Document:

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                                                                     EXHIBIT 4.1

                          SECURITIES PURCHASE AGREEMENT

      This Securities Purchase Agreement (this "Agreement") is dated as of June
16, 2005 among US Dataworks, Inc., a Nevada corporation (the "Company"), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a "Purchaser" and collectively the "Purchasers").

      WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

      NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

      1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated in this Section 1.1:

            "Action" shall have the meaning ascribed to such term in Section
      3.1(j).

            "Affiliate" means any Person that, directly or indirectly through
      one or more intermediaries, controls or is controlled by or is under
      common control with a Person, as such terms are used in and construed
      under Rule 144 under the Securities Act. With respect to a Purchaser, any
      investment fund or managed account that is managed on a discretionary
      basis by the same investment manager as such Purchaser will be deemed to
      be an Affiliate of such Purchaser.

            "Closing" means the closing of the purchase and sale of the
      Securities pursuant to Section 2.1.

            "Closing Date" means the Trading Day when all of the Transaction
      Documents have been executed and delivered by the applicable parties
      thereto, and all conditions precedent to (i) the Purchasers' obligations
      to pay the Subscription Amount and (ii) the Company's obligations to
      deliver the Securities have been satisfied or waived.

            "Closing Price" means on any particular date (a) the last reported
      closing bid price per share of Common Stock on such date on the Trading
      Market (as reported by Bloomberg L.P. at 4:15 PM (New York time), or (b)
      if there is no such price on such date, then the closing bid price on the
      Trading Market on the date nearest preceding such

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      date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the
      closing bid price for regular session trading on such day), or (c) if the
      Common Stock is not then listed or quoted on a Trading Market and if
      prices for the Common Stock are then quoted on the OTC Bulletin Board, the
      closing bid price of the Common Stock for such date (or the nearest
      preceding date) on the OTC Bulletin Board (as reported by Bloomberg L.P.
      at 4:15 PM (New York time), (d) if the Common Stock is not then listed or
      quoted on the Trading Market and if prices for the Common Stock are then
      reported in the "pink sheets" published by the Pink Sheets LLC (formerly
      the National Quotation Bureau Incorporated (or a similar organization or
      agency succeeding to its functions of reporting prices), the most recent
      bid price per share of the Common Stock so reported, or (e) if the shares
      of Common Stock are not then publicly traded the fair market value of a
      share of Common Stock as determined by a qualified independent appraiser
      selected in good faith by the Purchasers.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the common stock of the Company, par value
      $0.0001 per share, and any other class of securities into which such
      securities may hereafter have been reclassified or changed into.

            "Common Stock Equivalents" means any securities of the Company or
      the Subsidiaries which would entitle the holder thereof to acquire at any
      time Common Stock, including, without limitation, any debt, preferred
      stock, rights, options, warrants or other instrument that is at any time
      convertible into or exercisable or exchangeable for, or otherwise entitles
      the holder thereof to receive, Common Stock.

            "Company Counsel" means Locke Liddell & Sapp LLP.

            "Disclosure Schedules" shall have the meaning ascribed to such term
      in Section 3.1.

            "Effective Date" means the date that the initial Registration
      Statement filed by the Company pursuant to the Registration Rights
      Agreement is first declared effective by the Commission.

            "Evaluation Date" shall have the meaning ascribed to such term in
      Section 3.1(r).

            "Exchange Act" means the Securities Exchange Act of 1934, as
      amended, and the rules and regulations promulgated thereunder.

            "GAAP" shall have the meaning ascribed to such term in Section
      3.1(h).

            "Intellectual Property Rights" shall have the meaning ascribed to
      such term in Section 3.1(o).

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            "Legend Removal Date" shall have the meaning ascribed to such term
      in Section 4.1(c).

            "Liens" means a lien, charge, security interest, encumbrance, right
      of first refusal, preemptive right or other restriction.

            "Market Price" shall mean the arithmetic average of the 5 Closing
      Prices immediately prior to the date hereof.

            "Material Adverse Effect" shall have the meaning assigned to such
      term in Section 3.1(b).

            "Material Permits" shall have the meaning ascribed to such term in
      Section 3.1(m).

            "Person" means an individual or corporation, partnership, trust,
      incorporated or unincorporated association, joint venture, limited
      liability company, joint stock company, government (or an agency or
      subdivision thereof) or other entity of any kind.

            "Proceeding" means an action, claim, suit, investigation or
      proceeding (including, without limitation, an investigation or partial
      proceeding, such as a deposition), whether commenced or threatened.

            "Purchaser Party" shall have the meaning ascribed to such term in
      Section 4.11.

            "Registration Rights Agreement" means the Registration Rights
      Agreement, dated the date hereof, among the Company and the Purchasers, in
      the form of Exhibit B attached hereto.

            "Registration Statement" means a registration statement meeting the
      requirements set forth in the Registration Rights Agreement and covering
      the resale of the Underlying Shares by each Purchaser as provided for in
      the Registration Rights Agreement.

            "Required Approvals" shall have the meaning ascribed to such term in
      Section 3.1(e).

            "Rule 144" means Rule 144 promulgated by the Commission pursuant to
      the Securities Act, as such Rule may be amended from time to time, or any
      similar rule or regulation hereafter adopted by the Commission having
      substantially the same effect as such Rule.

            "SEC Reports" shall have the meaning ascribed to such term in
      Section 3.1(h).

            "Securities" means the Shares, the Warrants, the Warrant Shares and
      the Underlying Shares.

            "Securities Act" means the Securities Act of 1933, as amended.

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            "Shares" means the aggregate of 1,258,654 shares of Common Stock.

            "Short Sales" shall include all "short sales" as defined in Rule 200
      of Regulation SHO under the Exchange Act.

            "Subscription Amount" means, as to each Purchaser, the aggregate
      amount to be paid for Shares and Warrants purchased hereunder as specified
      below such Purchaser's name on the signature page of this Agreement and
      next to the heading "Subscription Amount", in United States Dollars and in
      immediately available funds.

            "Subsidiary" means any subsidiary of the Company as set forth on
      Schedule 3.1(a).

            "Trading Day" means a day on which the Common Stock is traded on a
      Trading Market.

            "Trading Market" means the following markets or exchanges on which
      the Common Stock is listed or quoted for trading on the date in question:
      the Nasdaq SmallCap Market, the American Stock Exchange, the New York
      Stock Exchange or the Nasdaq National Market.

            "Transaction Documents" means this Agreement, the Warrants, the
      Registration Rights Agreement and any other documents or agreements
      executed in connection with the transactions contemplated hereunder.

            "Underlying Shares" means the shares of Common Stock issued and
      issuable upon conversion of the Warrants.

            "VWAP" means, for any date, the price determined by the first of the
      following clauses that applies: (a) if the Common Stock is then listed or
      quoted on a Trading Market, the daily volume weighted average price of the
      Common Stock for such date (or the nearest preceding date) on the Trading
      Market on which the Common Stock is then listed or quoted as reported by
      Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern
      Time to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
      listed or quoted on a Trading Market and if prices for the Common Stock
      are then quoted on the OTC Bulletin Board, the volume weighted average
      price of the Common Stock for such date (or the nearest preceding date) on
      the OTC Bulletin Board; (c) if the Common Stock is not then listed or
      quoted on the OTC Bulletin Board and if prices for the Common Stock are
      then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
      similar organization or agency succeeding to its functions of reporting
      prices), the most recent bid price per share of the Common Stock so
      reported; or (c) in all other cases, the fair market value of a share of
      Common Stock as determined by an independent appraiser selected in good
      faith by the Purchasers and reasonably acceptable to the Company.

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            "Warrants" means, collectively, the Common Stock purchase warrants,
      in the form of Exhibit C delivered to the Purchasers at Closing in
      accordance with Section 2.2(a) hereof.

            "Warrant Shares" means the shares of Common Stock issuable upon
      exercise of the Warrants.

                                  ARTICLE II.
                                PURCHASE AND SALE

      2.1   Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase, severally and not jointly, the Shares, at a purchase price
of $0.4767 per share, for a total purchase price of $600,000 (the "Total
Subscription Amount"), and the Warrants. The Warrants will be distributed
pro-rata among the Purchasers based on the percentage of Shares purchased by
each Purchaser. Each Purchaser shall deliver to the Company via wire transfer or
a certified check immediately available funds equal to their Subscription Amount
and the Company shall deliver to each Purchaser their respective stock
certificates representing the Shares and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of Purchasers' counsel, or such other
location as the parties shall mutually agree.

      2.2   Deliveries.

            a)    On the Closing Date, the Company shall deliver or cause to be
                  delivered to each Purchaser the following:

                  (i)   this Agreement duly executed by the Company;

                  (ii)  a stock certificate representing the Shares purchased by
                        each Purchaser;

                  (iii) the Warrants purchased by each Purchaser; and

                  (iv)  the Registration Rights Agreement duly executed by the
                        Company.

            b)    On the Closing Date, each Purchaser shall deliver or cause to
                  be delivered to the Company the following:

                  (i)   this Agreement duly executed by such Purchaser;

                  (ii)  such Purchaser's Subscription Amount by wire transfer to
                        the account as specified in writing by the Company; and

                  (iii) the Registration Rights Agreement duly executed by such
                        Purchaser.

