesser
amount;  and  provided  further,  that  any  such  payment shall not impair such
Investor's  ability  to seek actual damages or injunctive relief pursuant to the
terms  of  this  Agreement.

5.  CONDITIONS  TO  CLOSING.
    -----------------------

     5.1     Conditions  to  Investors'  Obligations  at  the  Closing.  Each
             ----------------------------------------------------------
Investor's  obligations  to effect the Closing, including without limitation its
obligation  to  purchase  the  Preferred  Stock and Warrants at the Closing, are
conditioned  upon  the  fulfillment  or  waiver  by such Investor of each of the
following  events  as  of  the  Closing  Date:

          5.1.1          the  representations  and warranties of the Company set
                         forth  in  this  Agreement and in the other Transaction
                         Documents  shall  be  true  and correct in all material
                         respects  as  of  such  date  as  if  made on such date
                         (except that to the extent that any such representation
                         or  warranty  relates  to  a  particular  date,  such
                         representation or warranty shall be true and correct in
                         all  respects  as  of  that  particular  date);

                                       21
<PAGE>
          5.1.2          the  Company  shall  have complied with or performed in
                         all  material  respects  all  of  the  agreements,
                         obligations  and conditions set forth in this Agreement
                         and  in  the  other  Transaction  Documents  that  are
                         required  to  be  complied  with  or  performed  by the
                         Company  on  or  before  the  Closing;

          5.1.3          the  Closing  Date  shall  occur  on a date that is not
                         later  than  February  10,  2004;

          5.1.4          the  Company  shall  have  delivered to such Investor a
                         certificate,  signed by the Chief Executive Officer and
                         Chief Financial Officer of the Company, certifying that
                         the  conditions  specified  in  this paragraph 5.1 have
                         been  fulfilled  as of the Closing, it being understood
                         that  such  Investor  may  rely  on such certificate as
                         though  it  were  a  representation and warranty of the
                         Company  made  herein;

          5.1.5          the  Company  shall  have delivered to such Investor an
                         opinion  of  counsel  for the Company, dated as of such
                         date,  in  substantially  the form set forth on Exhibit
                         5.1.5  hereto;

          5.1.6          the  Company  shall  have  delivered  duly  executed
                         certificates  representing  the Preferred Stock and the
                         Warrants  being  purchased  by  such  Investor;

          5.1.7          the  Company  shall  have  executed  and  delivered the
                         Registration  Rights  Agreement;

          5.1.8          the  Company  shall  have delivered evidence reasonably
                         satisfactory  to  the  Investors  confirming  that  the
                         Certificate  of  Designation  shall  have  been  duly
                         authorized  and  adopted  by  all  requisite  corporate
                         action,  shall  have been duly filed with the Secretary
                         of State of the State of Delaware, and shall be in full
                         force  and  effect;

          5.1.9          there shall have been no material adverse change in the
                         Company's  consolidated business or financial condition
                         since  the  date of the Company's most recent unaudited
                         financial  statements  contained  in  the  Disclosure
                         Documents;

          5.1.10         the  Company  shall  have  authorized  and reserved for
                         issuance  at least one hundred and fifty percent (150%)
                         of  the  aggregate  number  of  shares  of Common Stock
                         issuable  upon conversion of all of the Preferred Stock
                         and exercise of all of the Warrants to be issued at the
                         Closing  (such  number  to  be  determined  using  the
                         Conversion  Price  and  Exercise Price in effect on the
                         Closing  Date  and without regard to any restriction on

                                       22
<PAGE>
                         the  ability  of an Investor to convert Preferred Stock
                         or  exercise  the  Warrants  as  of  such  date);  and

          5.1.11         there  shall  be  no  injunction,  restraining order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby,  by  the  other
                         Transaction  Documents  or  by  the  Certificate  of
                         Designation.

     5.2     Conditions  to Company's Obligations at the Closing.  The Company's
             ----------------------------------------------------
obligations to effect the Closing are conditioned upon the fulfillment or waiver
by  the  Company  of each of the following events as of the date of the Closing:

          5.2.1          the  representations  and  warranties  of each Investor
                         shall  be  true and correct in all material respects as
                         of  such  date  as if made on such date (except that to
                         the  extent  that  any  such representation or warranty
                         relates  to  a  particular date, such representation or
                         warranty  shall  be true and correct in all respects as
                         of  that  particular  date);

          5.2.2          each Investor shall have complied with or performed all
                         of the agreements, obligations and conditions set forth
                         in this Agreement that are required to be complied with
                         or performed by such Investor on or before the Closing;

          5.2.3          there  shall  be  no  injunction, restraining  order or
                         decree  of  any  nature  of  any  court  or  Government
                         Authority  of  competent jurisdiction that is in effect
                         that  restrains  or  prohibits  the consummation of the
                         transactions  contemplated  hereby,  by  the  other
                         Transaction  Documents  or  by  the  Certificate  of
                         Designation;

          5.2.4          each  Investor  shall  have  executed  each  of  the
                         Transaction  Documents  to  which  it  is  a  party and
                         delivered  the  same  to  the  Company;  and

          5.2.5          each  Investor  shall have delivered to the Company the
                         Purchase  Price  for  Preferred  Stock and the Warrants
                         being  purchases  by it at the Closing by wire transfer
                         of  immediately  available  funds.

6.     MISCELLANEOUS.
       -------------

          6.1     Survival;  Severability.  The  representations,  warranties,
                  -----------------------
covenants  and  indemnities  made  by  the parties herein, the other Transaction
Documents  and  the  Certificate  of  Designation  shall  survive  the  Closing
notwithstanding  any  due  diligence  investigation  made by or on behalf of the
party  seeking  to  rely  thereon.  In  the  event  that  any  provision of this
Agreement  becomes  or  is  declared  by a court of competent jurisdiction to be
illegal,  unenforceable or void, this Agreement shall continue in full force and
effect  without  said  provision;  provided  that in such case the parties shall

                                       23
<PAGE>
negotiate  in good faith to replace such provision with a new provision which is
not  illegal,  unenforceable  or  void,  as  long as such new provision does not
materially  change  the  economic  benefits  of  this  Agreement to the parties.

