PENALTY SETTLEMENT AGREEMENT

This Penalty Settlement Agreement (the “Agreement”) dated as of March 10, 2008
is made between Chatsworth Data Solutions, Inc., a Nevada corporation (the
“Company”), and Vision Opportunity Master Fund Ltd. (the “Majority Investor”),
with respect to an Investor Rights Agreement dated as of July 31, 2006 between
the Company, the Majority Investor and the other Purchasers listed on Schedule 1
attached thereto (the “Original Agreement”). Capitalized terms not defined in
this Agreement shall have the meanings given them in the Original Agreement.

RECITALS:

WHEREAS, the Purchasers have, under the Original Agreement, a right to receive
certain Periodic Amounts as liquidated damages for late registration of the
Registrable Securities described thereunder, as described in Section 7(e) of the
Other Agreement (the “Late Registration Penalties”); and

WHEREAS, pursuant to Section 7(g) of the Other Agreement, the Majority Investor,
as the Holder of at least a majority of the Registrable Securities, may amend or
waive any of the provisions of the Other Agreement; and

WHEREAS, the Company and the Majority Investor have agreed to settle and
compromise the Late Registration Penalties, and to waive all future penalties in
respect thereof;

NOW THEREFORE, in consideration of the mutually negotiated promises, covenants,
and obligations in this Agreement, the parties reach a final settlement in
respect of the Late Registration Penalties as set forth below:

1. Upon the receipt of the consideration described in section 2 below, the
Purchasers hereby waive all past, present and future Late Registration
Penalties, for all past, present and future circumstances.

2. Simultaneous with the delivery of this Agreement, the Company shall issue to
each of the Purchasers its duly executed 12% Promissory Note, in the form
attached hereto as Exhibit A (single, a “Note” and collectively, the “Notes”),
in the principal amount set forth next to such Purchaser’s name on Schedule 1
hereto.

3. The parties acknowledge that the principal sum of the Notes is intended to
reflect the Late Registration Penalties which have accrued through February 29,
2008, and the Purchasers’ potential ability after that to use SEC Rule 144 for
resales (subject to the requirements of Rule 144).

 
 

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4. The Company hereby represents and warrants to the Purchasers as follows as of
the date hereof:

(a) Authorization and Enforcement. (i) The Company has the requisite power and
authority to enter into and perform its obligations under this Agreement and the
Notes; (ii) the execution, delivery and performance of this Agreement and the
Notes by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors
or its stockholders is required; and (iii) this Agreement and the Notes
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms.

(b) No Conflicts. The execution, delivery and performance of this Agreement and
the Notes by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Certificate of Incorporation (including without limitation the Certificate) or
the bylaws of the Company; or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights under, or result in termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party or result in a violation of
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which any property or assets of the Company or
any of its subsidiaries is bound or affected.

5. This Agreement constitutes the entire agreement of the parties with respect
to the subject matter hereof. Any negotiations, understandings or agreements,
prior or contemporaneous, written or oral, with respect to such subject matter
are superseded hereby and merged herein. This Agreement may not be amended
except in writing.

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

THE COMPANY:
 
CHATSWORTH DATA SOLUTIONS, INC.
   
By:
 
Name: 
 
Title: 
 

Schedule 1 to Penalty Settlement Agreement-Page 2

 
 

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MAJORITY INVESTOR:
 
VISION OPPORTUNITY MASTER FUND LTD.
   
By:
 
Print Name:   
 
Title:
 

 
 
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EXHIBIT A

CHATSWORTH DATA SOLUTIONS, INC.

PROMISSORY NOTE

March 10, 2008
$________

Chatsworth Data Solutions, Inc., a Nevada corporation (the “Company”), hereby
promises to pay to the order of [Name of Purchaser] the principal amount of
$_______ together with interest thereon calculated from the date hereof in
accordance with the provisions of this Note.

This Note is issued pursuant to a Penalty Settlement Agreement, entered into as
of March 10, 2008 (as amended and modified from time to time, the “Agreement”),
between the Company and Vision Opportunity Master Fund, Ltd. (“Vision”),
amending that certain Investor Rights Agreement dated as of July 31, 2006
between the Company, Vision and the other Purchasers listed on Schedule 1
attached thereto.

1. Payment of Interest. Except as otherwise expressly provided in paragraph 3(b)
hereof, interest shall accrue at the rate of twelve percent (12%) per annum on
the unpaid principal amount of this Note outstanding from time to time, or (if
less) at the highest rate then permitted under applicable law. The Company shall
pay to the holder of this Note all accrued interest on the date the principal
amount of this Note is due (whether at maturity or otherwise). Unless prohibited
under applicable law, any accrued interest which is not paid on the date on
which it is due and payable shall bear interest at the same rate at which
interest is then accruing on the principal amount of this Note until such
interest is paid. Interest shall accrue on any principal payment due under this
Note and, to the extent permitted by applicable law, on any interest which has
not been paid on the date on which it is due and payable until such time as
payment therefor is actually delivered to the holder of this Note.

If the Adjusted Share Price (as hereinafter defined) of the Company’s Common
Stock, $0.00001 par value (the “Common Stock”), is equal to or greater than
$0.25 for any period of five (5) consecutive trading days ending prior to March
10, 2010, then the Company shall have the option of paying all or any portion of
the accrued interest in shares of its Common Stock, in an amount of shares equal
to the quotient obtained by dividing the amount of accrued interest by $0.20.

