Exhibit 10.3**SECURITIES PURCHASE AGREEMENT**     **SECURITIES PURCHASE AGREEMENT**(the “**Agreement**”), dated as of November 13, 2007, by and amongUS Dataworks, Inc., a Nevada corporation, with headquarters located at One Sugar Creek CenterBoulevard, Fifth Floor, Sugar Land, TX 77478 (the “**Company**”), and the investors listed on theSchedule of Buyers attached hereto (individually, a “**Buyer**” and collectively, the “**Buyers**”).     **WHEREAS**:     A. The Company and each Buyer is executing and delivering this Agreement in reliance upon theexemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, asamended (the “**1933 Act**”), and Rule 506 of Regulation D (“**Regulation D**”) as promulgated by theUnited States Securities and Exchange Commission (the “**SEC**”) under the 1933 Act.     B. The Company has authorized a new series of senior secured convertible notes of the Company,in the form attached hereto as Exhibit A (the “**Notes**”), which Notes shall be convertibleinto the Company’s common stock, par value $0.0001 per share (the “**Common Stock**”) (as converted,the “**Conversion Shares**”), in accordance with the terms of the Notes.     C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms andconditions stated in this Agreement, (i) that aggregate principal amount of the Notes set forthopposite such Buyer’s name in column (3) on the Schedule of Buyers attached hereto (which aggregateamount for all Buyers shall be Four Million Dollars ($4,000,000)) and (ii) warrants, insubstantially the form attached hereto as Exhibit B (the “**Warrants**”), to acquire up to thatnumber of additional shares of Common Stock set forth opposite such Buyer’s name in column (4) ofthe Schedule of Buyers (as exercised, collectively, the “**Warrant Shares**”).     D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto areexecuting and delivering a Registration Rights Agreement, substantially in the form attached heretoas Exhibit C (the “**Registration Rights Agreement**”), pursuant to which the Company willagree to provide certain registration rights with respect to the Registrable Securities (as definedin the Registration Rights Agreement) under the 1933 Act and the rules and regulations promulgatedthereunder, and applicable state securities laws.     E. The Notes, the Conversion Shares, the Warrants and the Warrant Shares collectively arereferred to herein as the “**Securities**”.     F. The Notes will rank senior to all outstanding and future indebtedness of the Company andits Subsidiaries and will be secured by a perfected security interest (subject in priority to theSenior Indebtedness only), in all of the assets of the Company, the stock of each of the Company’ssubsidiaries and the assets of each of the Company’s U.S. subsidiaries, as evidenced by a securityagreement, in the form attached hereto as Exhibit H (as amended or modified from time totime in accordance with its terms, the “**Security Agreement**” and, together with the CollateralAgency Agreement (as defined below) and any ancillary documents related thereto, collectively the“**Security Documents**”).
 

 
     G. The Buyers desire to appoint The Bank of New York as collateral agent with respect to theCollateral (as defined in the Security Agreement) (in such capacity, the “**Collateral Agent**”)pursuant to a Collateral Agency Agreement, in the form attached hereto as Exhibit K (asamended or modified from time to time in accordance with its terms, the “**Collateral AgencyAgreement**”).     **NOW, THEREFORE**, the Company and each Buyer hereby agree as follows:1. PURCHASE AND SALE OF NOTES AND WARRANTS.          (a) Purchase of Notes and Warrants.               (i) Notes and Warrants. Subject to the satisfaction (or waiver) of the conditions setforth in Sections 6 and 7 below, the Company agrees to issue and sell to each Buyer, and each Buyerseverally, but not jointly, shall purchase from the Company on the Closing Date (as defined below),(x) a principal amount of Notes as is set forth opposite such Buyer’s name in column (3) on theSchedule of Buyers and (y) Warrants to acquire up to that number of Warrant Shares as is set forthopposite such Buyer’s name in column (4) on the Schedule of Buyers, (the “**Closing**”).               (ii) Closing. The date and time of the Closing (the “**Closing Date**”) shall be 10:00a.m., New York City time, on the date hereof (or such later date as is mutually agreed to by theCompany and each Buyer) after notification of satisfaction (or waiver) of the conditions to theClosing set forth in Sections 6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 ThirdAvenue, New York, New York 10022.               (iii) Purchase Price.                    (1) The aggregate purchase price for the Notes and the Warrants to be purchased by each suchBuyer at the Closing (the “**Purchase Price**”) shall be the amount set forth opposite each Buyer’sname in column (5) of the Schedule of Buyers. Each Buyer shall pay $1,000 for each $1,000 ofprincipal amount of Notes and related Warrants to be purchased by such Buyer at the Closing.                    (2) The Buyers and the Company agree that the Notes and the Warrants constitute an“investment unit” for purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, asamended (the “**Code**”). The Buyers and the Company mutually agree that the allocation of the issueprice of such investment unit between the Notes and the Warrants in accordance with Section1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an aggregate amount of$10,000 allocated to the Warrants and the balance of the Purchase Price allocated to the Notes, andneither the Buyers nor the Company shall take any position inconsistent with such allocation in anytax return or in any judicial or administrative proceeding in respect of taxes.          (b) Form of Payment. On the Closing Date, (i) each Buyer shall pay itsPurchase Price (less, in the case of Highbridge International LLC, the amounts withheldpursuant to Section 4(g)) to the Company for the Notes and the Warrants to be issued andsold to such Buyer at the Closing, by wire transfer of immediately available
-2-

 
funds in accordance with the Company’s written wire instructions and (ii) the Companyshall deliver to each Buyer the Notes (allocated in the principal amounts as such Buyershall request) which such Buyer is then purchasing hereunder along with the Warrants(allocated in the amounts as such Buyer shall request) which such Buyer is purchasing, ineach case duly executed on behalf of the Company and registered in the name of such Buyer orits designee.     2. BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not jointly,represents and warrants with respect to only itself, as of the date hereof and as of the ClosingDate, that:          (a) No Sale or Distribution. Such Buyer is acquiring the Notes, and theWarrants, and upon conversion of the Notes and exercise of the Warrants (other than pursuantto a Cashless Exercise (as defined in the Warrants)) will acquire the Conversion Sharesissuable upon conversion of the Notes and the Warrant Shares issuable upon exercise of theWarrants, for its own account and not with a view towards, or for resale in connection with,the public sale or distribution thereof, except pursuant to sales registered or exemptedunder the 1933 Act; provided, however, that by making the representations herein, such Buyerdoes not agree to hold any of the Securities for any minimum or other specific term andreserves the right to dispose of the Securities at any time in accordance with or pursuantto a registration statement or an exemption under the 1933 Act and pursuant to theapplicable terms of the Transaction Documents (as defined in Section 3(b)). Such Buyer isacquiring the Securities hereunder in the ordinary course of its business. Such Buyer doesnot presently have any agreement or understanding, directly or indirectly, with any Personto distribute any of the Securities.          (b) Accredited Investor Status. Such Buyer is an “accredited investor” as thatterm is defined in Rule 501(a) of Regulation D.          (c) Reliance on Exemptions. Such Buyer understands that the Securities arebeing offered and sold to it in reliance on specific exemptions from the registrationrequirements of United States federal and state securities laws and that the Company isrelying in part upon the truth and accuracy of, and such Buyer’s compliance with, therepresentations, warranties, agreements, acknowledgments and understandings of such Buyerset forth herein in order to determine the availability of such exemptions and theeligibility of such Buyer to acquire the Securities.          (d) Information. Such Buyer and its advisors, if any, have been furnished withall materials relating to the business, finances and operations of the Company and materialsrelating to the offer and sale of the Securities that have been requested by such Buyer.Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions ofthe Company. Neither such inquiries nor any other due diligence investigations conducted bysuch Buyer or its advisors, if any, or its representatives shall modify, amend or affectsuch Buyer’s right to rely on the Company’s representations and warranties contained herein.Such Buyer understands that its investment in the Securities involves a high degree of riskand is able to afford a complete loss of such investment. Such Buyer has sought suchaccounting, legal and tax advice as
-3-

 
it has considered necessary to make an informed investment decision with respect to itsacquisition of the Securities.               (e) No Governmental Review. Such Buyer understands that no United Statesfederal or state agency or any other government or governmental agency has passed on or madeany recommendation or endorsement of the Securities or the fairness or suitability of theinvestment in the Securities nor have such authorities passed upon or endorsed the merits ofthe offering of the Securities.               (f) Transfer or Resale. Such Buyer understands that except as provided in theRegistration Rights Agreement: (i) the Securities have not been and are not being registeredunder the 1933 Act or any state securities laws, and may not be offered for sale, sold,assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shallhave delivered to the Company an opinion of counsel, in a generally acceptable form, to theeffect that such Securities to be sold, assigned or transferred may be sold, assigned ortransferred pursuant to an exemption from such registration, or (C) such Buyer provides theCompany with reasonable assurance that such Securities can be sold, assigned or transferredpursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended (or a successorrule thereto) (collectively, “**Rule 144**”); (ii) any sale of the Securities made in relianceon Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule144 is not applicable, any resale of the Securities under circumstances in which the seller(or the Person (as defined in Section 3(s)) through whom the sale is made) may be deemed tobe an underwriter (as that term is defined in the 1933 Act) may require compliance with someother exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and(iii) neither the Company nor any other Person is under any obligation to register theSecurities under the 1933 Act or any state securities laws or to comply with the terms andconditions of any exemption thereunder. The Securities may be pledged in connection with abona fide margin account or other loan or financing arrangement secured by the Securitiesand such pledge of Securities shall not be deemed to be a transfer, sale or assignment ofthe Securities hereunder, and no Buyer effecting a pledge of Securities shall be required toprovide the Company with any notice thereof or otherwise make any delivery to the Companypursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)),including, without limitation, this Section 2(f).               (g) Legends. Such Buyer understands that the certificates or other instrumentsrepresenting the Notes and the Warrants and, until such time as the resale of the ConversionShares and the Warrant Shares have been registered under the 1933 Act as contemplated by theRegistration Rights Agreement, the stock certificates representing the Conversion Shares andthe Warrant Shares, except as set forth below, shall bear any legend as required by the“blue sky” laws of any state and a restrictive legend in substantially the following form(and a stop-transfer order may be placed against transfer of such stock certificates):**[**NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THISCERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
-4-