          6.2     Successors  and  Assigns.  The  terms  and  conditions of this
                  ------------------------
Agreement  shall  inure  to  the  benefit  of and be binding upon the respective
successors  and  permitted  assigns  of the parties.  Nothing in this Agreement,
express  or implied, is intended to confer upon any party other than the parties
hereto  or  their  respective  successors  and  permitted  assigns  any  rights,
remedies,  obligations  or  liabilities  under  or  by reason of this Agreement,
except  as  expressly  provided  in this Agreement.  The Investor may assign its
rights  and  obligations  hereunder,  in  connection  with  any  private sale or
transfer of the Preferred Stock or Warrants in accordance with the terms hereof,
as  long  as, as a condition precedent to such transfer, the transferee executes
an  acknowledgment  agreeing  to  be  bound by the applicable provisions of this
Agreement,  in  which  case the term "Investor" shall be deemed to refer to such
transferee  as  though  such  transferee  were an original signatory hereto. The
Company  may  not  assign  it  rights  or  obligations  under  this  Agreement.

           6.3     No  Reliance.  Each  party  acknowledges that (i) it has such
                   ------------
knowledge in business and financial matters as to be fully capable of evaluating
this  Agreement, the other Transaction Documents, the Certificate of Designation
and  the transactions contemplated hereby and thereby, (ii) it is not relying on
any  advice or representation of any other party in connection with adopting and
filing  the Certificate of Designation or with entering into this Agreement, the
other  Transaction  Documents,  or  such  transactions  (other  than  the
representations  made  in  this  Agreement  or the other Transaction Documents),
(iii)  it  has not received from such party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this  Agreement  or  the  other  Transaction Documents or the performance of its
obligations  hereunder  and  thereunder,  and (iv) it has consulted with its own
legal,  regulatory, tax, business, investment, financial and accounting advisors
to  the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the  advice  of  its  advisors  as  it has deemed necessary, and not on any view
(whether  written  or  oral)  expressed  by  such  other  party.

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

           6.5     Injunctive  Relief.  The Company acknowledges and agrees that
                   ------------------
a  breach by it of its obligations hereunder will cause irreparable harm to each
Investor  and  that  the  remedy  or remedies

                                       24
<PAGE>
at  law  for  any such breach will be inadequate and agrees, in the event of any
such breach, in addition to all other available remedies, such Investor shall be
entitled  to  an  injunction  restraining any breach and requiring immediate and
specific  performance  of  such  obligations  without  the  necessity of showing
economic  loss.

          6.6     Governing Law; Jurisdiction.  This Agreement shall be governed
                  ---------------------------
by and construed under the laws of the State of New York applicable to contracts
made  and  to  be  performed  entirely within the State of New York.  Each party
hereby  irrevocably  submits  to the non-exclusive jurisdiction of the state and
federal  courts  sitting  in the City of New York, borough of Manhattan, for the
adjudication  of  any  dispute  hereunder  or in connection herewith or with any
transaction  contemplated  hereby, and hereby irrevocably waives, and agrees not
to  assert in any suit, action or proceeding involving any Investor or permitted
assignee  of  an  Investor,  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 in effect for notices to it
under  this  Agreement  and  agrees  that such service shall constitute good and
sufficient  service  of  process  and  notice thereof.  Nothing contained herein
shall  be  deemed  to  limit in any way any right to serve process in any manner
permitted  by  law.

          6.7     Counterparts.  This Agreement may be executed in any number of
                  ------------
counterparts,  each  of  which  shall  be  deemed  an original, and all of which
together  shall  constitute  one and the same instrument.  This Agreement may be
executed  by  facsimile  transmission.

          6.8     Headings.  The  headings  used  in this Agreement are used for
                  --------
convenience only and are not to be considered in construing or interpreting this
Agreement.

          6.9     Notices.  Any  notice, demand or request required or permitted
                  -------
to  be  given  by  the  Company  or  an  Investor  pursuant to the terms of this
Agreement  shall  be in writing and shall be deemed delivered (i) when delivered
personally or by verifiable facsimile transmission, unless such delivery is made
on  a day that is not a Business Day, in which case such delivery will be deemed
to  be  made  on the next succeeding Business Day, (ii) on the next Business Day
after  timely  delivery  to  an  overnight courier and (iii) on the Business Day
actually  received  if deposited in the U.S. mail (certified or registered mail,
return  receipt  requested,  postage  prepaid),  addressed  as  follows:

          If to the Company:

          Citadel Security Software Inc.
          8750 N. Central Expy.
          Suite 100
          Dallas, TX 75231
          Attn: Steven B. Solomon
          Phone: (214) 750-2454
          Fax: (214) 520-0034

                                       25
<PAGE>
          with a copy to:

          David Allen Wood, P.C.
          12770 Coit Road, Suite 1100
          Dallas, Texas 75251
          Attn:  David A. Wood
          Tel:   (972) 458-0300
          Fax:   (972) 458-0301

and if to any Investor, to such address for such Investor as shall appear on the
signature  page  hereof  executed by such Investor, or as shall be designated by
such  Investor  in  writing  to the Company in accordance with this Section 6.9.