As used herein, the term “Adjusted Share Price” shall mean the closing price of
the Common Stock on the principal national securities exchange or recognized
quotation system on which the Common Stock is then traded, before giving effect
to any adjustment effective after the date hereof resulting from (i) any
dividend or distribution on the outstanding Common Stock payable in shares of
Common Stock, (ii) any subdivision of the outstanding Common Stock into a
greater number of shares, (iii) any combination of the outstanding Common Stock
into a smaller number of shares, or (iv) the issuance of any shares of capital
stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation).
 
Promissory Note-Page 1 of 4

 
 

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2. Payment of Principal on Note.

(a) Scheduled Payments. The Company shall pay the principal amount of $______
(or such lesser principal amount then outstanding) to the holder of this Note on
March 10, 2010, together with all accrued and unpaid interest on the principal
amount being repaid.

(b) Prepayments. The Company may not prepay this Note without the prior written
consent of the Holder which may be withheld for any or no reason. In connection
with each prepayment of principal hereunder, the Company shall also pay all
accrued and unpaid interest to the date of prepayment on the principal amount of
this Note being repaid.

3. Events of Default.

(a) Definition. For purposes of this Note, an Event of Default shall be deemed
to have occurred if:

(i) The Company fails to pay when due and payable (whether at maturity or
otherwise) the full amount of interest then accrued on this Note or the full
amount of any principal payment on this Note;

(ii) The Company fails to perform or observe any other material provision
contained in this Note or in the Agreement, and such failure is not cured within
5 days after the occurrence hereof;

(iii) Any representation, warranty or information contained in the Agreement is
false or misleading in any material respect on the date made; or

(iv) The Company or any subsidiary makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts generally as they
become due; or an order, judgment or decree is entered adjudicating the Company
or any subsidiary bankrupt or insolvent; or any order for relief with respect to
the Company or any subsidiary is entered under the Federal Bankruptcy Code; or
the Company or any subsidiary petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the Company or
any subsidiary, or of any substantial part of the assets of the Company or any
subsidiary, or commences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of any subsidiary) relating to the Company
or any subsidiary under any bankruptcy reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Company or any subsidiary and either (A) the Company or any such
subsidiary by any act indicates its approval thereof, consent thereto or
acquiescence therein or (B) such petition, application or proceeding is not
dismissed within 60 days.

Promissory Note-Page 2 of 4

 
 

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The foregoing shall constitute Events of Default whatever the reason or cause
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.

(b) Consequences of Events of Default.

(i) If any Event of Default of the type described in subparagraphs 3(a)(i) –
(iii) has occurred that has not been cured within ten (10) business days from
the date of written notice by the holder of this Note, the interest rate on this
Note shall increase immediately to the lesser of [18%] or the highest interest
rate permitted by law.

(ii) If an Event of Default of the type described in subparagraph 3(a)(iv) has
occurred, the aggregate principal amount of this Note (together with all accrued
interest thereon and all other amounts due and payable with respect thereto)
shall become immediately due and payable without any action on the part of the
holders of this Note, and the Company shall immediately pay to the holders of
this Note all amounts due and payable with respect to this Note.

(iii) The holder of this Note shall also have any other rights which such holder
may have been afforded under any contract or agreement at any time and any other
rights which such holder may have pursuant to applicable law.
 
(iv) The Company hereby waives diligence, presentment, protest and demand and
notice of protest and demand, dishonor and nonpayment of this Note, and
expressly agrees that this Note, or any payment hereunder, may be extended from
time to time and that the holder hereof may accept security for this Note or
release security for this Note, all without in any way affecting the liability
of the Company hereunder.

4. Amendment and Waiver. Except as otherwise expressly provided herein, the
provisions of this Note may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the holder of this
Note.

Promissory Note-Page 3 of 4

 
 

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5. Payments. All payments to be made to the holder of this Note shall be made in
the lawful money of the United States of America in immediately available funds.

6. Place of Payment. Payments of principal and interest shall be paid by wire
transfer of immediately available funds to an account designated by the holder
of this Note.

7. Business Days. If any payment is due, or any time period for giving notice or
taking action expires, on a day which is a Saturday, Sunday or legal holiday in
the State of New York, the payment shall be due and payable on, and the time
period shall automatically be extended to, the next business day immediately
following such Saturday, Sunday or legal holiday, and interest shall continue to
accrue at the required rate hereunder until any such payment is made.

8. Governing Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.

9. Application of Payments. All payments shall be applied first, to accrued and
unpaid interest on the unpaid principal balance of this Note and then to the
unpaid principal balance of this Note.

10. Costs of Collection. If any suit or action is instituted or attorneys are
employed to collect this Note or any part hereof, the Company promises and
agrees to pay all costs of collection, including all court costs and reasonable
attorneys' fees based upon customary hourly rates and not a percentage of the
indebtedness outstanding.

11. WAIVER OF JURY TRIAL. THE COMPANY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE WOULD BE BASED UPON DIFFICULT AND
COMPLEX ISSUES AND THEREFORE, THE COMPANY AGREES THAT ANY COURT PROCEEDING
ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

IN WITNESS WHEREOF, the Company has executed and delivered this Note on March
10, 2008.

THE COMPANY:
 
CHATSWORTH DATA SOLUTIONS, INC.
   
By:
 
Print Name:   
 
Title:
 

Promissory Note-Page 4 of 4

 
 

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