 
**[**CONVERTIBLE**] [**EXERCISABLE**]**HAVE BEEN**][**THE SECURITIES REPRESENTED BYTHIS CERTIFICATE HAVE NOT BEEN**]**REGISTERED UNDER THE SECURITIES ACTOF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED ORASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATIONSTATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLEFORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN ORFINANCING ARRANGEMENT SECURED BY THE SECURITIES WITH A REGISTEREDBROKER-DEALER OR A FINANCIAL INSTITUTION THAT IS AN “ACCREDITEDINVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.The legend set forth above shall be removed and the Company shall issue a certificate without suchlegend to the holder of the Securities upon which it is stamped, if, unless otherwise required bystate securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) inconnection with a sale, assignment or other transfer, such holder provides the Company with anopinion of a law firm reasonably acceptable to the Company (with Schulte Roth & Zabel LLP beingdeemed acceptable), in a reasonably acceptable form, to the effect that such sale, assignment ortransfer of the Securities may be made without registration under the applicable requirements ofthe 1933 Act, or (iii) such holder provides the Company with reasonable assurance that theSecurities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.          (h) Validity; Enforcement. This Agreement, the Registration Rights Agreementand the Security Documents to which such Buyer is a party have been duly and validlyauthorized, executed and delivered on behalf of such Buyer and shall constitute the legal,valid and binding obligations of such Buyer enforceable against such Buyer in accordancewith their respective terms, except as such enforceability may be limited by generalprinciples of equity or to applicable bankruptcy, insolvency, reorganization, moratorium,liquidation and other similar laws relating to, or affecting generally, the enforcement ofapplicable creditors’ rights and remedies.          (i) No Conflicts. The execution, delivery and performance by such Buyer ofthis Agreement, the Registration Rights Agreement and the Security Documents to which suchBuyer is a party and the consummation by such Buyer of the transactions contemplated herebyand thereby will not (i) result in a violation of the organizational documents of such Buyeror (ii) conflict with, or constitute a default (or an event which
-5-

 
with notice or lapse of time or both would become a default) under, or give to othersany rights of termination, amendment, acceleration or cancellation of, any agreement,indenture or instrument to which such Buyer is a party, or (iii) result in a violation ofany law, rule, regulation, order, judgment or decree (including federal and statesecurities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii)above, for such conflicts, defaults, rights or violations which would not, individually orin the aggregate, reasonably be expected to have a material adverse effect on the ability ofsuch Buyer to perform its obligations hereunder.          (j) Residency. Such Buyer is a resident of that jurisdiction specified belowits address on the Schedule of Buyers.     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrantsto each of the Buyers that, as of the date hereof and as of the Closing Date:          (a) Organization and Qualification. The Company and its “**Subsidiaries**” (whichfor purposes of this Agreement means any joint venture or any entity in which the Company,directly or indirectly, owns any of the capital stock or holds an equity or similarinterest) are entities duly organized and validly existing and, to the extent legallyapplicable, in good standing under the laws of the jurisdiction in which they are formed,and have the requisite power and authorization to own their properties and to carry on theirbusiness as now being conducted. Each of the Company and its Subsidiaries is duly qualifiedas a foreign entity to do business and, to the extent legally applicable, is in goodstanding in every jurisdiction in which its ownership of property or the nature of thebusiness conducted by it makes such qualification necessary, except to the extent that thefailure to be so qualified or be in good standing would not reasonably be expected to have aMaterial Adverse Effect. As used in this Agreement, “**Material Adverse Effect**” means anymaterial adverse effect on the business, properties, assets, operations, results ofoperations, condition (financial or otherwise) or prospects of the Company and itsSubsidiaries, individually or taken as a whole, or on the transactions contemplated herebyor in the other Transaction Documents or by the agreements and instruments to be enteredinto in connection herewith or therewith, or on the authority or ability of the Company toperform its obligations under the Transaction Documents (as defined below). The Company hasno Subsidiaries.          (b) Authorization; Enforcement; Validity. The Company has the requisitecorporate power and authority to enter into and perform its obligations under thisAgreement, the Notes, the Registration Rights Agreement, the Security Documents, theIrrevocable Transfer Agent Instructions (as defined in Section 5(b)), the Warrants and eachof the other agreements entered into by the parties hereto in connection with thetransactions contemplated by this Agreement (collectively, the “**Transaction Documents**”) andto issue the Securities in accordance with the terms hereof and thereof. The execution anddelivery of the Transaction Documents by the Company and the consummation by the Company ofthe transactions contemplated hereby and thereby, including, without limitation, theissuance of the Notes and the Warrants, the reservation for issuance and the issuance of theConversion Shares issuable upon conversion of the
-6-

 
Notes, the reservation for issuance and issuance of Warrant Shares issuable uponexercise of the Warrants, and the granting of a security interest in the Collateral (asdefined in the Security Documents) have been duly authorized by the Company’s Board ofDirectors and no further filing, consent, or authorization is required by the Company, itsBoard of Directors or its stockholders. This Agreement and the other Transaction Documentsof even date herewith have been duly executed and delivered by the Company, and constitutethe legal, valid and binding obligations of the Company, enforceable against the Company inaccordance with their respective terms, except as such enforceability may be limited bygeneral principles of equity or applicable bankruptcy, insolvency, reorganization,moratorium, liquidation or similar laws relating to, or affecting generally, the enforcementof applicable creditors’ rights and remedies.          (c) Issuance of Securities. The issuance of the Notes and the Warrants areduly authorized and upon issuance in accordance with the terms of the Transaction Documentsshall be free from all taxes, liens and charges with respect to the issue thereof. As ofthe Closing, a number of shares of Common Stock shall have been duly authorized and reservedfor issuance which equals or exceeds 130% of the aggregate of the maximum number of sharesof Common Stock issuable (i) upon conversion of the Notes and (ii) upon exercise of theWarrants. Upon conversion or exercise in accordance with the Notes or the Warrants, as thecase may be, the Conversion Shares and the Warrant Shares, respectively, will be validlyissued, fully paid and nonassessable and free from all preemptive or similar rights, taxes,liens and charges with respect to the issue thereof, with the holders being entitled to allrights accorded to a holder of Common Stock. Assuming the accuracy of each of therepresentations and warranties set forth in Section 2 of this Agreement, the offer andissuance by the Company of the Securities is exempt from registration under the 1933 Act.          (d) No Conflicts. The execution, delivery and performance of the TransactionDocuments by the Company and the consummation by the Company of the transactionscontemplated hereby and thereby (including, without limitation, the issuance of the Notesand Warrants and reservation for issuance and issuance of the Conversion Shares, and theWarrant Shares) will not (i) result in a violation of any certificate of incorporation,certificate of formation, any certificate of designations or other constituent documents ofthe Company or any of its Subsidiaries, any capital stock of the Company or any of itsSubsidiaries or bylaws of the Company or any of its Subsidiaries or (ii) conflict with, orconstitute a default (or an event which with notice or lapse of time or both would become adefault) in any respect under, or give to others any rights of termination, amendment,acceleration or cancellation of, any agreement, indenture or instrument to which the Companyor any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule,regulation, order, judgment or decree (including foreign, federal and state securities lawsand regulations and the rules and regulations of The American Stock Exchange (the “**PrincipalMarket**”) applicable to the Company or any of its Subsidiaries or by which any property orasset of the Company or any of its Subsidiaries is bound or affected.          (e) Consents. Neither the Company nor any of its Subsidiaries is required toobtain any consent, authorization or order of, or make any filing or
-7-

 
registration with, any court, governmental agency or any regulatory or self-regulatoryagency or any other Person in order for it to execute, deliver or perform any of itsobligations under or contemplated by the Transaction Documents, in each case in accordancewith the terms hereof or thereof, except for the following consents, authorizations, orders,filings and registrations (none of which is required to be filed or obtained before theClosing): (i) the filing with the SEC of one or more Registration Statements in accordancewith the requirements of the Registration Rights Agreement and (ii) the filing of a listingapplication for the Conversion Shares and Warrant Shares with the Principal Market, whichshall be done pursuant to the rules of the Principal Market. The Company and itsSubsidiaries are unaware of any facts or circumstances that might prevent the Company fromobtaining or effecting any of the registration, application or filings pursuant to thepreceding sentence. The Company is not in violation of the listing requirements of thePrincipal Market and has no knowledge of any facts that would reasonably lead to delistingor suspension of the Common Stock in the foreseeable future. The issuance by the Company ofthe Securities shall not have the effect of delisting or suspending the Common Stock fromthe Principal Market.          (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Companyacknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s lengthpurchaser with respect to the Transaction Documents and the transactions contemplated herebyand thereby and that no Buyer is (i) an officer or director of the Company, (ii) an“affiliate” of the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) tothe knowledge of the Company, a “beneficial owner” of more than 10% of the shares of CommonStock (as defined for purposes of Rule 13d-3 of the Securities Exchange Act of 1934, asamended (the “**1934 Act**”)). The Company further acknowledges that no Buyer is acting as afinancial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similarcapacity) with respect to the Transaction Documents and the transactions contemplated herebyand thereby, and any advice given by a Buyer or any of its representatives or agents inconnection with the Transaction Documents and the transactions contemplated hereby andthereby is merely incidental to such Buyer’s purchase of the Securities. The Companyfurther represents to each Buyer that the Company’s decision to enter into the TransactionDocuments has been based solely on the independent evaluation by the Company and itsrepresentatives.          (g) No General Solicitation; Placement Agent’s Fees. Neither the Company, norany of its Subsidiaries or affiliates, nor any Person acting on its or their behalf, hasengaged in any form of general solicitation or general advertising (within the meaning ofRegulation D) in connection with the offer or sale of the Securities. The Company shall beresponsible for the payment of any placement agent’s fees, financial advisory fees, orbrokers’ commissions (other than for persons engaged by any Buyer or its investment advisor)relating to or arising out of the transactions contemplated hereby, including, withoutlimitation, placement agent fees payable to The Shemano Group, Inc. as placement agent (the“**Agent**”), in connection with the sale of the Securities. The Company shall pay, and holdeach Buyer harmless against, any liability, loss or expense (including, without limitation,attorney’s fees and out-of-pocket expenses) arising in connection with any such claim. TheCompany acknowledges that it has engaged the Agent in connection with the sale of theSecurities. Other than the Agent, neither the
-8-