          6.10     Expenses.  The  Company and each Investor shall pay all costs
                   --------
and  expenses  that  it  incurs  in  connection with the negotiation, execution,
delivery  and  performance of this Agreement or the other Transaction Documents,
provided,  however, that that the Company shall pay up to $45,000 in immediately
--------   -------
available  funds,  at  the  Closing  and  promptly  upon  receipt of any further
invoices  relating  to  same,  for all out-of-pocket expenses (including without
limitation legal fees and expenses) incurred by Satellite Asset Management, L.P.
in  connection  its  due  diligence  investigation  of  the  Company  and  the
negotiation, preparation, execution, delivery and performance of this Agreement,
the  other  Transaction  Documents  and  the  Certificate of Designation (if the
Closing  occurs).  At  the  Closing,  the  amount due for such fees and expenses
(which  may include fees and expenses estimated to be incurred for completion of
the  transaction  including post-closing matters) to Satellite Asset Management,
L.P.  may  be  netted  out  of  the  Purchase  Price  payable by Satellite Asset
Management,  L.P.  In the event the amount paid by the Company for such fees and
expenses is less than the actual reasonable fees and expenses, the Company shall
promptly pay such deficiency (up to $45,000 in the aggregate) within thirty (30)
days  following  receipt of an invoice therefor. Notwithstanding anything herein
to  the  contrary,  if  the Closing does not occur due to a determination by the
Company  that  it  does  not  wish to proceed with the transactions contemplated
hereby,  the  Company's  obligation  to  pay  the  expenses  of  Satellite Asset
Management,  L.P  shall  not  exceed  $20,000.

          6.11     Entire  Agreement;  Amendments.  This  Agreement,  the  other
                   ------------------------------
Transaction  Documents  and the Certificate of Designation constitute the entire
agreement  between  the  parties  with  regard  to the subject matter hereof and
thereof,  superseding all prior agreements or understandings, whether written or
oral,  between  or  among  the  parties.  Except  as  expressly provided herein,
neither  this  Agreement nor any term hereof may be amended except pursuant to a
written  instrument  executed  by  the  Company  and  the  holders  of  at least
two-thirds  (2/3) of the outstanding shares of Preferred Stock then outstanding,
and  no provision hereof may be waived other than by a written instrument signed
by  the  party  against  whom  enforcement  of  any  such  waiver  is  sought.

                          [Signature Pages to Follow]

                                       26
<PAGE>
     IN  WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date  first-above  written.

CITADEL SECURITY SOFTWARE INC.

By:    /s/    Steven B. Solomon
              -----------------
     Name:    Steven B. Solomon
     Title:   Chief Executive Officer

INVESTOR  NAME:  Satellite Strategic Finance Associates, LLC

By:  _________________________
     Name:
     Title:

ADDRESS:

     _________________________________

     _________________________________

     Tel:  ___________________________

     Fax:  ___________________________

Shares of Preferred Stock to be Purchased: _______________

                                       27
<PAGE><PAGE>

                                                                     EXHIBIT 4.4

                                FORM OF DEBENTURE

         THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
         SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
         STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
         ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

No.      03-2- (1)                                             US $
         -----------------                                         -------------

                             NEW VISUAL CORPORATION

           7% CONVERTIBLE DEBENTURE SERIES 03-2 DUE __________, 200_(2)

         THIS DEBENTURE is one of a duly authorized issue of up to $2,000,000 in
Debentures of NEW VISUAL CORPORATION, a corporation organized and existing under
the laws of the State of Utah (the "Company") designated as its 7% Convertible
Debentures Series 03-2.

         FOR VALUE RECEIVED, the Company promises to pay to ___________________,
the registered holder hereof (the "Holder"), the principal sum of
___________________ and 00/100 Dollars (US $ ___________________) on
______________, 200_(3) (the "Maturity Date") and to pay interest, on a simple
non-compound basis, on the principal sum outstanding from time to time in
arrears at the rate of 7% per annum, accruing from ______________, 200_(4), the
date of initial issuance of this Debenture (the "Issue Date"), on the date
(each, an "Interest Payment Date") which is the earlier of (i) a Conversion Date
(as defined below) or (ii) the Maturity Date, as the case may be. Accrual of
interest shall commence on the first such business day to occur after the Issue
Date and shall continue to accrue on a daily basis until payment in full of the
principal sum has been made or duly provided for. Additional provisions
regarding the payment of interest are provided in Section 4(D) below (the terms
of which shall govern as if this sentence were not included in this Debenture).

--------

(1)      Insert unique Debenture number for each issuance.
(2)      Insert date which is third anniversary of the relevant Closing Date
(3)      See footnote 2
(4)      Insert the relevant Closing Date.

<PAGE>

         This Debenture is being issued pursuant to the terms of the Securities
Purchase Agreement, dated _____________, 2003 (the "Securities Purchase
Agreement"), to which the Company and the Holder (or the Holder's predecessor in
interest) are parties. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Securities Purchase Agreement.

         This Debenture is subject to the following additional provisions:

         1. The Debentures will initially be issued in denominations determined
by the Company, but are exchangeable for an equal aggregate principal amount of
Debentures of different denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration or transfer or
exchange.

         2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.

         3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws and the terms of the Securities
Purchase Agreement. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation that is
sufficient to evidence that such proposed transfer complies with the Act and
other applicable state and foreign securities laws and the terms of the
Securities Purchase Agreement. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.

         4. A. (i) At any time on or after the Commencement Date (as defined
below) and prior to the time this Debenture is paid in full in accordance with
its terms (including, without limitation, after the Prepayment Date and after
the occurrence of an Event of Default, as those terms are defined below, or, if
the Debenture is not fully paid or converted after the Maturity Date), the
Holder of this Debenture is entitled, at its option, subject to the following
provisions of this Section 4, to convert this Debenture at any time into shares
of Common Stock, $0.001 par value ("Common Stock"), of the Company of the
Company at the Conversion Price (as defined below).

                           (ii) The term "Commencement Date" means the earlier
of (x) the date which is sixty-five (65) days after the Issue Date, or (y)
the Effective Date.

                                       2

<PAGE>

                           (iii) The term "Conversion Price" means US $0.15
(which amount is subject to adjustment as provided herein).