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      2.3   Closing Conditions.

            a)    The obligations of the Company hereunder in connection with
                  the Closing are subject to the following conditions being met:

                  (i)   the accuracy in all material respects when made and on
                        the Closing Date of the representations and warranties
                        of the Purchasers contained herein;

                  (ii)  all obligations, covenants and agreements of the
                        Purchasers required to be performed at or prior to the
                        Closing Date shall have been performed; and

                  (iii) the delivery by the Purchasers of the items set forth in
                        Section 2.2(b) of this Agreement.

            b)    The respective obligations of the Purchasers hereunder in
                  connection with the Closing are subject to the following
                  conditions being met:

                  (i)   the accuracy in all material respects on the Closing
                        Date of the representations and warranties of the
                        Company contained herein;

                  (ii)  all obligations, covenants and agreements of the Company
                        required to be performed at or prior to the Closing Date
                        shall have been performed;

                  (iii) the delivery by the Company of the items set forth in
                        Section 2.2(a) of this Agreement;

                  (iv)  there shall have been no Material Adverse Effect with
                        respect to the Company since the date hereof; and

                  (v)   from the date hereof to the Closing Date, trading in the
                        Common Stock shall not have been suspended by the
                        Commission (except for any suspension of trading of
                        limited duration agreed to by the Company, which
                        suspension shall be terminated prior to the Closing),
                        and, at any time prior to the Closing Date, trading in
                        securities generally as reported by Bloomberg Financial
                        Markets shall not have been suspended or limited, or
                        minimum prices shall not have been established on
                        securities whose trades are reported by such service, or
                        on any Trading Market, nor shall a banking moratorium
                        have been declared either by the United States or New
                        York State authorities nor shall there have occurred any
                        material outbreak or escalation of hostilities or other
                        national or

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                        international calamity of such magnitude in its effect
                        on, or any material adverse change in, any financial
                        market which, in each case, in the reasonable judgment
                        of each Purchaser, makes it impracticable or inadvisable
                        to purchase the Securities at the Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

      3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser.

            (a) Subsidiaries. All of the direct and indirect subsidiaries of the
      Company are set forth on Schedule 3.1(a). The Company owns, directly or
      indirectly, all of the capital stock or other equity interests of each
      Subsidiary free and clear of any Liens, and all the issued and outstanding
      shares of capital stock of each Subsidiary are validly issued and are
      fully paid, non-assessable and free of preemptive and similar rights to
      subscribe for or purchase securities. If the Company has no subsidiaries,
      then references in the Transaction Documents to the Subsidiaries will be
      disregarded.

            (b) Organization and Qualification. The Company and each of the
      Subsidiaries is an entity duly incorporated or otherwise organized,
      validly existing and in good standing under the laws of the jurisdiction
      of its incorporation or organization (as applicable), with the requisite
      power and authority to own and use its properties and assets and to carry
      on its business as currently conducted. Neither the Company nor any
      Subsidiary is in violation or default of any of the provisions of its
      respective certificate or articles of incorporation, bylaws or other
      organizational or charter documents. Each of the Company and the
      Subsidiaries is duly qualified to conduct business and is in good standing
      as a foreign corporation or other entity in each jurisdiction in which the
      nature of the business conducted or property owned by it makes such
      qualification necessary, except where the failure to be so qualified or in
      good standing, as the case may be, could not have or reasonably be
      expected to result in (i) a material adverse effect on the legality,
      validity or enforceability of any Transaction Document, (ii) a material
      adverse effect on the results of operations, assets, business, prospects
      or condition (financial or otherwise) of the Company and the Subsidiaries,
      taken as a whole, or (iii) a material adverse effect on the Company's
      ability to perform in any material respect on a timely basis its
      obligations under any Transaction Document (any of (i), (ii) or (iii), a
      "Material Adverse Effect") and no Proceeding has been instituted in any
      such jurisdiction revoking, limiting or curtailing or seeking to revoke,
      limit or curtail such power and authority or qualification.

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            (c) Authorization; Enforcement. The Company has the requisite
      corporate power and authority to enter into and to consummate the
      transactions contemplated by each of the Transaction Documents and
      otherwise to carry out its obligations hereunder and thereunder. The
      execution and delivery of each of the Transaction Documents by the Company
      and the consummation by it of the transactions contemplated thereby have
      been duly authorized by all necessary action on the part of the Company
      and no further action is required by the Company, its board of directors
      or its stockholders in connection therewith other than in connection with
      the Required Approvals. Each Transaction Document has been (or upon
      delivery will have been) duly executed by the Company and, when delivered
      in accordance with the terms hereof and thereof, will constitute the valid
      and binding obligation of the Company enforceable against the Company in
      accordance with its terms except (i) as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium and other laws of general
      application affecting enforcement of creditors' rights generally and (ii)
      as limited by laws relating to the availability of specific performance,
      injunctive relief or other equitable remedies.

            (d) No Conflicts. The execution, delivery and performance of the
      Transaction Documents by the Company and the consummation by the Company
      of the other transactions contemplated hereby and thereby do not and will
      not: (i) conflict with or violate any provision of the Company's or any
      Subsidiary's certificate or articles of incorporation, bylaws or other
      organizational or charter documents, or (ii) conflict with, or constitute
      a default (or an event that with notice or lapse of time or both would
      become a default) under, result in the creation of any Lien upon any of
      the properties or assets of the Company or any Subsidiary, or give to
      others any rights of termination, amendment, acceleration or cancellation
      (with or without notice, lapse of time or both) of, any agreement, credit
      facility, debt or other instrument (evidencing a Company or Subsidiary
      debt or otherwise) or other understanding to which the Company or any
      Subsidiary is a party or by which any property or asset of the Company or
      any Subsidiary is bound or affected, or (iii) subject to the Required
      Approvals, conflict with or result in a violation of any law, rule,
      regulation, order, judgment, injunction, decree or other restriction of
      any court or governmental authority to which the Company or a Subsidiary
      is subject (including federal and state securities laws and regulations),
      or by which any property or asset of the Company or a Subsidiary is bound
      or affected; except in the case of each of clauses (ii) and (iii), such as
      could not have or reasonably be expected to result in a Material Adverse
      Effect.

            (e) Filings, Consents and Approvals. The Company is not required to
      obtain any consent, waiver, authorization or order of, give any notice to,
      or make any filing or registration with, any court or other federal,
      state, local or other governmental authority or other Person in connection
      with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6, (ii) the filing with the Commission of the Registration Statement,
      (iii) the notice and/or application(s) to each applicable Trading Market
      for the issuance and sale of the Shares and Warrants and the listing of
      the Underlying Shares for trading thereon in the time and manner required
      thereby, (iv) the filing of Form D with the Commission and

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      such filings as are required to be made under applicable state securities
      laws and (vi) Shareholder Approval (collectively, the "Required
      Approvals").

            (f) Issuance of the Securities. The Securities are duly authorized
      and, when issued and paid for in accordance with the applicable
      Transaction Documents, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company other
      than restrictions on transfer provided for in the Transaction Documents.
      The Underlying Shares, when issued in accordance with the terms of the
      Transaction Documents, will be validly issued, fully paid and
      nonassessable, free and clear of all Liens imposed by the Company. The
      Company has reserved from its duly authorized capital stock a number of
      shares of Common Stock for issuance of the Underlying Shares.

            (g) Capitalization. The capitalization of the Company is as set
      forth on Schedule 3.1(g). The Company has not issued any capital stock
      since its most recently filed periodic report under the Exchange Act,
      other than pursuant to the exercise of employee stock options under the
      Company's stock option plans, the issuance of shares of Common Stock to
      employees pursuant to the Company's employee stock purchase plan and
      pursuant to the conversion or exercise of outstanding Common Stock
      Equivalents. No Person has any right of first refusal, preemptive right,
      right of participation, or any similar right to participate in the
      transactions contemplated by the Transaction Documents. Except as a result
      of the purchase and sale of the Securities, there are no outstanding
      options, warrants, script rights to subscribe to, calls or commitments of
      any character whatsoever relating to, or securities, rights or obligations
      convertible into or exercisable or exchangeable for, or giving any Person
      any right to subscribe for or acquire, any shares of Common Stock, or
      contracts, commitments, understandings or arrangements by which the
      Company or any Subsidiary is or may become bound to issue additional
      shares of Common Stock or Common Stock Equivalents. The issuance and sale
      of the Securities will not obligate the Company to issue shares of Common
      Stock or other securities to any Person (other than the Purchasers) and
      will not result in a right of any holder of Company securities to adjust
      the exercise, conversion, exchange or reset price under such securities.
      All of the outstanding shares of capital stock of the Company are validly
      issued, fully paid and nonassessable, have been issued in compliance with
      all federal and state securities laws, and none of such outstanding shares
      was issued in violation of any preemptive rights or similar rights to
      subscribe for or purchase securities. No further approval or authorization
      of any stockholder, the Board of Directors of the Company or others is
      required for the issuance and sale of the Securities. There are no
      stockholders agreements, voting agreements or other similar agreements
      with respect to the Company's capital stock to which the Company is a
      party or, to the knowledge of the Company, between or among any of the
      Company's stockholders.