 
Company nor any of its Subsidiaries has engaged any placement agent or other agent inconnection with the sale of the Securities.          (h) No Integrated Offering. None of the Company, its Subsidiaries, any oftheir affiliates, and any Person acting on their behalf has, directly or indirectly, madeany offers or sales of any security or solicited any offers to buy any security, undercircumstances that would require registration of the issuance of any of the Securities underthe 1933 Act, whether through integration with prior offerings or otherwise, or cause thisoffering of the Securities to require approval of stockholders of the Company for purposesof any applicable stockholder approval provisions, including, without limitation, under therules and regulations of any exchange or automated quotation system on which any of thesecurities of the Company are listed or designated. None of the Company, its Subsidiaries,their affiliates and any Person acting on their behalf will take any action or stepsreferred to in the preceding sentence that would require registration of the issuance of anyof the Securities under the 1933 Act or cause the offering of the Securities to beintegrated with other offerings for purposes of any such applicable stockholder approvalprovisions.          (i) Dilutive Effect. The Company understands and acknowledges that the numberof Conversion Shares issuable upon conversion of the Notes and the Warrant Shares issuableupon exercise of the Warrants will increase in certain circumstances. The Company furtheracknowledges that its obligation to issue Conversion Shares upon conversion of the Notes inaccordance with this Agreement and the Notes and its obligation to issue the Warrant Sharesupon exercise of the Warrants in accordance with this Agreement and the Warrants is, in eachcase, absolute and unconditional regardless of the dilutive effect that such issuance mayhave on the ownership interests of other stockholders of the Company.          (j) Application of Takeover Protections; Rights Agreement. The Company and itsboard of directors have taken all necessary action, if any, in order to render inapplicableany control share acquisition, business combination, poison pill (including any distributionunder a rights agreement) or other similar anti-takeover provision under the Certificate ofIncorporation (as defined in Section 3(r)) or the laws of the state of its incorporationwhich is or could become applicable to any Buyer as a result of the transactionscontemplated by this Agreement, including, without limitation, the Company’s issuance of theSecurities and any Buyer’s ownership of the Securities. The Company and its board ofdirectors have taken all necessary action, if any, in order to render inapplicable anystockholder rights plan or similar arrangement relating to accumulations of beneficialownership of Common Stock or a change in control of the Company.          (k) SEC Documents; Financial Statements. During the two (2) years prior to thedate hereof, the Company has filed all reports, schedules, forms, statements and otherdocuments required to be filed by it with the SEC pursuant to the reporting requirements ofthe 1934 Act (all of the foregoing filed prior to the date hereof and all exhibits includedtherein and financial statements, notes and schedules thereto and documents incorporated byreference therein being hereinafter referred to as the “**SEC**
-9-

 
**Documents**”). The Company has delivered to the Buyers or their respectiverepresentatives true, correct and complete copies of the SEC Documents not available on theEDGAR system. As of their respective filing dates, the SEC Documents complied in allmaterial respects with the requirements of the 1934 Act and the rules and regulations of theSEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents,at the time they were filed with the SEC, contained any untrue statement of a material factor omitted to state a material fact required to be stated therein or necessary in order tomake the statements therein, in the light of the circumstances under which they were made,not misleading. As of their respective filing dates, the financial statements of theCompany included in the SEC Documents complied as to form in all material respects withapplicable accounting requirements and the published rules and regulations of the SEC withrespect thereto. Such financial statements have been prepared in accordance with generallyaccepted accounting principles, consistently applied, during the periods involved (except(i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii)in the case of unaudited interim statements, to the extent they may exclude footnotes or maybe condensed or summary statements) and fairly present in all material respects thefinancial position of the Company as of the dates thereof and the results of its operationsand cash flows for the periods then ended (subject, in the case of unaudited statements, tonormal year-end audit adjustments). No other information provided by or on behalf of theCompany to the Buyers which is not included in the SEC Documents, including, withoutlimitation, information referred to in Section 2(d) of this Agreement or in any disclosureschedules, contains any untrue statement of a material fact or omits to state any materialfact necessary in order to make the statements therein, in the light of the circumstanceunder which they are or were made, not misleading.          (l) Absence of Certain Changes. Since March 31, 2007, there has been nomaterial adverse change and no material adverse development in the business, properties,operations, condition (financial or otherwise), results of operations or prospects of theCompany or its Subsidiaries. Except as disclosed in Schedule 3(l), since March 31,2007, the Company has not (i) declared or paid any dividends, (ii) sold any assets,individually or in the aggregate, in excess of $100,000 outside of the ordinary course ofbusiness or (iii) had capital expenditures, individually or in the aggregate, in excess of$100,000. Neither the Company nor any of its Subsidiaries has taken any steps to seekprotection pursuant to any bankruptcy law nor does the Company have any knowledge or reasonto believe that its creditors intend to initiate involuntary bankruptcy proceedings or anyactual knowledge of any fact that would reasonably lead a creditor to do so. The Companyand its Subsidiaries, individually and on a consolidated basis, are not as of the datehereof, and after giving effect to the transactions contemplated hereby to occur at theClosing, will not be Insolvent (as defined below). For purposes of this Section 3(l),“**Insolvent**” means, with respect to any Person (as defined in Section 3(s)), (i) the presentfair saleable value of such Person’s assets is less than the amount required to pay suchPerson’s total Indebtedness (as defined in Section 3(s)), (ii) such Person is unable to payits debts and liabilities, subordinated, contingent or otherwise, as such debts andliabilities become absolute and matured, (iii) such Person intends to incur or believes thatit will incur debts that would be beyond its ability to pay as such debts mature or (iv)
-10-

 
such Person has unreasonably small capital with which to conduct the business in whichit is engaged as such business is now conducted and is proposed to be conducted.          (m) No Undisclosed Events, Liabilities, Developments or Circumstances. Noevent, liability, development or circumstance has occurred or exists, or is contemplated tooccur with respect to the Company, its Subsidiaries or their respective business,properties, prospects, operations or financial condition, that would be required to bedisclosed by the Company under applicable securities laws on a registration statement onForm S-1 filed with the SEC relating to an issuance and sale by the Company of its CommonStock and which has not been publicly announced.          (n) Conduct of Business; Regulatory Permits. Neither the Company nor any ofits Subsidiaries is in violation of any term of or in default under its Certificate ofIncorporation, any certificate of designations of any outstanding series of preferred stockof the Company or the Bylaws or their organizational charter or bylaws, respectively.Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree ororder or any statute, ordinance, rule or regulation applicable to the Company or itsSubsidiaries, and neither the Company nor any of its Subsidiaries will conduct its businessin violation of any of the foregoing, except for possible violations which could not,individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.Without limiting the generality of the foregoing, the Company is not in violation of any ofthe rules, regulations or requirements of the Principal Market and has no knowledge of anyfacts or circumstances that would reasonably lead to delisting or suspension of the CommonStock by the Principal Market in the foreseeable future. During the two (2) years prior tothe date hereof, (i) the Common Stock has been designated for quotation on the PrincipalMarket, (ii) trading in the Common Stock has not been suspended by the SEC or the PrincipalMarket and (iii) the Company has received no communication, written or oral, from the SEC orthe Principal Market regarding the suspension or delisting of the Common Stock from thePrincipal Market. The Company and its Subsidiaries possess all certificates, authorizationsand permits issued by the appropriate regulatory authorities necessary to conduct theirrespective businesses, except where the failure to possess such certificates, authorizationsor permits would not have, individually or in the aggregate, a Material Adverse Effect, andneither the Company nor any such Subsidiary has received any notice of proceedings relatingto the revocation or modification of any such certificate, authorization or permit.          (o) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiariesnor any director, officer, agent, employee or other Person acting on behalf of the Companyor any of its Subsidiaries has, in the course of its actions for, or on behalf of, theCompany or any of its Subsidiaries (i) used any corporate funds for any unlawfulcontribution, gift, entertainment or other unlawful expenses relating to political activity;(ii) made any direct or indirect unlawful payment to any foreign or domestic governmentofficial or employee from corporate funds; (iii) violated or is in violation of anyprovision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made anyunlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to anyforeign or domestic government official or employee.
-11-

 
          (p) Sarbanes-Oxley Act. The Company is in compliance with any and allapplicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the datehereof, and any and all applicable rules and regulations promulgated by the SEC thereunderthat are effective as of the date hereof.          (q) Transactions With Affiliates. Except as set forth in the SEC Documentsfiled at least ten (10) days prior to the date hereof and other than the grant of stockoptions disclosed on Schedule 3(q), none of the officers, directors or employees ofthe Company or any of its Subsidiaries is presently a party to any transaction with theCompany or any of its Subsidiaries (other than for ordinary course services as employees,officers or directors), including any contract, agreement or other arrangement providing forthe furnishing of services to or by, providing for rental of real or personal property to orfrom, or otherwise requiring payments to or from any such officer, director or employee or,to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership,trust or other entity in which any such officer, director, or employee has a substantialinterest or is an officer, director, trustee or partner.          (r) Equity Capitalization. As of the date hereof, the authorized capital stockof the Company consists of (i) 90,000,000 shares of Common Stock, of which as of the datehereof, 32,062,962 are issued and outstanding, 8,567,349 shares are reserved for issuancepursuant to the Company’s stock option and purchase plans and 7,360,701 shares are reservedfor issuance pursuant to securities (other than the aforementioned options, the Notes andthe Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock,(ii) no shares of Convertible Series A preferred stock, $0.0001 par value, none of which asof the date hereof are issued and outstanding and (iii) 700,000 shares of Convertible SeriesB preferred stock, $0.0001 par value, of which as of the date hereof 109,933 shares areissued and outstanding. All of such outstanding shares have been, or upon issuance will be,validly issued and are fully paid and nonassessable. Except as disclosed in Schedule3(r): (i) none of the Company’s capital stock is subject to preemptive rights or anyother similar rights or any liens or encumbrances suffered or permitted by the Company; (ii)there are no outstanding options, warrants, scrip, rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities or rights convertibleinto, or exercisable or exchangeable for, any capital stock of the Company or any of itsSubsidiaries, or contracts, commitments, understandings or arrangements by which the Companyor any of its Subsidiaries is or may become bound to issue additional capital stock of theCompany or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to,calls or commitments of any character whatsoever relating to, or securities or rightsconvertible into, or exercisable or exchangeable for, any capital stock of the Company orany of its Subsidiaries; (iii) there are no outstanding debt securities, notes, creditagreements, credit facilities or other agreements, documents or instruments evidencingIndebtedness of the Company or any of its Subsidiaries or by which the Company or any of itsSubsidiaries is or may become bound; (iv) there are no financing statements securingobligations in any material amounts, either singly or in the aggregate, filed in connectionwith the Company or any of its Subsidiaries; (v) there are no agreements or arrangementsunder which the Company or any of its Subsidiaries is obligated to register the sale of anyof their securities under the 1933 Act (except pursuant to the Registration RightsAgreement); (vi) there are no outstanding securities or
-12-