                           (iv) On the Maturity Date the Company shall pay the
principal and accrued interest (through the actual date of payment) of any
portion of this Debenture which is then outstanding. Notwithstanding the
foregoing, if, but only if, pursuant to the provisions of Section 4(F) hereof,
the Maturity Date is a Mandatory Conversion Date (as defined below), the
provisions of Section 4(F) shall apply in the place and stead of this Section
4(A)(iv).

                  B. Conversion shall be effectuated by faxing a Notice of
Conversion (as defined below) to the Company as provided in this paragraph. The
Notice of Conversion shall be executed by the Holder of this Debenture and shall
evidence such Holder's intention to convert this Debenture or a specified
portion hereof in the form annexed hereto as Exhibit A. If paid in Common Stock
as contemplated hereby, interest accrued or accruing from the Issue Date to the
relevant Interest Payment Date shall be paid in Common Stock at the Conversion
Price applicable as of such Interest Payment Date. No fractional shares of
Common Stock or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes or otherwise
delivers the conversion notice ("Notice of Conversion") to the Company so that
it is received by the Company on or before such specified date, provided that,
if such conversion would convert the entire remaining principal of this
Debenture, the Holder shall deliver to the Company the original Debentures being
converted no later than five (5) business days thereafter. Facsimile delivery of
the Notice of Conversion shall be accepted by the Company at facsimile number
(619) 718-7446, Attn: President. Certificates representing Common Stock upon
conversion ("Conversion Certificates") will be delivered to the Holder at the
address specified in the Notice of Conversion (which may be the Holder's address
for notices as contemplated by the Securities Purchase Agreement or a different
address), via express courier, by electronic transfer or otherwise, within five
(5) business days (such fifth business day, the "Delivery Date") after the date
on which the Notice of Conversion is delivered to the Company as contemplated in
this paragraph B, and, if interest is paid by Common Stock, the Interest Payment
Date. The Holder shall be deemed to be the holder of the shares issuable to it
in accordance with the provisions of this Section 4(B) on the Conversion Date.

                  C. Notwithstanding any other provision hereof or of any of the
other Transaction Agreements, in no event (except (i) as specifically provided
herein as an exception to this provision, or (ii) while there is outstanding a
tender offer for any or all of the shares of the Company's Common Stock) shall
the Holder be entitled to convert any portion of this Debenture, or shall the
Company have the obligation to convert such Debenture (and the Company shall not
have the right to pay interest hereon in shares of Common Stock) to the extent
that, after such conversion or issuance of stock in payment of interest, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures or other convertible securities or of the unexercised portion of
warrants or other rights to purchase Common Stock), and (2) the number of shares
of Common Stock issuable upon the conversion of the Debentures with respect to

                                       3

<PAGE>

which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock (after taking into account the shares to be
issued to the Holder upon such conversion). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, except as otherwise provided in clause (1) of such sentence. The
Holder, by its acceptance of this Debenture, further agrees that if the Holder
transfers or assigns any of the Debentures to a party who or which would not be
considered such an affiliate, such assignment shall be made subject to the
transferee's or assignee's specific agreement to be bound by the provisions of
this Section 4(C) as if such transferee or assignee were the original Holder
hereof. Nothing herein shall preclude the Holder from disposing of a sufficient
number of other shares of Common Stock beneficially owned by the Holder so as to
thereafter permit the continued conversion of this Debenture.

                  D. (i) Subject to the terms of Section 4(C) and to the other
terms of this Section 4(D), interest on the principal amount of this Debenture
converted pursuant to a Notice of Conversion shall be due and payable, at the
option of the Company, in cash or Common Stock on the Interest Payment Date.

                           (ii) If the interest is to be paid in cash, the
Company shall make such payment within three (3) business days of the Interest
Payment Date. If the interest is not paid by such third business day, the
interest must be paid in Common Stock in accordance with the provisions of
Section 4(D)(i) hereof, unless the Holder consents otherwise in each specific
instance.

                           (iii) Notwithstanding the foregoing, the Company's
right to issue shares in payment of such interest is applicable only to the
extent the Holder converts principal of this Debenture as provided herein.

                           (iv) The number of shares of Common Stock to be
issued in payment of such interest shall be determined by dividing the dollar
amount of the interest to be so paid by the Conversion Price on the relevant
Interest Payment Date. Such Common Stock shall be delivered to the Holder, or
per Holder's instructions, on the Delivery Date for the related Conversion
Certificates pursuant to Section 4(B) hereof.

                           (v) If the Company elects to have the interest paid
in cash in connection with a conversion, the Company shall make such payment
within three (3) business days of the Interest Payment Date. If such payment is
not made in cash by such date, it shall be deemed that, subject to the
provisions of Section 4(C) hereof, the Company has elected to pay the interest
in stock.

                  E. (i) Reference is made to the provisions of Section 4(g) of
the Securities Purchase Agreement, the terms of which are incorporated herein by
reference. The Conversion Price and other provisions of this Debenture shall be
adjusted as provided in the applicable provisions of said Section 4(g) of the
Securities Purchase Agreement.

                                       4

<PAGE>

                           (ii) In addition, and not in lieu of the foregoing,
in the event the provisions of Section 4(g)(ii) of the Securities Purchase
Agreement are applicable (the event giving rise to such applicability, a
"Trigger Event;" it being understood that a Permitted New Transaction, an
Allowed New Transaction or an Excluded New Transaction contemplated by said
Section 4(g) is not a Trigger Event), the Holder may require the Company to
immediately redeem all or any part of the outstanding portion of this Debenture
for an amount equal to the Redemption Amount (as defined below).

                           (iii) The term "Unconverted Debenture" means the
principal amount of this Debenture which has not been converted as of the
relevant date.

                           (iv) The term "Redemption Payment Date" means the
date on which the Company actually pays the Redemption Amount.