            (h) SEC Reports; Financial Statements. The Company has filed all
      reports, schedules, forms, statements and other documents required to be
      filed by it under the Securities Act and the Exchange Act, including
      pursuant to Section 13(a) or 15(d)

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      thereof, for the two years preceding the date hereof (or such shorter
      period as the Company was required by law to file such material) (the
      foregoing materials, including the exhibits thereto and documents
      incorporated by reference therein, being collectively referred to herein
      as the "SEC Reports") on a timely basis or has received a valid extension
      of such time of filing and has filed any such SEC Reports prior to the
      expiration of any such extension. As of their respective dates, the SEC
      Reports complied in all material respects with the requirements of the
      Securities Act and the Exchange Act and the rules and regulations of the
      Commission promulgated thereunder, and none of the SEC Reports, when
      filed, contained any untrue statement of a material fact or omitted to
      state a material fact required to be stated therein or necessary in order
      to make the statements therein, in the light of the circumstances under
      which they were made, not misleading. The financial statements of the
      Company included in the SEC Reports comply in all material respects with
      applicable accounting requirements and the rules and regulations of the
      Commission with respect thereto as in effect at the time of filing. Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles applied on a consistent basis
      during the periods involved ("GAAP"), except as may be otherwise specified
      in such financial statements or the notes thereto and except that
      unaudited financial statements may not contain all footnotes required by
      GAAP, and fairly present in all material respects the financial position
      of the Company and its consolidated subsidiaries as of and for the dates
      thereof and the results of operations and cash flows for the periods then
      ended, subject, in the case of unaudited statements, to normal,
      immaterial, year-end audit adjustments.

            (i) Material Changes. Since the date of the latest audited financial
      statements included within the SEC Reports, except as specifically
      disclosed in the SEC Reports, (i) there has been no event, occurrence or
      development that has had or that could reasonably be expected to result in
      a Material Adverse Effect, (ii) the Company has not incurred any
      liabilities (contingent or otherwise) other than (A) trade payables and
      accrued expenses incurred in the ordinary course of business consistent
      with past practice and (B) liabilities not required to be reflected in the
      Company's financial statements pursuant to GAAP or required to be
      disclosed in filings made with the Commission, (iii) the Company has not
      altered its method of accounting, (iv) the Company has not declared or
      made any dividend or distribution of cash or other property to its
      stockholders or purchased, redeemed or made any agreements to purchase or
      redeem any shares of its capital stock and (v) the Company has not issued
      any equity securities to any officer, director or Affiliate, except
      pursuant to existing Company stock option plans. The Company does not have
      pending before the Commission any request for confidential treatment of
      information.

            (j) Litigation. There is no action, suit, inquiry, notice of
      violation, proceeding or investigation pending or, to the knowledge of the
      Company, threatened against or affecting the Company, any Subsidiary or
      any of their respective properties before or by any court, arbitrator,
      governmental or administrative agency or regulatory authority (federal,
      state, county, local or foreign) (collectively, an "Action") which (i)
      adversely affects or challenges the legality, validity or enforceability
      of any of the Transaction

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      Documents or the Securities or (ii) could, if there were an unfavorable
      decision, have or reasonably be expected to result in a Material Adverse
      Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a
      claim of violation of or liability under federal or state securities laws
      or a claim of breach of fiduciary duty. There has not been, and to the
      knowledge of the Company, there is not pending or contemplated, any
      investigation by the Commission involving the Company or any current or
      former director or officer of the Company. The Commission has not issued
      any stop order or other order suspending the effectiveness of any
      registration statement filed by the Company or any Subsidiary under the
      Exchange Act or the Securities Act.

            (k) Labor Relations. No material labor dispute exists or, to the
      knowledge of the Company, is imminent with respect to any of the employees
      of the Company which could reasonably be expected to result in a Material
      Adverse Effect.

            (l) Compliance. Neither the Company nor any Subsidiary (i) is in
      default under or in violation of (and no event has occurred that has not
      been waived that, with notice or lapse of time or both, would result in a
      default by the Company or any Subsidiary under), nor has the Company or
      any Subsidiary received notice of a claim that it is in default under or
      that it is in violation of, any indenture, loan or credit agreement or any
      other agreement or instrument to which it is a party or by which it or any
      of its properties is bound (whether or not such default or violation has
      been waived), (ii) is in violation of any order of any court, arbitrator
      or governmental body, or (iii) is or has been in violation of any statute,
      rule or regulation of any governmental authority, including without
      limitation all foreign, federal, state and local laws applicable to its
      business except in each case as could not have a Material Adverse Effect.

            (m) Regulatory Permits. The Company and the Subsidiaries possess all
      certificates, authorizations and permits issued by the appropriate
      federal, state, local or foreign regulatory authorities necessary to
      conduct their respective businesses as described in the SEC Reports,
      except where the failure to possess such permits could not have or
      reasonably be expected to result in a Material Adverse Effect ("Material
      Permits"), and neither the Company nor any Subsidiary has received any
      notice of proceedings relating to the revocation or modification of any
      Material Permit.

            (n) Title to Assets. The Company and the Subsidiaries have good and
      marketable title in fee simple to all real property owned by them that is
      material to the business of the Company and the Subsidiaries and good and
      marketable title in all personal property owned by them that is material
      to the business of the Company and the Subsidiaries, in each case free and
      clear of all Liens, except for Liens as do not materially affect the value
      of such property and do not materially interfere with the use made and
      proposed to be made of such property by the Company and the Subsidiaries
      and Liens for the payment of federal, state or other taxes, the payment of
      which is neither delinquent nor subject to penalties. Any real property
      and facilities held under lease by the Company and the Subsidiaries are
      held by them under valid, subsisting and enforceable leases of which the
      Company and the Subsidiaries are in compliance.

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            (o) Patents and Trademarks. The Company and the Subsidiaries have,
      or have rights to use, all patents, patent applications, trademarks,
      trademark applications, service marks, trade names, copyrights, licenses
      and other similar rights necessary or material for use in connection with
      their respective businesses as described in the SEC Reports and which the
      failure to so have could have a Material Adverse Effect (collectively, the
      "Intellectual Property Rights"). Neither the Company nor any Subsidiary
      has received a written notice that the Intellectual Property Rights used
      by the Company or any Subsidiary violates or infringes upon the rights of
      any Person. To the knowledge of the Company, all such Intellectual
      Property Rights are enforceable and there is no existing infringement by
      another Person of any of the Intellectual Property Rights of others.

            (p) Insurance. The Company and the Subsidiaries are insured by
      insurers of recognized financial responsibility against such losses and
      risks and in such amounts as are prudent and customary in the businesses
      in which the Company and the Subsidiaries are engaged, including, but not
      limited to, directors and officers insurance coverage at least equal to
      the Total Subscription Amount. To the best knowledge of the Company, such
      insurance contracts and policies are accurate and complete. Neither the
      Company nor any Subsidiary has any reason to believe that it will not be
      able to renew its existing insurance coverage as and when such coverage
      expires or to obtain similar coverage from similar insurers as may be
      necessary to continue its business without a significant increase in cost.

            (q) Transactions With Affiliates and Employees. Except as set forth
      in the SEC Reports, none of the officers or directors of the Company and,
      to the knowledge of the Company, none of the employees of the Company is
      presently a party to any transaction with the Company or any Subsidiary
      (other than for services as employees, officers and directors), including
      any contract, agreement or other arrangement providing for the furnishing
      of services to or by, providing for rental of real or personal property to
      or from, or otherwise requiring payments to or from any officer, director
      or such employee or, to the knowledge of the Company, any entity in which
      any officer, director, or any such employee has a substantial interest or
      is an officer, director, trustee or partner, in each case in excess of
      $60,000 other than (i) for payment of salary or consulting fees for
      services rendered, (ii) reimbursement for expenses incurred on behalf of
      the Company and (iii) for other employee benefits, including stock option
      agreements under any stock option plan of the Company.

            (r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
      material compliance with all provisions of the Sarbanes-Oxley Act of 2002
      which are applicable to it as of the Closing Date. The Company and the
      Subsidiaries maintain a system of internal accounting controls sufficient
      to provide reasonable assurance that (i) transactions are executed in
      accordance with management's general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability,
      (iii) access to assets is permitted only in accordance with management's
      general or specific authorization, and (iv) the recorded accountability
      for assets is compared with the

                                       12
<PAGE>

      existing assets at reasonable intervals and appropriate action is taken
      with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and
      procedures to ensure that material information relating to the Company,
      including its Subsidiaries, is made known to the certifying officers by
      others within those entities, particularly during the period in which the
      Company's most recently filed periodic report under the Exchange Act, as
      the case may be, is being prepared. The Company's certifying officers have
      evaluated the effectiveness of the Company's controls and procedures as of
      the date prior to the filing date of the most recently filed periodic
      report under the Exchange Act (such date, the "Evaluation Date"). The
      Company presented in its most recently filed periodic report under the
      Exchange Act the conclusions of the certifying officers about the
      effectiveness of the disclosure controls and procedures based on their
      evaluations as of the Evaluation Date. Since the Evaluation Date, there
      have been no significant changes in the Company's internal controls (as
      such term is defined in Item 307(b) of Regulation S-K under the Exchange
      Act) or, to the knowledge of the Company, in other factors that could
      significantly affect the Company's internal controls.