 
instruments of the Company or any of its Subsidiaries which contain any redemption orsimilar provisions, and there are no contracts, commitments, understandings or arrangementsby which the Company or any of its Subsidiaries is or may become bound to redeem a securityof the Company or any of its Subsidiaries; (vii) there are no securities or instrumentscontaining anti-dilution or similar provisions that will be triggered by the issuance of theSecurities; (viii) the Company does not have any stock appreciation rights or “phantomstock” plans or agreements or any similar plan or agreement; and (ix) the Company and itsSubsidiaries have no liabilities or obligations required to be disclosed in the SECDocuments but not so disclosed in the SEC Documents, other than those incurred in theordinary course of the Company’s or its Subsidiaries’ respective businesses and which,individually or in the aggregate, do not or would not have a Material Adverse Effect. TheCompany has furnished to the Buyers true, correct and complete copies of the Company’sCertificate of Incorporation, as amended and as in effect on the date hereof (the“**Certificate of Incorporation**”), and the Company’s Bylaws, as amended and as in effect onthe date hereof (the “**Bylaws**”), and the terms of all securities convertible into, orexercisable or exchangeable for, shares of Common Stock and the material rights of theholders thereof in respect thereto.          (s) Indebtedness and Other Contracts. Except as disclosed in Schedule3(s), neither the Company nor any of its Subsidiaries (i) has any outstandingIndebtedness (as defined below), (ii) is a party to any contract, agreement or instrument,the violation of which, or default under which, by the other party(ies) to such contract,agreement or instrument could reasonably be expected to result in a Material Adverse Effect,(iii) is in violation of any term of or in default under any contract, agreement orinstrument relating to any Indebtedness, except where such violations and defaults would notresult, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a partyto any contract, agreement or instrument relating to any Indebtedness, the performance ofwhich, in the judgment of the Company’s officers, has or is expected to have a MaterialAdverse Effect. Schedule 3(s) provides a detailed description of the material termsof any such outstanding Indebtedness. For purposes of this Agreement: (x) “**Indebtedness**”of any Person means, without duplication (A) all indebtedness for borrowed money, (B) allobligations issued, undertaken or assumed as the deferred purchase price of property orservices (including, without limitation, “capital leases” in accordance with generallyaccepted accounting principles) (other than trade payables entered into in the ordinarycourse of business), (C) all reimbursement or payment obligations with respect to letters ofcredit, surety bonds and other similar instruments, (D) all obligations evidenced by notes,bonds, debentures or similar instruments, including obligations so evidenced incurred inconnection with the acquisition of property, assets or businesses, (E) all indebtednesscreated or arising under any conditional sale or other title retention agreement, orincurred as financing, in either case with respect to any property or assets acquired withthe proceeds of such indebtedness (even though the rights and remedies of the seller or bankunder such agreement in the event of default are limited to repossession or sale of suchproperty), (F) all monetary obligations under any leasing or similar arrangement which, inconnection with generally accepted accounting principles, consistently applied for theperiods covered thereby, is classified as a capital lease, (G) all indebtedness referred toin clauses (A) through (F) above secured by (or for which the holder of such Indebtednesshas an existing right, contingent or otherwise, to be secured
-13-

 
by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon orin any property or assets (including accounts and contract rights) owned by any Person, eventhough the Person which owns such assets or property has not assumed or become liable forthe payment of such indebtedness, and (H) all Contingent Obligations in respect ofindebtedness or obligations of others of the kinds referred to in clauses (A) through (G)above; (y) “**Contingent Obligation**” means, as to any Person, any direct or indirectliability, contingent or otherwise, of that Person with respect to any indebtedness, lease,dividend or other obligation of another Person if the primary purpose or intent of thePerson incurring such liability, or the primary effect thereof, is to provide assurance tothe obligee of such liability that such liability will be paid or discharged, or that anyagreements relating thereto will be complied with, or that the holders of such liabilitywill be protected (in whole or in part) against loss with respect thereto; and (z) “**Person**”means an individual, a limited liability company, a partnership, a joint venture, acorporation, a trust, an unincorporated organization and a government or any department oragency thereof.          (t) Absence of Litigation. Except as set forth in Schedule 3(t), thereis no action, suit, proceeding, inquiry or investigation before or by the Principal Market,any court, public board, government agency, self-regulatory organization or body pending or,to the knowledge of the Company, threatened against or affecting the Company or any of itsSubsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of the Company’sor its Subsidiaries’ officers or directors.          (u) Insurance. The Company and each of its Subsidiaries are insured byinsurers of recognized financial responsibility against such losses and risks and in suchamounts as management of the Company believes to be prudent and customary in the businessesin which the Company and its Subsidiaries are engaged. Neither the Company nor any suchSubsidiary has been refused any insurance coverage sought or applied for and neither theCompany nor any such Subsidiary has any reason to believe that it will not be able to renewits existing insurance coverage as and when such coverage expires or to obtain similarcoverage from similar insurers as may be necessary to continue its business at a cost thatwould not have a Material Adverse Effect.          (v) Employee Relations.               (i) Neither the Company nor any of its Subsidiaries is a party to any collective bargainingagreement or employs any member of a union. The Company and its Subsidiaries believe that theirrelations with their employees are good. No executive officer of the Company or any of itsSubsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the Company or any suchSubsidiary that such officer intends to leave the Company or any such Subsidiary or otherwiseterminate such officer’s employment with the Company or any such Subsidiary. No executive officerof the Company or any of its Subsidiaries is, or is now expected to be, in violation of anymaterial term of any employment contract, confidentiality, disclosure or proprietary informationagreement, non-competition agreement, or any other contract or agreement or any restrictivecovenant, and the continued employment of each such executive officer does not subject the Companyor any of its Subsidiaries to any liability with respect to any of the foregoing matters.
-14-

 
               (ii) The Company and its Subsidiaries are in compliance with all federal, state, local andforeign laws and regulations respecting labor, employment and employment practices and benefits,terms and conditions of employment and wages and hours, except where failure to be in compliancewould not, either individually or in the aggregate, reasonably be expected to result in a MaterialAdverse Effect.          (w) Title. The Company and its Subsidiaries have good and marketable title infee simple to all real property and good and marketable title to all personal property ownedby them which is material to the business of the Company and its Subsidiaries, in each casefree and clear of all liens, encumbrances and defects except such as do not materiallyaffect the value of such property and do not interfere with the use made and proposed to bemade of such property by the Company and any of its Subsidiaries. Any real property andfacilities held under lease by the Company or any of its Subsidiaries are held by them undervalid, subsisting and enforceable leases with such exceptions as are not material and do notinterfere with the use made and proposed to be made of such property and buildings by theCompany and its Subsidiaries.          (x) Intellectual Property Rights.               (i) The Company and its Subsidiaries own or possess adequate rights or licenses to use alltrademarks, trade names, service marks and all applications and registrations therefor, patents,patent rights, copyrights, original works of authorship (including computer software) and allapplications and registrations therefor, inventions, trade secrets and other intellectual propertyrights (“**Intellectual Property Rights**”) necessary to conduct their respective businesses as nowconducted. Except as set forth on Schedule 3(x), none of the Company’s registered, orapplied for, Intellectual Property Rights have expired or terminated or have been abandoned, or areexpected to expire or terminate or expected to be abandoned, within three years from the date ofthis Agreement. The Company does not have any knowledge of any infringement by the Company or itsSubsidiaries of Intellectual Property Rights of others. There is no claim, action or proceedingbeing made or brought, or to the knowledge of the Company, being threatened, by or against theCompany or its Subsidiaries regarding the infringement, misappropriation or other violation of anyIntellectual Property Rights. Neither the Company nor any of its Subsidiaries is aware of anyfacts or circumstances which might give rise to any of the foregoing infringements or claims,actions or proceedings. The Company and its Subsidiaries have taken reasonable security measuresto protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.               (ii) All material computer software and systems that are used or held for use in the conductof the Company’s and its Subsidiaries’ respective businesses is in good working condition (normalwear and tear excepted). There has not been any material malfunction with respect to such softwareand systems since January 1, 2005 that has not been remedied or replaced in all material respects.The Company does not use or hold for use in the conduct of the Company’s business any computerhardware that is material to the Company’s business.               (iii) All material computer software that is used or held for use the conduct of the Company’sand its Subsidiaries’ respective businesses (x) performs in accordance
-15-

 
with the documentation or other written material used in connection with it, (y) is in machinereadable form and contains all current revisions, and (z) does not contain any viruses, worms orother disabling devices. The source code for all computer software that is owned by the Companyand its Subsidiaries (A) will compile into object code or otherwise be capable of performing thefunctions described in the documentation pertaining thereto, (B) is sufficiently documented toenable a computer software developer of reasonable skill to understand, modify, repair, maintain,compile and otherwise utilize all aspects of such computer software without reference to othersources of information; and (C) constitutes trade secrets that are valid and protectable and arenot part of the public knowledge or literature.          (y) Environmental Laws. The Company and its Subsidiaries (i) are in compliancewith any and all Environmental Laws (as hereinafter defined), (ii) have received allpermits, licenses or other approvals required of them under applicable Environmental Laws toconduct their respective businesses and (iii) are in compliance with all terms andconditions of any such permit, license or approval where, in each of the foregoing clauses(i), (ii) and (iii), the failure to so comply could be reasonably expected to have,individually or in the aggregate, a Material Adverse Effect. The term “**Environmental Laws**”means all federal, state, local or foreign laws relating to pollution or protection of humanhealth or the environment (including, without limitation, ambient air, surface water,groundwater, land surface or subsurface strata), including, without limitation, lawsrelating to emissions, discharges, releases or threatened releases of chemicals, pollutants,contaminants, or toxic or hazardous substances or wastes (collectively, “**HazardousMaterials**”) into the environment, or otherwise relating to the manufacture, processing,distribution, use, treatment, storage, disposal, transport or handling of HazardousMaterials, as well as all authorizations, codes, decrees, demands or demand letters,injunctions, judgments, licenses, notices or notice letters, orders, permits, plans orregulations issued, entered, promulgated or approved thereunder.          (z) [RESERVED].          (aa) Tax Status. The Company and each of its Subsidiaries (i) has made orfiled all foreign, federal and state income and all other tax returns, reports anddeclarations required by any jurisdiction to which it is subject, (ii) has paid all taxesand other governmental assessments and charges that are material in amount, shown ordetermined to be due on such returns, reports and declarations, except those being contestedin good faith and (iii) has set aside on its books provision reasonably adequate for thepayment of all taxes for periods subsequent to the periods to which such returns, reports ordeclarations apply. There are no unpaid taxes in any material amount claimed to be due bythe taxing authority of any jurisdiction, and the officers of the Company know of no basisfor any such claim.          (bb) Internal Accounting and Disclosure Controls. The Company and each of itsSubsidiaries maintain a system of internal accounting controls sufficient to providereasonable assurance that (i) transactions are executed in accordance with management’sgeneral or specific authorizations, (ii) transactions are recorded as necessary to permitpreparation of financial statements in conformity with generally accepted accountingprinciples and to maintain asset and liability accountability, (iii)
-16-