                           (v) The term "Redemption Amount" means the amount
equal to:

                                  V                  x                 M
                           -----------------
                                CP

         where:

                  "V" means the principal of an Unconverted Debenture plus any
         accrued but unpaid interest thereon;

                  "CP" means the Conversion Price in effect on the date (the
         "Redemption Notice Date") of the Redemption Notice (as defined below);
         and

                  "M" means the highest closing price per share of the Common
         Stock during the period beginning on the Redemption Notice Date and
         ending on the Redemption Payment Date.

                           (vi) The Holder of an Unconverted Debenture may elect
to redeem a portion of such Unconverted Debenture without electing to
redeem the balance of the Unconverted Debenture. The Holder's option to redeem
all or part of the Unconverted Debenture shall be exercised by the Holder giving
written notice of the exercise of this provision by the Holder (a "Redemption
Notice") at any time after a Trigger Event has occurred. The Redemption Notice
shall specify (a) the date (the "Redemption Due Date") on which the Redemption
Amount shall be paid, which date shall be at least five (5) business days after
the date (a "Redemption Notice Date") on which the Holder Redemption Notice is
given, and (b) the wire instructions for the account to which the Redemption
Amount is to be paid; provided, however, that the Company shall have the right
to accelerate the date of such payment.

                           (vii) If all of the Unconverted Debentures are being
redeemed pursuant to this Section 4(E), then, upon payment in full of the
Redemption Amount for all of the Unconverted Debentures in accordance with the
provisions of this Section 4(E), the Holder shall deliver the Debenture to the
Company marked "paid in full".

                                       5

<PAGE>

                           (viii) If the Redemption Amount is not timely paid by
the Company, the Redemption Amount computed as of such date will bear
interest at the rate of eighteen percent (18%) or the highest rate allowed by
law, whichever is lower, from the date it was due until and including the date
actually paid. The failure of the Company to timely pay the Redemption Amount
shall be an Event of Default.

                  F. (i) The term "Mandatory Conversion Date" means either (x)
the Maturity Date, if, but only if the Maturity Date Conditions (as defined
below) are met on the Maturity Date, or (y) an Elective Mandatory Conversion
Date (as defined below). On the Mandatory Conversion Date, without further
action by the Holder, the outstanding principal and accrued but unpaid interest
on this Debenture shall be deemed converted into Common Stock at the Conversion
Price in effect on such Mandatory Conversion Date. Any such mandatory conversion
shall be subject to the following terms and conditions of this Section F to the
extent relevant.

                           (ii) So long as

         (x) there is an effective Registration Statement covering the resale of
         the shares issuable on conversion of this Debenture,

         (y) the Company is not in default of any material obligation under any
         of the Transaction Agreements, and

         (z) the Common Stock of the Company, including the Conversion Shares to
         be issued on the Mandatory Conversion Date, are eligible for trading on
         an Acceptable Trading Market (as defined below),

then, if the Bid Price for the Common Stock is more than the Target Price (as
defined below) for each of twenty (20) consecutive Trading Days (the twentieth
of such consecutive Trading Days, the "Target Trading Day"), then the Company
will have the right to give the Holder a written notice (an "Elective Mandatory
Conversion Notice") within five (5) Trading Days after the Target Trading Day.
The Elective Mandatory Conversion Notice shall state that the date specified in
such notice (the "Elective Mandatory Conversion Date"), which date shall not be
no later than sixty (60) days after the Target Trading Day, shall be deemed a
Mandatory Conversion Date.

                           (iii) The term "Target Price" means $1.00 per share,
subject to further adjustment in the same manner as adjustments to the
Conversion Price are made herein

                           (iv) The term "Acceptable Trading Market" means any
of the following: (w) the Over the Counter Bulletin Board Market, (x) the
NASDAQ/SmallCap or National Market, (y) the American Stock Exchange or (z) the
New York Stock Exchange.

                           (v) If the Company gives an Elective Mandatory
Conversion Notice, then, if, but only if, the conditions referred in clauses
(x), (y) and (z) of subparagraph (ii) above are satisfied on the Elective
Mandatory Conversion Date, the conversion contemplated by the Elective Mandatory
Conversion Notice will be effected, subject to the provisions of subparagraph
(vi) below. If any of these conditions is not true on the Elective Mandatory
Conversion Date, the Elective Mandatory Conversion Notice shall be deemed
canceled AB INITIO.

                                       6

<PAGE>

                           (vi) The term "Maturity Date Conditions" means that,
on the Maturity Date, each of the following conditions is satisfied: (x) each
of the conditions referred in clauses (x), (y) and (z) of subparagraph (ii)
above is satisfied, and (y) the Bid Price on each of the ten (10) Trading Days
ending on the Trading Day immediately before the Maturity Date is equal to or
greater than the Conversion Price applicable on such Trading Day.

                           (vii) The provisions of Section 4(C) shall apply on
the Mandatory Conversion Date. If, as a result of such provisions, the
entire Debenture is not converted on the Mandatory Conversion Date, the Company,
without further notice to the Holder, shall be deemed to have timely given one
or more Mandatory Conversion Notices providing for successive Mandatory
Conversion Dates (except that the provisions of subparagraph (v) or (vi), as the
case may be, shall not apply to any such successive Mandatory Conversion Date),
each of which is ten (10) Trading Days after the immediately preceding Mandatory
Conversion Date, until this Debenture is fully converted or paid in full (or
some combination thereof).

                           (viii) After receiving an Elective Mandatory
Conversion Notice, the Holder shall continue to have the right to convert any
outstanding portion of this Debenture in accordance with its terms until it is
fully converted.

                  G. (i) Anything in the other provisions of this Debenture or
any of the other Transaction Agreements to the contrary notwithstanding, if, but
only if, the conditions referred in clauses (x), (y) and (z) of Section 4(F)(ii)
are satisfied on the date of the issuance of the Prepayment Notice and through
the Prepayment Date (as those terms are defined below), the Company shall have
the right to prepay the outstanding principal of this Debenture, together with
all accrued interest thereon, in whole or in part, on the terms and conditions
provided in this Section 4(G).