            (s) Certain Fees. No brokerage or finder's fees or commissions are
      or will be payable by the Company to any broker, financial advisor or
      consultant, finder, placement agent, investment banker, bank or other
      Person with respect to the transactions contemplated by the Transaction
      Documents. The Purchasers shall have no obligation with respect to any
      fees or with respect to any claims made by or on behalf of other Persons
      for fees of a type contemplated in this Section that may be due in
      connection with the transactions contemplated by the Transaction
      Documents.

            (t) Private Placement. Assuming the accuracy of the Purchasers
      representations and warranties set forth in Section 3.2, no registration
      under the Securities Act is required for the offer and sale of the
      Securities by the Company to the Purchasers as contemplated hereby. The
      issuance and sale of the Securities hereunder does not contravene the
      rules and regulations of the Trading Market.

            (u) Investment Company. The Company is not, and is not an Affiliate
      of, and immediately after receipt of payment for the Securities, will not
      be or be an Affiliate of, an "investment company" within the meaning of
      the Investment Company Act of 1940, as amended. The Company shall conduct
      its business in a manner so that it will not become subject to the
      Investment Company Act.

            (v) Registration Rights. Other than each of the Purchasers, no
      Person has any right to cause the Company to effect the registration under
      the Securities Act of any securities of the Company.

            (w) Listing and Maintenance Requirements. The Company's Common Stock
      is registered pursuant to Section 12(g) of the Exchange Act, and the
      Company has taken no action designed to, or which to its knowledge is
      likely to have the effect of, terminating the registration of the Common
      Stock under the Exchange Act nor has the

                                       13
<PAGE>

      Company received any notification that the Commission is contemplating
      terminating such registration. The Company has not, in the 12 months
      preceding the date hereof, received notice from any Trading Market on
      which the Common Stock is or has been listed or quoted to the effect that
      the Company is not in compliance with the listing or maintenance
      requirements of such Trading Market. The Company is, and has no reason to
      believe that it will not in the foreseeable future continue to be, in
      compliance with all such listing and maintenance requirements.

            (x) Application of Takeover Protections. The Company and its Board
      of Directors have taken all necessary action, if any, in order to render
      inapplicable any control share acquisition, business combination, poison
      pill (including any distribution under a rights agreement) or other
      similar anti-takeover provision under the Company's Certificate of
      Incorporation (or similar charter documents) or the laws of its state of
      incorporation that is or could become applicable to the Purchasers as a
      result of the Purchasers and the Company fulfilling their obligations or
      exercising their rights under the Transaction Documents, including without
      limitation as a result of the Company's issuance of the Securities and the
      Purchasers' ownership of the Securities.

            (y) Disclosure. The Company confirms that neither it nor any other
      Person acting on its behalf has provided any of the Purchasers or their
      agents or counsel with any information that constitutes or might
      constitute material, nonpublic information. The Company understands and
      confirms that the Purchasers will rely on the foregoing representations
      and covenants in effecting transactions in securities of the Company. All
      disclosure provided to the Purchasers regarding the Company, its business
      and the transactions contemplated hereby, including the Disclosure
      Schedules to this Agreement, furnished by or on behalf of the Company with
      respect to the representations and warranties made herein are true and
      correct with respect to such representations and warranties and do not
      contain any untrue statement of a material fact or omit to state any
      material fact necessary in order to make the statements made therein, in
      light of the circumstances under which they were made, not misleading. The
      Company acknowledges and agrees that no Purchaser makes or has made any
      representations or warranties with respect to the transactions
      contemplated hereby other than those specifically set forth in Section 3.2
      hereof.

            (z) No Integrated Offering. Assuming the accuracy of the Purchasers'
      representations and warranties set forth in Section 3.2, neither the
      Company, nor any of its affiliates, nor any Person acting on its or their
      behalf has, directly or indirectly, made any offers or sales of any
      security or solicited any offers to buy any security, under circumstances
      that would cause this offering of the Securities to be integrated with
      prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions, including, without limitation,
      under the rules and regulations of any Trading Market on which any of the
      securities of the Company are listed or designated.

            (aa) Solvency. Based on the financial condition of the Company as of
      the Closing Date after giving effect to the receipt by the Company of the
      proceeds from the

                                       14
<PAGE>

      sale of the Securities hereunder, (i) the Company's fair saleable value of
      its assets exceeds the amount that will be required to be paid on or in
      respect of the Company's existing debts and other liabilities (including
      known contingent liabilities) as they mature; (ii) the Company's assets do
      not constitute unreasonably small capital to carry on its business for the
      current fiscal year as now conducted and as proposed to be conducted
      including its capital needs taking into account the particular capital
      requirements of the business conducted by the Company, and projected
      capital requirements and capital availability thereof; and (iii) the
      current cash flow of the Company, together with the proceeds the Company
      would receive, were it to liquidate all of its assets, after taking into
      account all anticipated uses of the cash, would be sufficient to pay all
      amounts on or in respect of its debt when such amounts are required to be
      paid. The Company does not intend to incur debts beyond its ability to pay
      such debts as they mature (taking into account the timing and amounts of
      cash to be payable on or in respect of its debt). The Company has no
      knowledge of any facts or circumstances which lead it to believe that it
      will file for reorganization or liquidation under the bankruptcy or
      reorganization laws of any jurisdiction within one year from the Closing
      Date. The SEC Reports set forth as of the dates thereof all outstanding
      secured and unsecured Indebtedness of the Company or any Subsidiary, or
      for which the Company or any Subsidiary has commitments. For the purposes
      of this Agreement, "Indebtedness" shall mean (a) any liabilities for
      borrowed money or amounts owed in excess of $50,000 (other than trade
      accounts payable incurred in the ordinary course of business), (b) all
      guaranties, endorsements and other contingent obligations in respect of
      Indebtedness of others, whether or not the same are or should be reflected
      in the Company's balance sheet (or the notes thereto), except guaranties
      by endorsement of negotiable instruments for deposit or collection or
      similar transactions in the ordinary course of business; and (c) the
      present value of any lease payments in excess of $50,000 due under leases
      required to be capitalized in accordance with GAAP. Neither the Company
      nor any Subsidiary is in default with respect to any Indebtedness.

            (bb) Form S-3 Eligibility.The Company is eligible to register the
      resale of the Shares and the Underlying Shares for resale by the Purchaser
      on Form S-3 promulgated under the Securities Act.

            (cc) Tax Status. Except for matters that would not, individually or
      in the aggregate, have or reasonably be expected to result in a Material
      Adverse Effect, the Company and each Subsidiary has filed all necessary
      federal, state and foreign income and franchise tax returns and has paid
      or accrued all taxes shown as due thereon, and the Company has no
      knowledge of a tax deficiency which has been asserted or threatened
      against the Company or any Subsidiary.

            (dd) No General Solicitation. Neither the Company nor any person
      acting on behalf of the Company has offered or sold any of the Securities
      by any form of general solicitation or general advertising. The Company
      has offered the Securities for sale only to the Purchasers and certain
      other "accredited investors" within the meaning of Rule 501 under the
      Securities Act.

                                       15
<PAGE>

            (ee) Foreign Corrupt Practices. Neither the Company, nor to the
      knowledge of the Company, any agent or other person acting on behalf of
      the Company, has (i) directly or indirectly, used any funds for unlawful
      contributions, gifts, entertainment or other unlawful expenses related to
      foreign or domestic political activity, (ii) made any unlawful payment to
      foreign or domestic government officials or employees or to any foreign or
      domestic political parties or campaigns from corporate funds, (iii) failed
      to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in
      violation of law, or (iv) violated in any material respect any provision
      of the Foreign Corrupt Practices Act of 1977, as amended.

            (ff) Accountants. The Company's accountants are set forth on
      Schedule 3.1(ff) of the Disclosure Schedule. To the knowledge of the
      Company, such accountants, who the Company expects will express their
      opinion with respect to the financial statements to be included in the
      Company's Annual Report on Form 10-KSB for the year ended March 31, 2005
      are a registered public accounting firm as required by the Securities Act.

            (gg) No Disagreements with Accountants and Lawyers. There are no
      disagreements of any kind presently existing, or reasonably anticipated by
      the Company to arise, between the accountants and lawyers formerly or
      presently employed by the Company and the Company is current with respect
      to any fees owed to its accountants and lawyers.