 
access to assets or incurrence of liabilities is permitted only in accordance withmanagement’s general or specific authorization and (iv) the recorded accountability forassets and liabilities is compared with the existing assets and liabilities at reasonableintervals and appropriate action is taken with respect to any difference. The Companymaintains disclosure controls and procedures (as such term is defined in Rule 13a-14 underthe 1934 Act) that are effective in ensuring that information required to be disclosed bythe Company in the reports that it files or submits under the 1934 Act is recorded,processed, summarized and reported, within the time periods specified in the rules and formsof the SEC, including, without limitation, controls and procedures designed in to ensurethat information required to be disclosed by the Company in the reports that it files orsubmits under the 1934 Act is accumulated and communicated to the Company’s management,including its principal executive officer or officers and its principal financial officer orofficers, as appropriate, to allow timely decisions regarding required disclosure. Duringthe twelve months prior to the date hereof neither the Company nor any of its Subsidiarieshave received any notice or correspondence from any accountant relating to any potentialmaterial weakness in any part of the system of internal accounting controls of the Companyor any of its Subsidiaries.          (cc) Ranking of Notes. Except as set forth on Schedule 3(cc), noIndebtedness of the Company is senior to or ranks *pari passu*with the Notes in right ofpayment, whether with respect of payment of redemptions, interest, damages or uponliquidation or dissolution or otherwise.          (dd) Off Balance Sheet Arrangements. There is no transaction, arrangement, orother relationship between the Company and an unconsolidated or other off balance sheetentity that is required to be disclosed by the Company in its 1934 Act filings and is not sodisclosed or that otherwise would be reasonably likely to have a Material Adverse Effect.          (ee) Investment Company Status. The Company is not, and upon consummation ofthe sale of the Securities will not be, an “investment company,” a company controlled by an“investment company” or an “affiliated person” of, or “promoter” or “principal underwriter”for, an “investment company” as such terms are defined in the Investment Company Act of1940, as amended.          (ff) Form S-3 Eligibility. The Company is eligible to register the ConversionShares and the Warrant Shares for resale by the Buyers using Form S-3 promulgated under the1933 Act.          (gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes(other than income or similar taxes) which are required to be paid in connection with thesale and transfer of the Securities to be sold to each Buyer hereunder will be, or will havebeen, fully paid or provided for by the Company, and all laws imposing such taxes will be orwill have been complied with.          (hh) Manipulation of Price. The Company has not, and to its knowledge no oneacting on its behalf has, (i) taken, directly or indirectly, any action
-17-

 
designed to cause or to result, or that could reasonably be expected to cause orresult, in the stabilization or manipulation of the price of any security of the Company tofacilitate the sale or resale of any of the Securities, (ii) other than the Agent, sold, bidfor, purchased, or paid any compensation for soliciting purchases of, any of the Securitiesor (iii) paid or agreed to pay to any person any compensation for soliciting another topurchase any other securities of the Company.          (ii) U.S. Real Property Holding Corporation. The Company is not, nor has itever been, a U.S. real property holding corporation within the meaning of Section 897 of theInternal Revenue Code of 1986, as amended, and the Company shall so certify upon any Buyer’srequest.          (jj) Bank Holding Company Act. Neither the Company nor any of its Subsidiariesis subject to the Bank Holding Company Act of 1956, as amended (the “**BHCA**”) and toregulation by the Board of Governors of the Federal Reserve System (the “**Federal Reserve**”).Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly orindirectly, five percent (5%) or more of the outstanding shares of any class of votingsecurities or twenty-five (25%) or more of the total equity of a bank or any equity that issubject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor anyof its Subsidiaries or affiliates exercises a controlling influence over the management orpolicies of a bank or any entity that is subject to the BHCA and to regulation by theFederal Reserve.          (kk) Disclosure. The Company confirms that neither it nor any other Personacting on its behalf has provided any of the Buyers or their agents or counsel with anyinformation that constitutes or could reasonably be expected to constitute material,nonpublic information. The Company understands and confirms that each of the Buyers willrely on the foregoing representations in effecting transactions in securities of theCompany. All disclosure provided to the Buyers regarding the Company or any of itsSubsidiaries, their business and the transactions contemplated hereby, including theSchedules to this Agreement, furnished by or on behalf of the Company is true and correctand does not contain any untrue statement of a material fact or omit to state any materialfact necessary in order to make the statements made therein, in the light of thecircumstances under which they were made, not misleading. Each press release issued by theCompany or any of its Subsidiaries during the twelve (12) months preceding the date of thisAgreement did not at the time of release contain any untrue statement of a material fact oromit to state a material fact required to be stated therein or necessary in order to makethe statements therein, in the light of the circumstances under which they were made, notmisleading. No event or circumstance has occurred or information exists with respect to theCompany or any of its Subsidiaries or its or their business, properties, prospects,operations or financial conditions, which, under applicable law, rule or regulation,requires public disclosure or announcement by the Company but which has not been so publiclyannounced or disclosed.          (ll) Acknowledgement Regarding Buyers’ Trading Activity. Anything in thisAgreement or elsewhere herein to the contrary notwithstanding, it is understood andacknowledged by the Company (i) that none of the Buyers have been asked by the
-18-

 
Company or its Subsidiaries to agree, nor has any Buyer agreed with the Company or itsSubsidiaries, to desist from purchasing or selling, long and/or short, securities of theCompany, or “derivative” securities based on securities issued by the Company or to hold theSecurities for any specified term; (ii) that past or future open market or othertransactions by any Buyer, including, without limitation, short sales or “derivative”transactions, before or after the closing of this or future private placement transactions,may negatively impact the market price of the Company’s publicly-traded securities; (iii)that any Buyer, and counter parties in “derivative” transactions to which any such Buyer isa party, directly or indirectly, presently may have a “short” position in the Common Stock,and (iv) that each Buyer shall not be deemed to have any affiliation with or control overany arm’s length counter-party in any “derivative” transaction. The Company furtherunderstands and acknowledges that (a) one or more Buyers may engage in hedging and/ortrading activities at various times during the period that the Securities are outstanding,including, without limitation, during the periods that the value of the Conversion Sharesand the Warrant Shares deliverable with respect to Securities are being determined and (b)such hedging and/or trading activities, if any, can reduce the value of the existingstockholders’ equity interest in the Company both at and after the time the hedging and/ortrading activities are being conducted. The Company acknowledges that such aforementionedhedging and/or trading activities do not constitute a breach of this Agreement, the Notes,the Warrants or any of the documents executed in connection herewith.     4. COVENANTS.          (a) Best Efforts. Each party shall use its best efforts timely to satisfy eachof the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.          (b) Form D and Blue Sky. The Company agrees to file a Form D with respect tothe Securities as required under Regulation D and to provide a copy thereof to each Buyerpromptly after such filing. The Company shall, on or before the Closing Date, take suchaction as the Company shall reasonably determine is necessary in order to obtain anexemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant tothis Agreement under applicable securities or “Blue Sky” laws of the states of the UnitedStates (or to obtain an exemption from such qualification), and shall provide evidence ofany such action so taken to the Buyers on or prior to the Closing Date. The Company shallmake all filings and reports relating to the offer and sale of the Securities required underapplicable securities or “Blue Sky” laws of the states of the United States following theClosing Date.          (c) Reporting Status. Until the date on which the Investors (as defined in theRegistration Rights Agreement) shall have sold all the Conversion Shares and Warrant Sharesand/or none of the Notes or Warrants is outstanding (the “**Reporting Period**”), whetherpursuant to the applicable provisions governing Fundamental Transactions set forth in theNotes and the Warrants or otherwise, the Company shall timely file all reports required tobe filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate itsstatus as an issuer required to file reports under the 1934
-19-

 
Act even if the 1934 Act or the rules and regulations thereunder would no longerrequire or otherwise permit such termination, and the Company shall take all actionsnecessary to maintain its eligibility to register the Conversion Shares and Warrant Sharesfor resale by the Buyers on Form S-3.          (d) Use of Proceeds. The Company will use the proceeds from the sale of theSecurities for general corporate purposes, including general and administrative expenses andnot for the repayment of any outstanding Indebtedness of the Company or any of itsSubsidiaries or the redemption or repurchase of any of its or its Subsidiaries’ equitysecurities.          (e) Financial Information. As long as any Notes or Warrants are outstanding,the Company agrees to send the following to each Investor (as defined in the RegistrationRights Agreement) during the Reporting Period (i) unless the following are filed with theSEC through EDGAR and are available to the public through the EDGAR system, within one (1)Business Day after the filing thereof with the SEC, a copy of its Annual Reports andQuarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or anyconsolidated balance sheets, income statements, stockholders’ equity statements and/or cashflow statements for any period other than annual, any Current Reports on Form 8-K and anyregistration statements (other than on Form S-8) or amendments filed pursuant to the 1933Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies of all pressreleases issued by the Company or any of its Subsidiaries, and (iii) copies of any noticesand other information made available or given to the stockholders of the Company generally,contemporaneously with the making available or giving thereof to the stockholders. As usedherein, “**Business Day**” means any day other than Saturday, Sunday or other day on whichcommercial banks in The City of New York are authorized or required by law to remain closed.          (f) Listing. The Company shall promptly secure the listing of all of theRegistrable Securities (as defined in the Registration Rights Agreement) upon each nationalsecurities exchange and automated quotation system, if any, upon which the Common Stock isthen listed (subject to official notice of issuance) and shall maintain, in accordance withthe Notes and Warrants, such listing of all Registrable Securities from time to timeissuable under the terms of the Transaction Documents. The Company shall maintain theCommon Stocks’ authorization for quotation on the Principal Market. Neither the Company norany of its Subsidiaries shall take any action which would be reasonably expected to resultin the delisting or suspension of the Common Stock on the Principal Market. The Companyshall pay all fees and expenses in connection with satisfying its obligations under thisSection 4(f).          (g) Fees. Subject to Section 8 below, at Closing, the Company shall pay anexpense allowance to Highbridge International LLC (a Buyer) or its designee(s) (in additionto any other expense amounts paid to any Buyer prior to the date of this Agreement) for allreasonable costs and expenses incurred in connection with the transactions contemplated bythe Transaction Documents (including all reasonable legal fees and disbursements inconnection therewith, documentation and implementation of the transactions contemplated bythe Transaction Documents and due diligence in
-20-