                           (ii) The Company may give the Holder a written notice
(the "Prepayment Notice") no earlier than the first anniversary of the
Issue Date. The Prepayment Notice shall specify (x) the principal amount of the
Debenture being prepaid by the Company (the "Prepayment Principal Amount"), (y)
the date (the "Prepayment Date"), which shall be not less than forty-five (45)
days after the Prepayment Notice is received by the Holder, on which such
prepayment will be made, and (z) identify the bank (the "Prepayment Bank") where
the Prepayment Funds (as defined below) will be deposited prior to the issuance
of the Confirmation Notice (as defined below).

                           (iii) No later than ten (10) business days prior to
the Prepayment Date, the Company will send a notice (the "Confirmation
Notice") to the Holder that funds (the "Prepayment Funds") equal to the
Prepayment Principal Amount plus all accrued but unpaid interest thereon through
the Prepayment Date have been deposited with the Prepayment Bank, together with
confirmation of such deposit by the Prepayment Bank. The Confirmation Notice
will also include instructions for the method by which the Holder can provide
instructions to the Prepayment Bank to make payment by check or wire, as
specified by the Holder, on the Prepayment Date.

                                       7

<PAGE>

                           (iv) Even after the issuance of a Prepayment Notice,
the Holder may continue to convert this Debenture as provided in the other
provisions of this Debenture until this Debenture is paid in full. If the Holder
converts any portion of this Debenture after the date of the Prepayment Notice
and prior to the payment of the Prepayment Funds to the Holder, so that the then
outstanding principal of this Debenture is less than the Prepayment Principal
Amount, the Holder shall notify the Prepayment Bank of the then outstanding
principal of this Debenture. The Prepayment Funds will then be adjusted to and
be deemed to be equal such outstanding principal plus all accrued but unpaid
interest thereon through the Prepayment Date.

                           (v) If the Confirmation Notice is not timely given or
if the Prepayment Funds are not timely paid or made available to the
Holder, the Holder will have the option, exercisable at any time prior to the
actual payment of the Prepayment Funds (together with any additional interest
accruing on the Prepayment Principal Amount after the Prepayment Date) to effect
either or both of the following actions: (x) cancellation, ab initio, of the
prepayment contemplated by the Prepayment Notice and (y) cancellation of the
Company's prepayment right under this Section 4(G).

         5. Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.

         6. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.

         7. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds of United States of America currency by wire
transfer to an account designated in writing by the Holder to the Company (which
account may be changed by notice similarly given). All payments of cash and each
delivery of shares of Common Stock issuable to the Holder as contemplated hereby
shall be made to the Holder at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time; except that the Holder can designate, by notice to the Company, a
different delivery address for any one or more specific payments or deliveries.

         8. If, for as long as this Debenture remains outstanding, the Company
enters into a merger (other than where the Company is the surviving entity) or
consolidation with another corporation or other entity or a sale or transfer of
all or substantially all of the assets of the Company to another person
(collectively, a "Sale"), the Company will require, in the agreements reflecting
such transaction, that the surviving entity expressly assume the obligations of
the Company hereunder. Notwithstanding the foregoing, if the Company enters into

                                       8

<PAGE>

a Sale and the holders of the Common Stock are entitled to receive stock,
securities or property in respect of or in exchange for Common Stock, then as a
condition of such Sale, the Company and any such successor, purchaser or
transferee will agree that the Debenture may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any such proposed Sale, (i)
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of such
Sale from the Company, except that Section 4(C) shall not apply to such
conversion.

         9. If, at any time while any portion of this Debenture remains
outstanding, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes of all or of a part of its assets in a
transaction (the "Spin Off") in which the Company, in addition to or in lieu of
any other compensation received and retained by the Company for such business,
operations or assets, causes securities of another entity (the "Spin Off
Securities") to be issued to security holders of the Company, the Company shall
cause (i) to be reserved Spin Off Securities equal to the number thereof which
would have been issued to the Holder had all of the Holder's Debentures
outstanding on the record date (the "Record Date") for determining the amount
and number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Debentures") been converted as of the close of
business on the Trading Day immediately before the Record Date (the "Reserved
Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all
or any of the Outstanding Debentures, such amount of the Reserved Spin Off
Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction,
of which (I) the numerator is the principal amount of the Outstanding Debentures
then being converted, and (II) the denominator is the principal amount of the
Outstanding Debentures.

         10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price and any other amounts calculated as
contemplated hereby or by any of the other Transaction Agreements shall be
equitably adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing, (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues shares after the record date of such split, the Conversion Price shall be
deemed to be one-half of what it had been immediately prior to such split; (ii)
if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter,
with respect to any conversion for which the Company issues shares after the
record date of such reverse split, the Conversion Price shall be deemed to be
ten times what it had been calculated to be immediately prior to such split; and
(iii) if the Company declares a stock dividend of one share of Common Stock for
every 10 shares outstanding, thereafter, with respect to any conversion for
which the Company issues shares after the record date of such dividend, the
Conversion Price shall be deemed to be such amount multiplied by a fraction, of
which the numerator is the number of shares (10 in the example) for which a
dividend share will be issued and the denominator is such number of shares plus
the dividend share(s) issuable or issued thereon (11 in the example).

                                       9

<PAGE>

         11. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.

         12. This Debenture shall be governed by and construed in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the County of New York
or the state courts of the State of New York sitting in the County of New York
in connection with any dispute arising under this Debenture and hereby waives,
to the maximum extent permitted by law, any objection, including any objection
based on FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Holder in enforcement of or protection of any of its rights under any of
this Debenture.

         13. JURY TRIAL WAIVER. The Company and the Holder hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out of or in
connection with this Debenture.