            (hh) Acknowledgment Regarding Purchasers' Purchase of Securities.
      The Company acknowledges and agrees that each of the Purchasers is acting
      solely in the capacity of an arm's length purchaser with respect to the
      Transaction Documents and the transactions contemplated hereby. The
      Company further acknowledges that no Purchaser is acting as a financial
      advisor or fiduciary of the Company (or in any similar capacity) with
      respect to this Agreement and the transactions contemplated hereby and any
      advice given by any Purchaser or any of their respective representatives
      or agents in connection with this Agreement and the transactions
      contemplated hereby is merely incidental to the Purchasers' purchase of
      the Securities. The Company further represents to each Purchaser that the
      Company's decision to enter into this Agreement has been based solely on
      the independent evaluation of the transactions contemplated hereby by the
      Company and its representatives.

            (ii) Acknowledgement Regarding Purchasers' Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary
      notwithstanding (except for Section 4.16 hereof), it is understood and
      agreed by the Company (i) that none of the Purchasers have been asked to
      agree, nor has any Purchaser agreed, to desist from purchasing or selling,
      long and/or short, securities of the Company, or "derivative" securities
      based on securities issued by the Company or to hold the Securities for
      any specified term; (ii) that past or future open market or other
      transactions by any Purchaser, including Short Sales, and specifically
      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

                                       16
<PAGE>

      Purchaser, and counter parties in "derivative" transactions to which any
      such Purchaser is a party, directly or indirectly, presently may have a
      "short" position in the Common Stock, and (iv) that each Purchaser shall
      not be deemed to have any affiliation with or control over any arm's
      length counter-party in any "derivative" transaction. The Company further
      understands and acknowledges that (a) one or more Purchasers may engage in
      hedging activities at various times during the period that the Securities
      are outstanding, including, without limitation, during the periods that
      the value of the Underlying Shares deliverable with respect to Securities
      are being determined and (b) such hedging activities (if any) could reduce
      the value of the existing stockholders' equity interests in the Company at
      and after the time that the hedging activities are being conducted. The
      Company acknowledges that such aforementioned hedging activities do not
      constitute a breach of any of the Transaction Documents.

            (jj) Manipulation of Price. The Company has not, and to its
      knowledge no one acting on its behalf has, (i) taken, directly or
      indirectly, any action designed to cause or to result in the stabilization
      or manipulation of the price of any security of the Company to facilitate
      the sale or resale of any of the Securities, (ii) sold, bid for,
      purchased, or, paid any compensation for soliciting purchases of, any of
      the Securities (other than for the placement agent's placement of the
      Securities), or (iii) paid or agreed to pay to any person any compensation
      for soliciting another to purchase any other securities of the Company.

      3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

            (a) Organization; Authority. Such Purchaser is an entity duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction of its organization with full right, corporate or partnership
      power and authority to enter into and to consummate the transactions
      contemplated by the Transaction Documents and otherwise to carry out its
      obligations hereunder and thereunder. The execution, delivery and
      performance by such Purchaser of the transactions contemplated by this
      Agreement have been duly authorized by all necessary corporate or similar
      action on the part of such Purchaser. Each Transaction Document to which
      it is a party has been duly executed by such Purchaser, and when delivered
      by such Purchaser in accordance with the terms hereof, will constitute the
      valid and legally binding obligation of such Purchaser, enforceable
      against it in accordance with its terms, except (i) as limited by general
      equitable principles and applicable bankruptcy, insolvency,
      reorganization, moratorium and other laws of general application affecting
      enforcement of creditors' rights generally, (ii) as limited by laws
      relating to the availability of specific performance, injunctive relief or
      other equitable remedies and (iii) insofar as indemnification and
      contribution provisions may be limited by applicable law.

            (b) Own Account. Such Purchaser understands that the Securities are
      "restricted securities" and have not been registered under the Securities
      Act or any applicable state securities law and is acquiring the Securities
      as principal for its own

                                       17
<PAGE>

      account and not with a view to or for distributing or reselling such
      Securities or any part thereof in violation of the Securities Act or any
      applicable state securities law, has no present intention of distributing
      any of such Securities in violation of the Securities Act or any
      applicable state securities law and has no arrangement or understanding
      with any other persons regarding the distribution of such Securities (this
      representation and warranty not limiting such Purchaser's right to sell
      the Securities pursuant to the Registration Statement or otherwise in
      compliance with applicable federal and state securities laws) in violation
      of the Securities Act or any applicable state securities law. Such
      Purchaser is acquiring the Securities hereunder in the ordinary course of
      its business. Such Purchaser does not have any agreement or understanding,
      directly or indirectly, with any Person to distribute any of the
      Securities.

            (c) Purchaser Status. At the time such Purchaser was offered the
      Securities, it was, and at the date hereof it is, and on each date on
      which it exercises any Warrants it will be either: (i) an "accredited
      investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
      under the Securities Act or (ii) a "qualified institutional buyer" as
      defined in Rule 144A(a) under the Securities Act. Such Purchaser is not
      required to be registered as a broker-dealer under Section 15 of the
      Exchange Act.

            (d) Experience of Such Purchaser. Such Purchaser, either alone or
      together with its representatives, has such knowledge, sophistication and
      experience in business and financial matters so as to be capable of
      evaluating the merits and risks of the prospective investment in the
      Securities, and has so evaluated the merits and risks of such investment.
      Such Purchaser is able to bear the economic risk of an investment in the
      Securities and, at the present time, is able to afford a complete loss of
      such investment.

            (e) General Solicitation. Such Purchaser is not purchasing the
      Securities as a result of any advertisement, article, notice or other
      communication regarding the Securities published in any newspaper,
      magazine or similar media or broadcast over television or radio or
      presented at any seminar or any other general solicitation or general
      advertisement.

            (f) Short Sales and Confidentiality Prior To The Date Hereof. Other
      than the transaction contemplated hereunder, such Purchaser has not
      directly or indirectly, nor has any Person acting on behalf of or pursuant
      to any understanding with such Purchaser, executed any disposition,
      including Short Sales (but not including the location and/or reservation
      of borrowable shares of Common Stock), in the securities of the Company
      during the period commencing from the time that such Purchaser first
      received a term sheet from the Company or any other Person setting forth
      the material terms of the transactions contemplated hereunder until the
      date hereof ("Discussion Time"). Notwithstanding the foregoing, in the
      case of a Purchaser that is a multi-managed investment vehicle whereby
      separate portfolio managers manage separate portions of such Purchaser's
      assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other
      portions of such Purchaser's assets, the representation set forth above
      shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to

                                       18
<PAGE>

      purchase the Securities covered by this Agreement. Other than to other
      Persons party to this Agreement, such Purchaser has maintained the
      confidentiality of all disclosures made to it in connection with this
      transaction (including the existence and terms of this transaction).

            The Company acknowledges and agrees that each Purchaser does not
      make or has not made any representations or warranties with respect to the
      transactions contemplated hereby other than those specifically set forth
      in this Section 3.2.

                                   ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

      4.1 Transfer Restrictions.

            (a) The Securities may only be disposed of in compliance with state
      and federal securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or Rule 144, to
      the Company or to an affiliate of a Purchaser or in connection with a
      pledge as contemplated in Section 4.1(b), the Company may require the
      transferor thereof to provide to the Company an opinion of counsel
      selected by the transferor and reasonably acceptable to the Company, the
      form and substance of which opinion shall be reasonably satisfactory to
      the Company, to the effect that such transfer does not require
      registration of such transferred Securities under the Securities Act. As a
      condition of transfer, any such transferee shall agree in writing to be
      bound by the terms of this Agreement and shall have the rights of a
      Purchaser under this Agreement and the Registration Rights Agreement.

            (b) The Purchasers agree to the imprinting, so long as is required
      by this Section 4.1(b), of a legend on any of the Securities in the
      following form:

      [NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
      ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
      AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
      RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
      OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
      UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
      A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
      THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
      THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
      SECURITIES MAY BE PLEDGED IN CONNECTION WITH

                                       19

<PAGE>

      A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

            The Company acknowledges and agrees that a Purchaser may from time
      to time pledge pursuant to a bona fide margin agreement with a registered
      broker-dealer or grant a security interest in some or all of the
      Securities to a financial institution that is an "accredited investor" as
      defined in Rule 501(a) under the Securities Act and who agrees to be bound
      by the provisions of this Agreement and the Registration Rights Agreement
      and, if required under the terms of such arrangement, such Purchaser may
      transfer pledged or secured Securities to the pledgees or secured parties.
      Such a pledge or transfer would not be subject to approval of the Company
      and no legal opinion of legal counsel of the pledgee, secured party or
      pledgor shall be required in connection therewith. Further, no notice
      shall be required of such pledge. At the appropriate Purchaser's expense,
      the Company will execute and deliver such reasonable documentation as a
      pledgee or secured party of Securities may reasonably request in
      connection with a pledge or transfer of the Securities, including, if the
      Securities are subject to registration pursuant to the Registration Rights
      Agreement, the preparation and filing of any required prospectus
      supplement under Rule 424(b)(3) under the Securities Act or other
      applicable provision of the Securities Act to appropriately amend the list
      of Selling Stockholders thereunder.