 
connection therewith), which amount shall be withheld by such Buyer from its PurchasePrice at the Closing. The Company shall be responsible for the payment of any placementagent’s fees, financial advisory fees, or broker’s commissions relating to or arising out ofthe transactions contemplated hereby, including, without limitation, any fees payable to theAgent. The Company shall pay, and hold each Buyer harmless against, any liability, loss orexpense (including, without limitation, reasonable attorney’s fees and out-of-pocketexpenses) arising in connection with any claim relating to any such payment.          (h) Pledge of Securities. The Company acknowledges and agrees that theSecurities may be pledged by an Investor (as defined in the Registration Rights Agreement)in connection with a bona fide margin agreement or other loan or financing arrangement thatis secured by the Securities. The pledge of Securities shall not be deemed to be atransfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledgeof Securities shall be required to provide the Company with any notice thereof or otherwisemake any delivery to the Company pursuant to this Agreement or any other TransactionDocument, including, without limitation, Section 2(f) hereof; provided that an Investor andits pledgee shall be required to comply with the provisions of Section 2(f) hereof in orderto effect a sale, transfer or assignment of Securities to such pledgee. The Company herebyagrees to execute and deliver such documentation as a pledgee of the Securities mayreasonably request in connection with a pledge of the Securities to such pledgee by anInvestor.          (i) Disclosure of Transactions and Other Material Information. On or before8:30 a.m., New York City time, on the first Business Day following the date of thisAgreement, the Company shall issue a press release and file a Current Report on Form 8-Kdescribing the terms of the transactions contemplated by the Transaction Documents in theform required by the 1934 Act and attaching the material Transaction Documents (including,without limitation, this Agreement (and all schedules to this Agreement), the form of theNotes, the form of Warrant, the form of Security Documents and the form of the RegistrationRights Agreement) as exhibits to such filing (including all attachments, the “**8-K Filing**”).From and after the filing of the 8-K Filing with the SEC, no Buyer shall be in possession ofany material, nonpublic information received from the Company, any of its Subsidiaries orany of their respective officers, directors, employees or agents, that is not disclosed inthe 8-K Filing. The Company shall not, and shall cause each of its Subsidiaries and its andeach of their respective officers, directors, employees and agents, not to, provide anyBuyer with any material, nonpublic information regarding the Company or any of itsSubsidiaries from and after the filing of the 8-K Filing with the SEC without the expressprior written consent of such Buyer. If a Buyer has, or believes it has, received any suchmaterial, nonpublic information regarding the Company or any of its Subsidiaries, it shallprovide the Company with written notice thereof. The Company shall, within five (5) TradingDays (as defined in the Notes) of receipt of such notice, make public disclosure of suchmaterial, nonpublic information. In the event of a breach of the foregoing covenant by theCompany, any of its Subsidiaries, or any of its or their respective officers, directors,employees and agents, in addition to any other remedy provided herein or in the TransactionDocuments, a Buyer shall have the right to make a public disclosure, in the form of a pressrelease, public advertisement or otherwise, of
-21-

 
such material, nonpublic information without the prior approval by the Company, itsSubsidiaries, or any of its or their respective officers, directors, employees or agents.No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or theirrespective officers, directors, employees, stockholders or agents for any such disclosure.Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issueany press releases or any other public statements with respect to the transactionscontemplated hereby; provided, however, that the Company shall be entitled, without theprior approval of any Buyer, to make any press release or other public disclosure withrespect to such transactions (i) in substantial conformity with the 8-K Filing andcontemporaneously therewith and (ii) as is required by applicable law and regulations(provided that in the case of clause (i) each Buyer shall be consulted by the Company inconnection with any such press release or other public disclosure prior to its release).Without the prior written consent of any applicable Buyer, neither the Company nor any ofits Subsidiaries or affiliates shall disclose the name of such Buyer in any filing,announcement, release or otherwise other than in connection with the Registration Statement,as contemplated pursuant to the Registration Rights Agreement, except to the extent suchdisclosure is required by law, regulation or the Principal Market.          (j) Restriction on Redemption and Cash Dividends. So long as any Notes areoutstanding, the Company shall not, directly or indirectly, redeem, or declare or pay anycash dividend or distribution on, the Common Stock without the prior express written consentof the holders of Notes representing not less than a majority of the aggregate principalamount of the then outstanding Notes.          (k) Additional Notes; Variable Securities; Dilutive Issuances. So long as anyBuyer beneficially owns any Securities, the Company will not issue any Notes (other than tothe Buyers as contemplated hereby) and the Company shall not issue any other securities thatwould cause a breach or default under the Notes. For so long as any Notes or Warrantsremain outstanding, the Company shall not, in any manner, issue or sell any rights, warrantsor options to subscribe for or purchase Common Stock or directly or indirectly convertibleinto or exchangeable or exercisable for Common Stock at a price which varies or may varywith the market price of the Common Stock, including by way of one or more reset(s) to anyfixed price unless the conversion, exchange or exercise price of any such security cannot beless than the then applicable Conversion Price (as defined in the Notes) with respect to theCommon Stock into which any Note is convertible or the then applicable Exercise Price (asdefined in the Warrants) with respect to the Common Stock into which any Warrant isexercisable. For so long as any Notes or Warrants remain outstanding, the Company shallnot, in any manner, enter into or affect any Dilutive Issuance (as defined in the Notes) ifthe effect of such Dilutive Issuance is to cause, or but for the Securities Limitations (asdefined below) would cause, the Company to be required to issue upon conversion of any Noteor exercise of any Warrant any shares of Common Stock in excess of that number of shares ofCommon Stock which the Company may issue upon conversion of the Notes and exercise of theWarrants without breaching the Company’s obligations under the rules or regulations of thePrincipal Market, in each case without giving effect to (y) the limitations on exercisecontained in the Warrants, and (z) the application of any Exercise Floor Price (as definedin the Warrants) (the “**Securities Limitations**”). For so long as any Notes or Warrants are
-22-

 
outstanding, unless or until the Stockholder Approval (as defined below) has beenobtained, the Company shall not take any action if the effect of such action would be tocause the Exercise Price to be reduced below the Exercise Floor Price, in each case withoutgiving effect to any Securities Limitations.          (l) Corporate Existence. So long as any Buyer beneficially owns anySecurities, the Company shall not be party to any Fundamental Transaction (as defined in theNotes) unless the Company is in compliance with the applicable provisions governingFundamental Transactions set forth in the Notes and the Warrants.          (m) Reservation of Shares. The Company shall take all action necessary to atall times have authorized, and reserved for the purpose of issuance, no less than 130% ofthe sum of the number of shares of Common Stock issuable (i) upon conversion of the Notesissued at the Closing and (ii) upon exercise of the Warrants issued at the Closing (withouttaking into account any limitations on the Conversion of the Notes or exercise of theWarrants set forth in the Notes and Warrants, respectively).          (n) Conduct of Business. The business of the Company and its Subsidiariesshall not be conducted in violation of any law, ordinance or regulation of any governmentalentity, except where such violations would not result, either individually or in theaggregate, in a Material Adverse Effect.          (o) Additional Issuances of Securities.               (i) For purposes of this Section 4(o), the following definitions shall apply.                    (1) “**Convertible Securities**” means any stock or securities (other than Options)convertible into or exercisable or exchangeable for shares of Common Stock.                    (2) “**Options**” means any rights, warrants or options to subscribe for or purchaseshares of Common Stock or Convertible Securities.                    (3) “**Common Stock Equivalents**” means, collectively, Options and ConvertibleSecurities.               (ii) From the date hereof until the date that is thirty (30) Trading Days (as defined in theNotes) following the Initial Effective Date (as defined in the Registration Rights Agreement) (the“**Trigger Date**”), the Company will not, directly or indirectly, file any registration statement withthe SEC other than the Registration Statement (as defined in the Registration Rights Agreement).From the date hereof until the Trigger Date, the Company will not, directly or indirectly, offer,sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant orany option to purchase or other disposition of) any of its or its Subsidiaries’ equity or equityequivalent securities, including without limitation any debt, preferred stock or other instrumentor security that is, at any time during its life and under any circumstances, convertible into orexchangeable or exercisable for shares of Common Stock or
-23-

 
Common Stock Equivalents (any such offer, sale, grant, disposition or announcement beingreferred to as a “**Subsequent Placement**”).               (iii) From the Trigger Date until the eighteen month anniversary of the Closing Date, theCompany will not, directly or indirectly, effect any Subsequent Placement unless the Company shallhave first complied with this Section 4(o)(iii).                    (1) The Company shall deliver to each Buyer an irrevocable written notice (the “**OfferNotice**”) of any proposed or intended issuance or sale or exchange (the “**Offer**”) of thesecurities being offered (the “**Offered Securities**”) in a Subsequent Placement, which OfferNotice shall (w) identify and describe the Offered Securities, (x) describe the price andother terms upon which they are to be issued, sold or exchanged, and the number or amount ofthe Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities(if known) to which or with which the Offered Securities are to be offered, issued, sold orexchanged and (z) offer to issue and sell to or exchange with such Buyers at least fiftypercent (50%) of the Offered Securities, allocated among such Buyers (a) based on suchBuyer’s pro rata portion of the aggregate principal amount of Notes purchased hereunder (the“**Basic Amount**”), and (b) with respect to each Buyer that elects to purchase its BasicAmount, any additional portion of the Offered Securities attributable to the Basic Amountsof other Buyers as such Buyer shall indicate it will purchase or acquire should the otherBuyers subscribe for less than their Basic Amounts (the “**Undersubscription Amount**”), whichprocess shall be repeated until the Buyers shall have an opportunity to subscribe for anyremaining Undersubscription Amount.                    (2) To accept an Offer, in whole or in part, such Buyer must deliver a written noticeto the Company prior to the end of the tenth (10th) Business Day after suchBuyer’s receipt of the Offer Notice (the “**Offer Period**”), setting forth the portion of suchBuyer’s Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect topurchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyerelects to purchase (in either case, the “**Notice of Acceptance**”). If the Basic Amountssubscribed for by all Buyers are less than the total of all of the Basic Amounts, then eachBuyer who has set forth an Undersubscription Amount in its Notice of Acceptance shall beentitled to purchase, in addition to the Basic Amounts subscribed for, the UndersubscriptionAmount it has subscribed for; provided, however, that if theUndersubscription Amounts subscribed for exceed the difference between the total of all theBasic Amounts and the Basic Amounts subscribed for (the “**Available UndersubscriptionAmount**”), each Buyer who has subscribed for any Undersubscription Amount shall be entitledto purchase only that portion of the Available Undersubscription Amount as the Basic Amountof such Buyer bears to the total Basic Amounts of all Buyers that have subscribed forUndersubscription Amounts, subject to rounding by the Company to the extent its deemsreasonably necessary. Notwithstanding the foregoing, if the Company desires to modify oramend the terms and conditions of the Offer prior to the expiration of the Offer Period, theCompany may deliver to the Buyers a new Offer Notice and the Offer Period shall expire onthe third (3rd) Business Day after such Buyer’s receipt of such new Offer Notice.
-24-