         14. (i) Prior to a Mandatory Conversion Date, the following shall
constitute an "Event of Default":

                  a.       The Company shall default in the payment of principal
                           or interest on this Debenture or any other amount due
                           hereunder, and, in any such instance, the same shall
                           continue for a period of five (5) business days; or

                  b.       Any of the representations or warranties made by the
                           Company herein, in the Securities Purchase Agreement
                           or any of the other Transaction Agreements or in any
                           certificate or financial or other written statements
                           heretofore or hereafter furnished by the Company in
                           connection with the execution and delivery of this
                           Debenture or the Securities Purchase Agreement shall
                           be false or misleading in any material respect at the
                           time made; or

                  c.       Subject to the terms of the Securities Purchase
                           Agreement, the Company fails to authorize or to cause
                           its Transfer Agent to issue shares of Common Stock
                           upon exercise by the Holder of the conversion rights
                           of the Holder in accordance with the terms of this
                           Debenture (provided, however, that for purposes of
                           this provision, such failure to cause the Transfer
                           Agent to issue such shares shall not be deemed to

                                       10

<PAGE>

                           occur until two (2) business days after the Delivery
                           Date), fails to transfer or to cause its Transfer
                           Agent to transfer any certificate for shares of
                           Common Stock issued to the Holder upon conversion of
                           this Debenture and when required by this Debenture or
                           any other Transaction Agreement, and such transfer is
                           otherwise lawful, or fails to remove any restrictive
                           legend on any certificate or fails to cause its
                           Transfer Agent to remove such restricted legend, in
                           each case where such removal is lawful, as and when
                           required by this Debenture, or any other Transaction
                           Agreement, and any such failure shall continue
                           uncured for ten (10) business days; or

                  d.       The Company shall fail to perform or observe, in any
                           material respect, any other covenant, term,
                           provision, condition, agreement or obligation of any
                           Debenture in this series and such failure shall
                           continue uncured for a period of thirty (30) days
                           after written notice from the Holder of such failure;
                           or

                  e.       The Company shall fail to perform or observe, in any
                           material respect, any covenant, term, provision,
                           condition, agreement or obligation of the Company
                           under any of the Transaction Agreements and such
                           failure shall continue uncured for a period of thirty
                           (30) days after written notice from the Holder of
                           such failure; or

                  f.       The Company shall (1) admit in writing its inability
                           to pay its debts generally as they mature; (2) make
                           an assignment for the benefit of creditors or
                           commence proceedings for its dissolution; or (3)
                           apply for or consent to the appointment of a trustee,
                           liquidator or receiver for its or for a substantial
                           part of its property or business; or

                  g.       A trustee, liquidator or receiver shall be appointed
                           for the Company or for a substantial part of its
                           property or business without its consent and shall
                           not be discharged within sixty (60) days after such
                           appointment; or

                  h.       Any governmental agency or any court of competent
                           jurisdiction at the instance of any governmental
                           agency shall assume custody or control of the whole
                           or any substantial portion of the properties or
                           assets of the Company and shall not be dismissed
                           within sixty (60) days thereafter; or

                  i.       Any money judgment, writ or warrant of attachment, or
                           similar process in excess of Five Hundred Thousand
                           ($500,000) Dollars in the aggregate shall be entered
                           or filed against the Company or any of its properties
                           or other assets and shall remain unpaid, unvacated,
                           unbonded or unstayed for a period of sixty (60) days
                           or in any event later than five (5) days prior to the
                           date of any proposed sale thereunder; or

                                       11

<PAGE>

                  j.       Bankruptcy, reorganization, insolvency or liquidation
                           proceedings or other proceedings for relief under any
                           bankruptcy law or any law for the relief of debtors
                           shall be instituted by or against the Company and, if
                           instituted against the Company, shall not be
                           dismissed within sixty (60) days after such
                           institution or the Company shall by any action or
                           answer approve of, consent to, or acquiesce in any
                           such proceedings or admit the material allegations
                           of, or default in answering a petition filed in any
                           such proceeding; or

                  k.       The Company shall have its Common Stock suspended
                           from trading on, or delisted from, the Principal
                           Trading Market for in excess of ten (10) Trading
                           Days.

                  (ii) After a Mandatory Conversion Date, the term "Event of
Default" shall mean:

                  a.       The Company shall default in the payment of principal
                           or interest on this Debenture or any other amount due
                           hereunder, and, in any such instance, the same shall
                           continue for a period of five (5) business days, but
                           only to the extent that the Company had an obligation
                           to pay such amount to the Holder prior to the
                           Mandatory Conversion Date or based on a notice given
                           by the Holder prior to the Mandatory Conversion Date;
                           or

                  b.       Subject to the terms of the Securities Purchase
                           Agreement, the Company fails to authorize or to cause
                           its Transfer Agent to issue shares of Common Stock
                           upon exercise by the Holder of the conversion rights
                           of the Holder in accordance with the terms of this
                           Debenture (provided, however, that for purposes of
                           this provision, such failure to cause the Transfer
                           Agent to issue such shares shall not be deemed to
                           occur until two (2) business days after the Delivery
                           Date), fails to transfer or to cause its Transfer
                           Agent to transfer any certificate for shares of
                           Common Stock issued to the Holder upon conversion of
                           this Debenture and when required by this Debenture or
                           any other Transaction Agreement, and such transfer is
                           otherwise lawful, or fails to remove any restrictive
                           legend on any certificate or fails to cause its
                           Transfer Agent to remove such restricted legend, in
                           each case where such removal is lawful, as and when
                           required by this Debenture, or any other Transaction
                           Agreement, and any such failure shall continue
                           uncured for ten (10) business days.