            (c) Certificates evidencing the Underlying Shares shall not contain
      any legend (including the legend set forth in Section 4.1(b) hereof): (i)
      while a registration statement (including the Registration Statement)
      covering the resale of such security is effective under the Securities
      Act, or (ii) following any sale of such Underlying Shares pursuant to Rule
      144, or (iii) if such Underlying Shares are eligible for sale under Rule
      144(k), or (iv) if such legend is not required under applicable
      requirements of the Securities Act (including judicial interpretations and
      pronouncements issued by the staff of the Commission). The Company shall
      cause its counsel to issue a legal opinion to the Company's transfer agent
      promptly after the Effective Date if required by the Company's transfer
      agent to effect the removal of the legend hereunder. If all or any portion
      of a Warrant is exercised at a time when there is an effective
      registration statement to cover the resale of the Underlying Shares, or if
      such Underlying Shares may be sold under Rule 144(k) or if such legend is
      not otherwise required under applicable requirements of the Securities Act
      (including judicial interpretations thereof) then such Underlying Shares
      shall be issued free of all legends. The Company agrees that following the
      Effective Date or at such time as such legend is no longer required under
      this Section 4.1(c), it will, no later than three Trading Days following
      the delivery by a Purchaser to the Company or the Company's transfer agent
      of a certificate representing Underlying Shares, as applicable, issued
      with a restrictive legend (such third Trading Day, the "Legend Removal
      Date"), deliver or cause to be delivered to such Purchaser a certificate
      representing such shares that is free from all restrictive and other
      legends. The Company may not make any notation on its records or give
      instructions to any transfer agent of the Company that enlarge the
      restrictions on transfer set forth in this Section. Certificates for
      Securities subject to legend removal hereunder shall be transmitted by the
      transfer agent

                                       20

<PAGE>

      of the Company to the Purchasers by crediting the account of the
      Purchaser's prime broker with the Depository Trust Company System.

            (d) In addition to such Purchaser's other available remedies, the
      Company shall pay to a Purchaser, in cash, as partial liquidated damages
      and not as a penalty, for each $1,000 of Underlying Shares (based on the
      VWAP of the Common Stock on the date such Securities are submitted to the
      Company's transfer agent) delivered for removal of the restrictive legend
      and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
      Trading Day 5 Trading Days after such damages have begun to accrue) for
      each Trading Day after the Legend Removal Date until such certificate is
      delivered without a legend. Nothing herein shall limit such Purchaser's
      right to pursue actual damages for the Company's failure to deliver
      certificates representing any Securities as required by the Transaction
      Documents, and such Purchaser shall have the right to pursue all remedies
      available to it at law or in equity including, without limitation, a
      decree of specific performance and/or injunctive relief.

            (e) Each Purchaser, severally and not jointly with the other
      Purchasers, agrees that the removal of the restrictive legend from
      certificates representing Securities as set forth in this Section 4.1 is
      predicated upon the Company's reliance that the Purchaser will sell any
      Securities pursuant to either the registration requirements of the
      Securities Act, including any applicable prospectus delivery requirements,
      or an exemption therefrom.

            (f) Until the one year anniversary of the Effective Date, the
      Company shall not undertake a reverse or forward stock split or
      reclassification of the Common Stock without the prior written consent of
      the Purchasers.

      4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of the Securities may result in dilution of the outstanding shares of Common
Stock. The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Underlying Shares pursuant to the Transaction Documents, are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of the effect of any such dilution or any claim the
Company may have against any Purchaser and regardless of the dilutive effect
that such issuance may have on the ownership of the other stockholders of the
Company.

      4.3 Furnishing of Information. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

                                       21

<PAGE>

      4.4 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.

      4.5 Exercise Procedures. The form of Notice of Exercise included in the
Warrants sets forth the totality of the procedures required of the Purchasers in
order to exercise the Warrants. No additional legal opinion or other information
or instructions shall be required of the Purchasers to exercise their Warrants.
The Company shall honor exercises of the Warrants and shall deliver Underlying
Shares in accordance with the terms, conditions and time periods set forth in
the Transaction Documents.

      4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a Current
Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the
material terms of the transactions contemplated hereby, and shall attach the
Transaction Documents thereto. The Company and each Purchaser shall consult with
each other in issuing any other press releases with respect to the transactions
contemplated hereby, and neither the Company nor any Purchaser shall issue any
such press release or otherwise make any such public statement without the prior
consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release
of the Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall promptly
provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with the registration statement contemplated by the
Registration Rights Agreement and (ii) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
the Purchasers with prior notice of such disclosure permitted under subclause
(i) or (ii).

      4.7 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.

      4.8 Non-Public Information. The Company covenants and agrees that neither
it nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and

                                       22

<PAGE>

use of such information. The Company understands and confirms that each
Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

      4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and prior practices), to redeem any Common Stock or
Common Stock Equivalents or to settle any outstanding litigation.

      4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any current stockholder or any Proceeding brought by
or on behalf of such Purchaser), solely as a result of such Purchaser's
acquisition of the Securities under this Agreement, the Company will reimburse
such Purchaser for its reasonable legal and other expenses (including the cost
of any investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of the Purchasers who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Purchasers and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers and any such Affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement.

      4.11 Indemnification of Purchasers. Subject to the provisions of this
Section 4.11, the Company will indemnify and hold the Purchasers and their
directors, officers, shareholders, members, partners, employees and agents
(each, a "Purchaser Party") harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys'
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser's representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the

                                       23

<PAGE>

Company shall have the right to assume the defense thereof with counsel of its
own choosing. Any Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or (iii)
in such action there is, in the reasonable opinion of such separate counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party. The Company will not be liable to any
Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party
effected without the Company's prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party's
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents.

      4.12 Reservation and Listing of Securities.

            (a) The Company shall maintain a reserve from its duly authorized
      shares of Common Stock for issuance pursuant to the Transaction Documents
      in such amount as may be required to fulfill its obligations in full under
      the Transaction Documents.

            (b) The Company shall, if applicable: (i) in the time and manner
      required by the Trading Market, prepare and file with such Trading Market
      an additional shares listing application covering the Shares and the
      Underlying Shares, (ii) take all steps necessary to cause such shares of
      Common Stock to be approved for listing on the Trading Market as soon as
      possible thereafter, (iii) provide to the Purchasers evidence of such
      listing, and (iv) maintain the listing of such Common Stock on such
      Trading Market or another Trading Market.

      4.13 Grants of Additional Stock Options.

            (a) Until thirty-six months after the Closing Date, if, on or after
      the date hereof, the Company shall grant options to its employees,
      officers or directors pursuant to any stock option plan in excess of 10%
      of the Company's outstanding common stock as of the date of such grant,
      the Purchasers shall be entitled to receive additional shares of Common
      Stock so that the Purchasers can maintain their ownership percentage of
      the Company as if such stock options were not granted in excess of 10% of
      the outstanding Common Stock.

            (b) Notwithstanding the foregoing, this Section 4.13 shall not apply
      to outstanding warrants or options as of the date hereof.

      4.14 Equal Treatment of Purchasers. No consideration shall be offered or
paid to any person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right

                                       24

<PAGE>

granted to each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as
a group with respect to the purchase, disposition or voting of Securities or
otherwise.

      4.15 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any affiliates acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period after the Discussion Time and
ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6. Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain, the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5 under
Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation
Finance. Notwithstanding the foregoing, no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in Short Sales in the
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced as described in Section 4.6.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the covenant set forth above
shall only apply with respect to the portion of assets managed by the portfolio
manager that made the investment decision to purchase the Securities covered by
this Agreement.

                                   ARTICLE V.
                                  MISCELLANEOUS

      5.1 Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser's obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before June
21, 2005; provided, however, that no such termination will affect the right of
any party to sue for any breach by the other party (or parties).

      5.2 Fees and Expenses. The Company shall pay, out of the proceeds of the
Closing, a fee equal to $13,750 to SMH Group, Inc. The Company shall deliver,
prior to the Closing, a completed and executed copy of the Closing Statement,
attached hereto as Annex A. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and

                                       25

<PAGE>

performance of this Agreement. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the delivery of
any Securities.

      5.3 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

      5.4 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

      5.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

      5.6 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

      5.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

      5.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of,

                                       26

<PAGE>

nor may any provision hereof be enforced by, any other Person, except as
otherwise set forth in Section 4.11.

      5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Texas, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in Harris County
in the State of Texas. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in Harris County in the
State of Texas for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. The parties hereby waive all rights to a trial
by jury. If either party shall commence an action or proceeding to enforce any
provisions of the Transaction Documents, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys'
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.

      5.10 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery, exercise and/or conversion of the
Securities, as applicable for the applicable statue of limitations.

      5.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

      5.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

                                       27

<PAGE>

      5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of an exercise of a Warrant, the Purchaser
shall be required to return any shares of Common Stock subject to any such
rescinded exercise notice.