 
                    (3) The Company shall have fifteen (15) Business Days from the expiration of the OfferPeriod above (i) to offer, issue, sell or exchange all or any part of such OfferedSecurities as to which a Notice of Acceptance has not been given by the Buyers (the “**RefusedSecurities**”) pursuant to a definitive agreement(s) (the “**Subsequent Placement Agreement**”),but only to the offerees described in the Offer Notice (if so described therein) and onlyupon terms and conditions (including, without limitation, unit prices and interest rates)that are not more favorable to the acquiring person or persons or less favorable to theCompany than those set forth in the Offer Notice and (ii) to publicly announce (a) theexecution of such Subsequent Placement Agreement, and (b) either (x) the consummation of thetransactions contemplated by such Subsequent Placement Agreement or (y) the termination ofsuch Subsequent Placement Agreement, which shall be filed with the SEC on a Current Reporton Form 8-K with such Subsequent Placement Agreement and any documents contemplated thereinfiled as exhibits thereto.                    (4) In the event the Company shall propose to sell less than all the Refused Securities(any such sale to be in the manner and on the terms specified in Section 4(o)(iii)(3)above), then each Buyer may, at its sole option and in its sole discretion, reduce thenumber or amount of the Offered Securities specified in its Notice of Acceptance to anamount that shall be not less than the number or amount of the Offered Securities that suchBuyer elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied by a fraction,(i) the numerator of which shall be the number or amount of Offered Securities the Companyactually proposes to issue, sell or exchange (including Offered Securities to be issued orsold to Buyers pursuant to Section 4(o)(iii)(3) above prior to such reduction) and (ii) thedenominator of which shall be the original amount of the Offered Securities. In the eventthat any Buyer so elects to reduce the number or amount of Offered Securities specified inits Notice of Acceptance, the Company may not issue, sell or exchange more than the reducednumber or amount of the Offered Securities unless and until such securities have again beenoffered to the Buyers in accordance with Section 4(o)(iii)(1) above.                    (5) Upon the closing of the issuance, sale or exchange of all or less than all of theRefused Securities, the Buyers shall acquire from the Company, and the Company shall issueto the Buyers, the number or amount of Offered Securities specified in the Notices ofAcceptance, as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have so elected,upon the terms and conditions specified in the Offer. Notwithstanding anything to thecontrary contained in this Agreement, if the Company does not consummate the closing of theissuance, sale or exchange of all or less than all of the Refused Securities, within fifteen(15) Business Days of the expiration of the Offer Period, the Company shall issue to theBuyers, the number or amount of Offered Securities specified in the Notices of Acceptance,as reduced pursuant to Section 4(o)(iii)(3) above if the Buyers have so elected, upon theterms and conditions specified in the Offer. The purchase by the Buyers of any OfferedSecurities is subject in all cases to the preparation, execution and delivery by the Companyand the Buyers of a purchase agreement relating to such Offered Securities reasonablysatisfactory in form and substance to the Buyers and their respective counsel.
-25-

 
                    (6) Any Offered Securities not acquired by the Buyers or other persons in accordancewith Section 4(o)(iii)(3) above may not be issued, sold or exchanged until they are againoffered to the Buyers under the procedures specified in this Agreement.                    (7) The Company and the Buyers agree that if any Buyer elects to participate in theOffer, (x) neither the Subsequent Placement Agreement with respect to such Offer nor anyother transaction documents related thereto (collectively, the “**Subsequent PlacementDocuments**”) shall include any term or provisions whereby any Buyer shall be required toagree to any restrictions in trading as to any securities of the Company owned by such Buyerprior to such Subsequent Placement, and (y) any registration rights set forth in suchSubsequent Placement Documents shall be similar in all material respects to the registrationrights contained in the Registration Rights Agreement.                    (8) Notwithstanding anything to the contrary in this Section 4(o) and unless otherwiseagreed to by the Buyers, the Company shall either confirm in writing to the Buyers that thetransaction with respect to the Subsequent Placement has been abandoned or shall publiclydisclose its intention to issue the Offered Securities, in either case in such a manner suchthat the Buyers will not be in possession of material non-public information, by the fifteen(15th) Business Day following delivery of the Offer Notice. If by the fifteen(15th) following delivery of the Offer Notice no public disclosure regarding atransaction with respect to the Offered Securities has been made, and no notice regardingthe abandonment of such transaction has been received by the Buyers, such transaction shallbe deemed to have been abandoned and the Buyers shall not be deemed to be in possession ofany material, non-public information with respect to the Company. Should the Company decideto pursue such transaction with respect to the Offered Securities, the Company shall provideeach Buyer with another Offer Notice and each Buyer will again have the right ofparticipation set forth in this Section 4(o)(iii). The Company shall not be permitted todeliver more than one such Offer Notice to the Buyers in any 60 day period.                    (9) The restrictions contained in subsections (ii) and (iii) of this Section 4(o) shallnot apply in connection with the issuance of any Excluded Securities (as defined in theNotes).          (p) [Reserved]          (q) [Reserved]          (r) Stockholder Approval. The Company shall provide each stockholder entitledto vote at either (x) the next annual meeting of stockholders of the Company or (y) aspecial meeting of stockholder of the Company (the “**Stockholder Meeting**”), which shall bepromptly called and held not later than September 15, 2008 (the “**Stockholder MeetingDeadline**”), a proxy statement, substantially in the form which has been previously reviewedby the Buyers and a counsel of their choice, at the expense of the Company not to exceed$10,000, soliciting each such stockholder’s
-26-

 
affirmative vote at the Stockholder Meeting for approval of resolutions (“**StockholderResolutions**”) providing for the Company’s issuance of all of the Securities as described inthe Transaction Documents in accordance with applicable law and the rules and regulations ofthe Principal Market (such affirmative approval being referred to herein as the “**StockholderApproval**”), and the Company shall use its best efforts to solicit its stockholders’ approvalof such resolutions and to cause the Board of Directors of the Company to recommend to thestockholders that they approve such resolutions. The Company shall be obligated to seek toobtain the Stockholder Approval by the Stockholder Meeting Deadline. If, despite theCompany’s reasonable best efforts the Stockholder Approval is not obtained on or prior tothe Stockholder Meeting Deadline, the Company shall cause an additional Stockholder Meetingto be held each twelve month period thereafter until such Stockholder Approval is obtained,provided that if the Board of Directors of the Company does not recommend to thestockholders that they approve the Resolutions at any such Stockholder Meeting and theStockholder Approval is not obtained, or the Notes are no longer outstanding, the Companyshall cause an additional Stockholder Meeting to be held each calendar quarter thereafteruntil such Stockholder Approval is obtained.          (s) Closing Documents. On or prior to fourteen (14) calendar days after theClosing Date, the Company agrees to deliver, or cause to be delivered, to each Buyer andSchulte Roth & Zabel LLP executed copies of the Transaction Documents, Securities and otherdocument required to be delivered to any party pursuant to Section 7 hereof.          (t) Voting Agreement; Fee Agreement. The Company shall not amend or waive anyprovision of the Voting Agreement or the Put Grantor Fee Agreement, between the Company andthe parties thereto, in the form attached hereto as Exhibit L (the “**Put Grantor FeeAgreement**”).     5. REGISTER; TRANSFER AGENT INSTRUCTIONS.          (a) Register. The Company shall maintain at its principal executive offices(or such other office or agency of the Company as it may designate by notice to each holderof Securities), a register for the Notes and the Warrants in which the Company shall recordthe name and address of the Person in whose name the Notes and the Warrants have been issued(including the name and address of each transferee), the principal amount of Notes held bysuch Person, the number of Conversion Shares issuable upon conversion of the Notes and thenumber of Warrant Shares issuable upon exercise of the Warrants held by such Person. TheCompany shall keep the register open and available at all times during business hours forinspection of any Buyer or its legal representatives.          (b) Transfer Agent Instructions. The Company shall issue irrevocableinstructions to its transfer agent, and any subsequent transfer agent, to issue certificatesor credit shares to the applicable balance accounts at The Depository Trust Company (“**DTC**”),registered in the name of each Buyer or its respective nominee(s), for the Conversion Sharesand the Warrant Shares issued at the Closing or upon conversion of
-27-

 
the Notes or exercise of the Warrants in such amounts as specified from time to time byeach Buyer to the Company upon conversion of the Notes or exercise of the Warrants in theform of Exhibit D attached hereto (the “**Irrevocable Transfer Agent Instructions**”).The Company warrants that no instruction other than the Irrevocable Transfer AgentInstructions referred to in this Section 5(b), and stop transfer instructions to give effectto Section 2(g) hereof, will be given by the Company to its transfer agent, and that theSecurities shall otherwise be freely transferable on the books and records of the Company asand to the extent provided in this Agreement and the other Transaction Documents. If aBuyer effects a sale, assignment or transfer of the Securities in accordance with Section2(f), the Company shall permit the transfer and shall promptly instruct its transfer agentto issue one or more certificates or credit shares to the applicable balance accounts at DTCin such name and in such denominations as specified by such Buyer to effect such sale,transfer or assignment. In the event that such sale, assignment or transfer involvesConversion Shares or Warrant Shares sold, assigned or transferred pursuant to an effectiveregistration statement or pursuant to Rule 144, the transfer agent shall issue suchSecurities to the Buyer, assignee or transferee, as the case may be, without any restrictivelegend. The Company acknowledges that a breach by it of its obligations hereunder willcause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy atlaw for a breach of its obligations under this Section 5(b) will be inadequate and agrees,in the event of a breach or threatened breach by the Company of the provisions of thisSection 5(b), that a Buyer shall be entitled, in addition to all other available remedies,to an order and/or injunction restraining any breach and requiring immediate issuance andtransfer, without the necessity of showing economic loss and without any bond or othersecurity being required.     6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.          The obligation of the Company hereunder to issue and sell the Notes and the related Warrantsto each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of eachof the following conditions, provided that these conditions are for the Company’s sole benefit andmay be waived by the Company at any time in its sole discretion by providing each Buyer with priorwritten notice thereof:          (a) Such Buyer and the Collateral Agent shall have executed each of the TransactionDocuments to which it is a party and delivered the same to the Company.          (b) Such Buyer and each other Buyer shall have delivered to the Company the PurchasePrice (less, in the case of Highbridge International LLC, the amounts withheld pursuant toSection 4(g)) for the Notes and the related Warrants being purchased by such Buyer at theClosing by wire transfer of immediately available funds pursuant to the wire instructionsprovided by the Company.          (c) The representations and warranties of such Buyer shall be true and correct in allmaterial respects (except for those representations and warranties that are qualified bymateriality or Material Adverse Effect, which shall be true and correct in all respects) asof the date when made and as of the Closing Date as though made at that time (except forrepresentations and warranties that speak as of a specific date, which shall be
-28-