                  (iii) If an Event of Default shall have occurred and is
continuing, then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been cured or waived in writing by the
Holder (which waiver shall not be deemed to be a waiver of any subsequent
default), at the option of the Holder and in the Holder's sole discretion, the
Holder may consider this Debenture immediately due and payable (and the Maturity
Date shall be accelerated accordingly; the accelerated Maturity Date is referred
to as the "Default Maturity Date"; provided, however, that after the Default
Maturity Date, the Company shall not have the right to give a Mandatory

                                       12

<PAGE>

Conversion Notice and any Mandatory Conversion Notice given before the Default
Maturity Date shall be deemed canceled as of the Default Maturity Date), without
presentment, demand, protest or notice of any kinds, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder may immediately enforce any and
all of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law, including, but not necessarily limited to, the
equitable remedy of specific performance and injunctive relief. In furtherance
of the foregoing and not in limitation thereof, the Holder will be entitled to
receive payment in cash in full of the outstanding principal and accrued
interest on the Debenture on the Default Maturity Date.

         15. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.

                      [Balance of page intentionally blank]

                                       13

<PAGE>

         16. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section shall control every other provision
of this Debenture.

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.

Dated: _________________, _______

                                            NEW VISUAL CORPORATION

                                            By:_________________________________

                                            ____________________________________
                                            (Print Name)
                                            ____________________________________
                                            (Title)

                                       14

<PAGE>

                                    EXHIBIT A

                             NEW VISUAL CORPORATION

                              NOTICE OF CONVERSION
                                       OF
             7% CONVERTIBLE DEBENTURE SERIES 03-2 DUE ________, 200_
   (To be Executed by the Registered Holder in Order to Convert the Debenture)

TO:      New Visual Corporation                          VIA FAX: (619) 718-7446
         5920 Friars Road, Suite 104                             Attn: President
         San Diego, CA 92108

FROM: _________________________________________________________ ("Holder")

DATE: _______________________________________________ (the "Conversion Date")

RE:      Conversion of $_________________ principal amount (the "Converted
         Debenture") of the 7% Convertible Debenture Series 03-2-_ Due
         _________, 200_ (the "Debenture") of NEW VISUAL CORPORATION (the
         "Company") into ________________________ shares (the "Conversion
         Shares") of Common Stock (defined below)

         The captioned Holder hereby gives notice to the Company, pursuant to
the Debenture of NEW VISUAL CORPORATION that the Holder elects to convert the
Converted Debenture into fully paid and non-assessable shares of Common Stock,
$0.001 par value (the "Common Stock"), of the Company as of the Conversion Date
specified above. Said conversion shall be based on the following Conversion
Price

         _        $________________, representing the original Conversion Price
                  (as defined in the Debenture)

                  $________________, representing the original Conversion Price
                  (as defined in the Debenture), adjusted in accordance with the
                  provisions of the Debenture.

<PAGE>

Based on this Conversion Price, the number of Conversion Shares indicated above
should be issued in the following name(s):

                  Name and Record Address                     Conversion Shares
                  -------------------------------             ---------------
                  -------------------------------             ---------------
                  -------------------------------             ---------------

         It is the intention of the Holder to comply with the provisions of
Section 4(C) of the Debenture regarding certain limits on the Holder's right to
convert thereunder. Based on the analysis on the attached Worksheet Schedule,
the Holder believe this conversion complies with the provisions of said Section
4(C). Nonetheless, to the extent that, pursuant to the conversion effected
hereby, the Holder would have more shares than permitted under said Section,
this notice should be amended and revised, ab initio, to refer to the conversion
which would result in the issuance of shares consistent with such provision. Any
conversion above such amount is hereby deemed void and revoked.

         As contemplated by the Debenture and the Securities Purchase Agreement,
this Notice of Conversion is being sent by facsimile to the telecopier number
and officer indicated above.

         If this Notice of Conversion represents the full conversion of the
outstanding balance of the Converted Debenture, the Holder either (1) has
previously surrendered the Converted Debenture to the Company or (2) will
surrender (or cause to be surrendered) the Converted Debenture to the Company at
the address indicated above by express courier within five (5) business days
after delivery or facsimile transmission of this Notice of Conversion.

         The certificates representing the Conversion Shares should be
transmitted by the Company to the Holder via express courier or by electronic
transfer within the time contemplated by the Debenture and Securities Purchase
Agreement after receipt of this Notice of Conversion (by facsimile transmission
or otherwise) to:

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

<PAGE>

         As contemplated by the Debenture, the Company should also pay all
accrued but unpaid interest on the Converted Debenture to the Holder.

                           -- If the Company elects to pay such interest in
                  Common Stock, as contemplated by and subject to the provisions
                  of the Debenture, such shares should be issued in the name of
                  the Holder and delivered in the same manner as, and together
                  with, the Conversion Shares.

                           -- If the Company elects or is required to pay the
                  interest paid in cash, such payment should be made by wire
                  transfer as follows:

                                       _____________________________________
                                              (Print name of Holder)

                                       By: _________________________________
                                            (Signature of Authorized Person)

                                       _____________________________________
                                       (Printed Name and Title)

<PAGE>

                              NOTICE OF CONVERSION
                               WORKSHEET SCHEDULE

1. Current Common Stock holdings of Holder and Affiliates          _____________

2. Shares to be issued on current conversion(5)                    _____________

3. Other shares to be issued on other current conversion(s) and

         other current exercise(s)                                 _____________

4. Other shares eligible to be acquired within next 60 days

         without restriction                                       _____________

5. Total [sum of Lines 1 through 4]                                _____________

6. Outstanding shares of Common Stock(6)                           _____________

7. Adjustments to Outstanding

         a. Shares known to Holder as previously issued

             to Holder or others but not included in Line 6        _____________

         b. Shares to be issued per Line(s) 2 and 3                _____________

         c. Total Adjustments [Lines 7a and 7b]                    _____________

----------

(5)      Includes conversion of principal and assumes interest will be paid in
         Common Stock at the Conversion Price.
(6)      Based on latest SEC filing by Company or information provided by
         executive officer of Company, counsel to Company or transfer agent.

<PAGE>

8. Total Adjusted Outstanding [Lines 6 plus 7c]                    _____________

9. Holder's Percentage [Line 5 divided by Line 8]                  ____________%

[Note: Line 9 not to be above 4.99%]

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