      5.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

      5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

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

      5.17 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction

                                       28

<PAGE>

Documents. Each Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents.

      5.18 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

      5.19 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

                            (Signature Pages Follow)

                                       29

<PAGE>

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

US DATAWORKS, INC.                      Address for Notice:

By: /s/ John S. Reiland                 5301 Hollister Road, Suite 250,
    ------------------------------      Houston, Texas 77040
    Name: John S. Reiland
    Title: Chief Financial Officer

With a copy to (which shall not constitute notice):

   Locke Liddell & Sapp LLP
   600 Travis Street
   3500 JPMorgan Chase Tower
   Houston, Texas 77002
   Attn: David F. Taylor
   Fax: 713-223-3717

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGE FOR PURCHASER FOLLOWS]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser:  Don Sanders
Signature of Authorized Signatory of Purchaser: /s/ Don Sanders
Name of Authorized Signatory: Don Sanders
Title of Authorized Signatory: _____________________________________________
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Don Sanders
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $100,000                Subscription Shares: 209,776
Warrant Shares: $0.715 Warrants: 52,444
                $0.812 Warrants: 52,444
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Sanders Opportunity Fund Institutional
Signature of Authorized Signatory of Purchaser: /s/ Don Sanders
Name of Authorized Signatory: Don A. Sanders
Title of Authorized Signatory: Chief Investment Officer
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Sanders Opportunity Fund Institutional
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $172,642             Subscription Shares: 362,160
Warrant Shares: $0.715 Warrants: 90,540
                $0.812 Warrants: 90,540
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Sanders Opportunity Fund LP
Signature of Authorized Signatory of Purchaser: /s/ Don Sanders
Name of Authorized Signatory: Don A. Sanders
Title of Authorized Signatory: Chief Investment Officer
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Sanders Opportunity Fund LP
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $52,358              Subscription Shares: 109,834
Warrant Shares: $0.715 Warrants: 27,459
                $0.812 Warrants: 27,459
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Sanders 1998 Children's Trust
Signature of Authorized Signatory of Purchaser: /s/ Don Weir
Name of Authorized Signatory: Donald V. Weir
Title of Authorized Signatory: TTEE
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Sanders 1998 Children's Trust
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $100,000           Subscription Shares: 209,776
Warrant Shares: $0.715 Warrants: 52,444
                $0.812 Warrants: 52,444
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Ben Morris
Signature of Authorized Signatory of Purchaser: /s/ Ben Morris
Name of Authorized Signatory: Ben Morris
Title of Authorized Signatory: ________________________________________________
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Ben Morris
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $25,000            Subscription Shares: 52,444
Warrant Shares: $0.715 Warrants: 13,111
                $0.812 Warrants: 13,111
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

                                       35
<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: George Ball
Signature of Authorized Signatory of Purchaser: /s/ George Ball
Name of Authorized Signatory: George Ball
Title of Authorized Signatory: ________________________________________________
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

George Ball
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $25,000            Subscription Shares: 52,444
Warrant Shares: $0.715 Warrants: 13,111
                $0.812 Warrants: 13,111
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Don & Julie Weir
Signature of Authorized Signatory of Purchaser: /s/ Don Weir   /s/ Julie Weir
Name of Authorized Signatory: Don Weir    Julie Weir    TIC
Title of Authorized Signatory: ________________________________________________
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Don & Julie Weir
Sanders Morris Harris
600 Travis, Suite 3100
Houston, TX 77002

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $25,000               Subscription Shares: 52,444
Warrant Shares: $0.715 Warrants: 13,111
                $0.812 Warrants: 13,111
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: NRK Limited Partnership
Signature of Authorized Signatory of Purchaser: /s/ Richard Behfarin
Name of Authorized Signatory: Richard Behfarin
Title of Authorized Signatory: Limited Partner, Power of Attorney
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

NRK Limited Partnership
c/o Richard Behfarin
10850 Wilshire Blvd., Suite 1170
Los Angeles, CA 90024

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $80,000            Subscription Shares: 167,821
Warrant Shares: $0.715 Warrants: 41,955
                $0.812 Warrants: 41,955
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

        [PURCHASER SIGNATURE PAGES TO UDW SECURITIES PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

Name of Purchaser: Todd & Nancy Morse Community Property
Signature of Authorized Signatory of Purchaser: /s/ Nancy Morse   /s/ Todd Morse
Name of Authorized Signatory: Nancy Morse    Todd Morse
Title of Authorized Signatory: ________________________________________________
Email Address of Purchaser: [omitted]

Address for Notice of Purchaser:

Todd & Nancy Morse Community Property
27390 Deer Springs Way
Los Altos Hills, CA 94022

Address for Delivery of Securities for Purchaser (if not same as above):

Subscription Amount: $20,000            Subscription Shares: 41,955
Warrant Shares: $0.715 Warrants: 10,489
                $0.812 Warrants: 10,489
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

                           [SIGNATURE PAGES CONTINUE]

<PAGE>

                                                                         ANNEX A

                               CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchasers shall purchase $600,000 of Shares and Warrants from US
Dataworks, Inc., a Nevada corporation (the "Company"). All funds will be
disbursed in accordance with this Closing Statement.

DISBURSEMENT DATE: June 17, 2005

<TABLE>
<S>                                                           <C>
I.   PURCHASE PRICE

                GROSS PROCEEDS TO BE RECEIVED                 $ 600,000

II.  DISBURSEMENTS

Sanders Morris Harris                                         $  13,750
Company                                                       $ 586,250

TOTAL AMOUNT DISBURSED:                                       $ 600,000
</TABLE>

WIRE INSTRUCTIONS:

To:        US Dataworks, Inc.
Bank:      Southwest Bank of Texas NA
           Houston, Texas
ABA#       113011258
Credit to: US Dataworks, Inc.
Account#:  3260410<PAGE>

                                                                     EXHIBIT 4.2

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

                          COMMON STOCK PURCHASE WARRANT

                To Purchase __________ Shares of Common Stock of

                               US DATAWORKS, INC.

            THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") certifies that,
for value received, ____________ (the "Holder"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the "Initial Exercise Date") and on or
prior to the close of business on the three year anniversary of the Initial
Exercise Date (the "Termination Date") but not thereafter, to subscribe for and
purchase from US Dataworks, Inc., a Nevada corporation (the "Company"), up to
___________ shares (the "Warrant Shares") of Common Stock, par value $0.0001 per
share, of the Company (the "Common Stock"). The purchase price of one share of
Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).

      Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase
Agreement (the "Purchase Agreement"), dated June 16, 2005, among the Company and
the purchasers signatory thereto.

      Section 2. Exercise.

            a) Exercise of Warrant. Exercise of the purchase rights represented
      by this Warrant may be made, in whole or in part, at any time or times on
      or after the Initial Exercise Date and on or before the Termination Date
      by delivery to the Company of a duly executed facsimile copy of the Notice
      of Exercise Form annexed hereto (or such other office or agency of the
      Company as it may designate by notice in writing to the registered Holder
      at the address of such Holder appearing on the books of the Company);
      provided, however, within 5 Trading Days of the date said Notice of
      Exercise is delivered to the Company, the Holder shall have surrendered
      this Warrant to the Company and the

                                       1

<PAGE>

      Company shall have received payment of the aggregate Exercise Price of the
      shares thereby purchased by wire transfer or cashier's check drawn on a
      United States bank.

            b) Exercise Price. The exercise price of the Common Stock under this
      Warrant shall be $0.715, subject to adjustment hereunder (the "Exercise
      Price").

            c) Cashless Exercise. If at any time after one year from the date of
      issuance of this Warrant there is no effective Registration Statement
      registering, or no current prospectus available for, the resale of the
      Warrant Shares by the Holder, then this Warrant may also be exercised at
      such time by means of a "cashless exercise" in which the Holder shall be
      entitled to receive a certificate for the number of Warrant Shares equal
      to the quotient obtained by dividing [(A-B) (X)] by (A), where:

            (A) = the VWAP on the Trading Day immediately preceding the date
                 of such election;

            (B) = the Exercise Price of this Warrant, as adjusted; and

            (X) = the number of Warrant Shares issuable upon exercise of this
                  Warrant in accordance with the terms of this Warrant by means
                  of a cash exercise rather than a cashless exercise.

            Notwithstanding anything herein to the contrary, on the Termination
      Date provided that there is no effective Registration Statement
      registering, or no current prospectus available for, the resale of the
      Warrant Shares by the Holder, this Warrant shall be automatically
      exercised via cashless exercise pursuant to this Section 2(c).

            d) Exercise Limitations.