 
true and correct as of such specified date), and such Buyer shall have performed,satisfied and complied in all material respects with the covenants, agreements andconditions required by this Agreement to be performed, satisfied or complied with by suchBuyer at or prior to the Closing Date.     7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.          The obligation of each Buyer hereunder to purchase the Notes and the related Warrants at theClosing is subject to the satisfaction, at or before the Closing Date, of each of the followingconditions, provided that these conditions are for each Buyer’s sole benefit and may be waived bysuch Buyer at any time in its sole discretion by providing the Company with prior written noticethereof:          (a) The Company shall have duly executed and delivered to such Buyer (i) each of theTransaction Documents and (ii) the Notes (allocated in such principal amounts as such Buyershall request), being purchased by such Buyer at the Closing pursuant to this Agreement, and(iii) the related Warrants (allocated in such amounts as such Buyer shall request) beingpurchased by such Buyer at the Closing pursuant to this Agreement.          (b) Such Buyer shall have received the opinion of the Company’s general counsel, datedas of the Closing Date, in substantially the form of Exhibit E attached hereto.          (c) The Company shall have delivered to such Buyer a copy of the Irrevocable TransferAgent Instructions, in the form of Exhibit D attached hereto, which instructionsshall have been delivered to and acknowledged in writing by the Company’s transfer agent.          (d) The Company shall have delivered to such Buyer a certificate evidencing theformation and good standing of the Company and each of its Subsidiaries in such entity’sjurisdiction of formation issued by the Secretary of State (or comparable office) of suchjurisdiction, as of a date within ten (10) days of the Closing Date.          (e) The Company shall have delivered to such Buyer a certificate evidencing theCompany’s qualification as a foreign corporation and good standing issued by the Secretaryof State (or comparable office) of each jurisdiction in which the Company conducts business,as of a date within ten (10) days of the Closing Date.          (f) The Company shall have delivered to such Buyer a certified copy of the Certificateof Incorporation as certified by the Secretary of State of the State of Nevada within ten(10) days of the Closing Date.          (g) The Company shall have delivered to such Buyer a certificate, executed by theSecretary of the Company and dated as of the Closing Date, as to (i) the resolutionsconsistent with Section 3(b) as adopted by the Company’s Board of Directors in a formreasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and (iii) theBylaws, each as in effect at the Closing, in the form attached hereto as Exhibit F.
-29-

 
          (h) The representations and warranties of the Company shall be true and correct in allmaterial respects (except for those representations and warranties that are qualified bymateriality or Material Adverse Effect, which shall be true and correct in all respects) asof the date when made and as of the Closing Date as though made at that time (except forrepresentations and warranties that speak as of a specific date, which shall be true andcorrect as of such specified date) and the Company shall have performed, satisfied andcomplied in all material respects with the covenants, agreements and conditions required bythe Transaction Documents to be performed, satisfied or complied with by the Company at orprior to the Closing Date. Such Buyer shall have received a certificate, executed by theChief Executive Officer of the Company, dated as of the Closing Date, to the foregoingeffect and as to such other matters as may be reasonably requested by such Buyer in the formattached hereto as Exhibit G.          (i) The Company shall have delivered to such Buyer a letter from the Company’s transferagent certifying the number of shares of Common Stock outstanding as of a date within fivedays of the Closing Date.          (j) The Common Stock (I) shall be designated for quotation or listed on the PrincipalMarket and (II) shall not have been suspended, as of the Closing Date, by the SEC or thePrincipal Market from trading on the Principal Market nor shall suspension by the SEC or thePrincipal Market have been threatened, as of the Closing Date, either (A) in writing by theSEC or the Principal Market or (B) by falling below the minimum listing maintenancerequirements of the Principal Market.          (k) The Company shall have obtained all governmental, regulatory or third partyconsents and approvals, if any, necessary for the sale of the Securities.          (l) In accordance with the terms of the Security Documents, the Company shall havedelivered to the Collateral Agent (i) certificates representing the Subsidiaries’ shares ofcapital stock, along with duly executed blank stock powers and (ii) appropriate financingstatements on Form UCC-1 to be duly filed in such office or offices as may be necessary or,in the opinion of the Collateral Agent, desirable to perfect the security interestspurported to be created by each Security Document.          (m) Within two (2) Business Days prior to the Closing, the Company shall have deliveredor caused to be delivered to each Buyer (i) true copies of UCC search results, listing alleffective financing statements which name as debtor the Company or any of its Subsidiariesfiled in the prior five years to perfect an interest in any assets thereof, together withcopies of such financing statements, none of which, except as otherwise agreed in writing bythe Buyers, shall cover any of the Collateral (as defined in the Security Documents) and theresults of searches for any tax lien and judgment lien filed against such Person or itsproperty, which results, except as otherwise agreed to in writing by the Buyers shall notshow any such Liens (as defined in the Security Documents); and (ii) a perfectioncertificate, duly completed and executed by the Company and each of its Subsidiaries, inform and substance satisfactory to the Buyers.
-30-

 
          (n) A Voting Agreement, in the form attached hereto as Exhibit I, shall havebeen executed and delivered to such Buyer by Charles E. Ramey.          (o) A Put Agreement, in the form attached hereto as Exhibit J, shall have beenexecuted and delivered to such Buyer by each of Charles E. Ramey and John L. Nicholson.          (p) The Collateral Agent and each other Buyer shall have duly executed and delivered tosuch Buyer the Collateral Agency Agreement.          (q) The Company shall have delivered to such Buyer an executed copy of that certainpromissory note, by and between the Company and Charles Ramey, in the form attached heretoas Exhibit M (the “**Amended and Restated Ramey Note**”).          (r) The Company shall have delivered to such Buyer evidence, satisfactory to the suchBuyer that the Purchase and Sale Agreement, dated September 27, 2006, by and between theCompany and Catalyst Finance, L.P. shall have been terminated.          (s) The Company shall have delivered to such Buyer such other documents relating to thetransactions contemplated by this Agreement as such Buyer or its counsel may reasonablyrequest.     8. TERMINATION. In the event that the Closing shall not have occurred with respect toa Buyer on or before five (5) Business Days from the date hereof due to the Company’s or suchBuyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreachingparty’s failure to waive such unsatisfied condition(s)), the nonbreaching party shall have theoption to terminate this Agreement with respect to such breaching party at the close of business onsuch date without liability of any party to any other party; provided, however,that if this Agreement is terminated pursuant to this Section 8, the Company shall remain obligatedto reimburse the non-breaching Buyers for the expenses described in Section 4(g) above.     9. MISCELLANEOUS.          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning theconstruction, validity, enforcement and interpretation of this Agreement shall be governedby the internal laws of the State of New York, without giving effect to any choice of law orconflict of law provision or rule (whether of the State of New York or any otherjurisdictions) that would cause the application of the laws of any jurisdictions other thanthe State of New York. Each party hereby irrevocably submits to the exclusive jurisdictionof the state and federal courts sitting in The City of New York, Borough of Manhattan, forthe adjudication of any dispute hereunder or in connection herewith or with any transactioncontemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not toassert in any suit, action or proceeding, any claim that it is not personally subject to thejurisdiction of any such court, that such suit, action or proceeding is brought in aninconvenient forum or that the venue of such suit, action or proceeding is improper. Eachparty hereby irrevocably waives personal service of
-31-

 
process and consents to process being served in any such suit, action or proceeding bymailing a copy thereof to such party at the address for such notices to it under thisAgreement and agrees that such service shall constitute good and sufficient service ofprocess and notice thereof. Nothing contained herein shall be deemed to limit in any wayany right to serve process in any manner permitted by law. **EACH PARTY HEREBY IRREVOCABLYWAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATIONOF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANYTRANSACTION CONTEMPLATED HEREBY.**          (b) Counterparts. This Agreement may be executed in two or more identicalcounterparts, all of which shall be considered one and the same agreement and shall becomeeffective when counterparts have been signed by each party and delivered to the other party;provided that a facsimile signature shall be considered due execution and shall be bindingupon the signatory thereto with the same force and effect as if the signature were anoriginal, not a facsimile signature.          (c) Headings. The headings of this Agreement are for convenience of referenceand shall not form part of, or affect the interpretation of, this Agreement.          (d) Severability. If any provision of this Agreement is prohibited by law orotherwise determined to be invalid or unenforceable by a court of competent jurisdiction,the provision that would otherwise be prohibited, invalid or unenforceable shall be deemedamended to apply to the broadest extent that it would be valid and enforceable, and theinvalidity or unenforceability of such provision shall not affect the validity of theremaining provisions of this Agreement so long as this Agreement as so modified continues toexpress, without material change, the original intentions of the parties as to the subjectmatter hereof and the prohibited nature, invalidity or unenforceability of the provision(s)in question does not substantially impair the respective expectations or reciprocalobligations of the parties or the practical realization of the benefits that would otherwisebe conferred upon the parties. The parties will endeavor in good faith negotiations toreplace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), theeffect of which comes as close as possible to that of the prohibited, invalid orunenforceable provision(s).          (e) Entire Agreement; Amendments. This Agreement and the other TransactionDocuments supersede all other prior oral or written agreements between the Buyers, theCompany, their affiliates and Persons acting on their behalf with respect to the mattersdiscussed herein, and this Agreement, the other Transaction Documents and the instrumentsreferenced herein and therein contain the entire understanding of the parties with respectto the matters covered herein and therein and, except as specifically set forth herein ortherein, neither the Company nor any Buyer makes any representation, warranty, covenant orundertaking with respect to such matters. No provision of this Agreement may be amendedother than by an instrument in writing signed by the Company and the holders of at least amajority of the aggregate number of Registrable Securities issued and issuable hereunder andunder the Notes, and any amendment to this Agreement made in conformity with the provisionsof this Section 9(e) shall be binding
-32-

 
on all Buyers and holders of Securities as applicable. No provision hereof may bewaived other than by an instrument in writing signed by the party against whom enforcementis sought. No such amendment shall be effective to the extent that it applies to less thanall of the holders of the applicable Securities then outstanding. No consideration shall beoffered or paid to any Person to amend or consent to a waiver or modification of anyprovision of any of the Transaction Documents unless the same consideration also is offeredto all of the parties to the Transaction Documents, holders of Notes or holders of theWarrants, as the case may be. The Company has not, directly or indirectly, made anyagreements with any Buyers relating to the terms or conditions of the transactionscontemplated by the Transaction Documents except as set forth in the Transaction Documents.Without limiting the foregoing, the Company confirms that, except as set forth in thisAgreement, no Buyer has made any commitment or promise or has any other obligation toprovide any financing to the Company or otherwise.          (f) Notices. Any notices, consents, waivers or other communications requiredor permitted to be given under the terms of this Agreement must be in writing and will bedeemed to have been delivered: (i) upon receipt, when delivered personally; (ii) uponreceipt, when sent by facsimile (provided confirmation of transmission is mechanically orelectronically generated and kept on file by the sending party); or (iii) one Business Dayafter deposit with an overnight courier service, in each case properly addressed to theparty to receive the same. The addresses and facsimile numbers for such communicationsshall be:          If to the Company:US Dataworks, Inc.One Sugar Creek Center Boulevard