                        i. Holder's Restrictions. A Holder shall not have the
                  right to exercise any portion of this Warrant, pursuant to
                  Section 2(c) or otherwise, to the extent that after giving
                  effect to such issuance after exercise, such Holder (together
                  with such Holder's affiliates), as set forth on the applicable
                  Notice of Exercise, would beneficially own in excess of 4.99%
                  of the number of shares of the Common Stock outstanding
                  immediately after giving effect to such issuance. For purposes
                  of the foregoing sentence, the number of shares of Common
                  Stock beneficially owned by such Holder and its affiliates
                  shall include the number of shares of Common Stock issuable
                  upon exercise of this Warrant with respect to which the
                  determination of such sentence is being made, but shall
                  exclude the number of shares of Common Stock which would be
                  issuable upon (A) exercise of the remaining, nonexercised
                  portion of this Warrant beneficially owned by such Holder or
                  any of its affiliates and (B) exercise or conversion of the
                  unexercised or nonconverted portion of any other securities of
                  the Company (including, without limitation, any other shares
                  of Warrants) subject to a limitation on conversion or exercise
                  analogous to the limitation contained herein beneficially
                  owned by such Holder or any

                                       2

<PAGE>

                  of its affiliates. Except as set forth in the preceding
                  sentence, for purposes of this Section 2(d)(i), beneficial
                  ownership shall be calculated in accordance with Section 13(d)
                  of the Exchange Act, it being acknowledged by a Holder that
                  the Company is not representing to such Holder that such
                  calculation is in compliance with Section 13(d) of the
                  Exchange Act and such Holder is solely responsible for any
                  schedules required to be filed in accordance therewith. To the
                  extent that the limitation contained in this Section 2(d)
                  applies, the determination of whether this Warrant is
                  exercisable (in relation to other securities owned by such
                  Holder) and of which a portion of this Warrant is exercisable
                  shall be in the sole discretion of a Holder, and the
                  submission of a Notice of Exercise shall be deemed to be each
                  Holder's determination of whether this Warrant is exercisable
                  (in relation to other securities owned by such Holder) and of
                  which portion of this Warrant is exercisable, in each case
                  subject to such aggregate percentage limitation, and the
                  Company shall have no obligation to verify or confirm the
                  accuracy of such determination. For purposes of this Section
                  2(d), in determining the number of outstanding shares of
                  Common Stock, a Holder may rely on the number of outstanding
                  shares of Common Stock as reflected in (x) the Company's most
                  recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a
                  more recent public announcement by the Company or (z) any
                  other notice by the Company or the Company's Transfer Agent
                  setting forth the number of shares of Common Stock
                  outstanding. Upon the written or oral request of a Holder, the
                  Company shall within two Trading Days confirm orally and in
                  writing to such Holder the number of shares of Common Stock
                  then outstanding. In any case, the number of outstanding
                  shares of Common Stock shall be determined after giving effect
                  to the conversion or exercise of securities of the Company,
                  including this Warrant, by such Holder or its affiliates since
                  the date as of which such number of outstanding shares of
                  Common Stock was reported. The provisions of this Section 2(d)
                  may be waived by such Holder, at the election of such Holder,
                  upon not less than 61 days' prior notice to the Company, and
                  the provisions of this Section 2(d) shall continue to apply
                  until such 61st day (or such later date, as determined by such
                  Holder, as may be specified in such notice of waiver).

                        ii. Trading Market Restrictions. If the Company has not
                  obtained Shareholder Approval (as defined below) if required
                  by the applicable rules and regulations of the Trading Market
                  (or any successor entity), then the Company may not issue upon
                  exercise of this Warrant a number of shares of Common Stock
                  which, when aggregated with any shares of Common Stock issued
                  upon prior exercise of this or any other Warrant issued
                  pursuant to the Purchase Agreement, would exceed 19.999% of
                  the number of shares of Common Stock outstanding on the
                  Trading Day immediately preceding the Closing Date (such
                  number of shares, the "Issuable Maximum"). If on any attempted
                  exercise of this Warrant, the issuance of Warrant Shares would
                  exceed the Issuable Maximum and the

                                       3

<PAGE>

                  Company shall not have previously obtained the vote of
                  shareholders (the "Shareholder Approval"), if any, as may be
                  required by the applicable rules and regulations of the
                  Trading Market (or any successor entity) to approve the
                  issuance of shares of Common Stock in excess of the Issuable
                  Maximum pursuant to the terms hereof, then the Company shall
                  issue to the Holder requesting a Warrant exercise such number
                  of Warrant Shares as may be issued below the Issuable Maximum
                  and, with respect to the remainder of the aggregate number of
                  Warrant Shares, this Warrant shall not be exercisable until
                  and unless Shareholder Approval has been obtained.

            e) Mechanics of Exercise.

                        i. Authorization of Warrant Shares. The Company
                  covenants that all Warrant Shares which may be issued upon the
                  exercise of the purchase rights represented by this Warrant
                  will, upon exercise of the purchase rights represented by this
                  Warrant, be duly authorized, validly issued, fully paid and
                  nonassessable and free from all taxes, liens and charges in
                  respect of the issue thereof (other than taxes in respect of
                  any transfer occurring contemporaneously with such issue).

                        ii. Delivery of Certificates Upon Exercise. Certificates
                  for shares purchased hereunder shall be transmitted by the
                  transfer agent of the Company to the Holder by crediting the
                  account of the Holder's prime broker with the Depository Trust
                  Company through its Deposit Withdrawal Agent Commission
                  ("DWAC") system if the Company is a participant in such
                  system, and otherwise by physical delivery to the address
                  specified by the Holder in the Notice of Exercise within 3
                  Trading Days from the delivery to the Company of the Notice of
                  Exercise Form, surrender of this Warrant and payment of the
                  aggregate Exercise Price as set forth above ("Warrant Share
                  Delivery Date"). This Warrant shall be deemed to have been
                  exercised on the date the Exercise Price is received by the
                  Company. The Warrant Shares shall be deemed to have been
                  issued, and Holder or any other person so designated to be
                  named therein shall be deemed to have become a holder of
                  record of such shares for all purposes, as of the date the
                  Warrant has been exercised by payment to the Company of the
                  Exercise Price and all taxes required to be paid by the
                  Holder, if any, pursuant to Section 2(e)(vii) prior to the
                  issuance of such shares, have been paid.

                        iii. Delivery of New Warrants Upon Exercise. If this
                  Warrant shall have been exercised in part, the Company shall,
                  at the time of delivery of the certificate or certificates
                  representing Warrant Shares, deliver to Holder a new Warrant
                  evidencing the rights of Holder to purchase the unpurchased
                  Warrant Shares called for by this Warrant, which new Warrant
                  shall in all other respects be identical with this Warrant.

                                       4

<PAGE>

                        iv. Rescission Rights. If the Company fails to cause its
                  transfer agent to transmit to the Holder a certificate or
                  certificates representing the Warrant Shares pursuant to this
                  Section 2(e)(iv) by the Warrant Share Delivery Date, then the
                  Holder will have the right to rescind such exercise.

                        v. Compensation for Buy-In on Failure to Timely Deliver
                  Certificates Upon Exercise. In addition to any other rights
                  available to the Holder, if the Company fails to cause its
                  transfer agent to transmit to the Holder a certificate or
                  certificates representing the Warrant Shares pursuant to an
                  exercise on or before the Warrant Share Delivery Date, and if
                  after such date the Holder is required by its broker to
                  purchase (in an open market transaction or otherwise) shares
                  of Common Stock to deliver in satisfaction of a sale by the
                  Holder of the Warrant Shares which the Holder anticipated
                  receiving upon such exercise (a "Buy-In"), then the Company
                  shall (1) pay in cash to the Holder the amount by which (x)
                  the Holder's total purchase price (including brokerage
                  commissions, if any) for the shares of Common Stock so
                  purchased exceeds (y) the amount obtained by multiplying (A)
                  the number of Warrant Shares that the Company was required to
                  deliver to the Holder in connection with the exercise at issue
                  times (B) the price at which the sell order giving rise to
                  such purchase obligation was executed, and (2) at the option
                  of the Holder, either reinstate the portion of the Warrant and
                  equivalent number of Warrant Shares for which such exercise
                  was not honored or deliver to the Holder the number of shares
                  of Common Stock that would have been issued had the Company
                  timely complied with its exercise and delivery obligations
                  hereunder. For example, if the Holder purchases Common Stock
                  having a total purchase price of $11,000 to cover a Buy-In
                  with respect to an attempted exercise of shares of Common
                  Stock with an aggregate sale price giving rise to such
                  purchase obligation of $10,000, under clause (1) of the
                  immediately preceding sentence the Company shall be required
                  to pay the Holder $1,000. The Holder shall provide the Company
                  written notice indicating the amounts payable to the Holder in
                  respect of the Buy-In, together with applicable confirmations
                  and other evidence reasonably requested by the Company.
                  Nothing herein shall limit a Holder's right to pursue any
                  other remedies available to it hereunder, at law or in equity
                  including, without limitation, a decree of specific
                  performance and/or injunctive relief with respect to the
                  Company's failure to timely deliver certificates representing
                  shares of Common Stock upon exercise of the Warrant as
                  required pursuant to the terms hereof.

                        vi. No Fractional Shares or Scrip. No fractional shares
                  or scrip representing fractional shares shall be issued upon
                  the exercise of this Warrant. As to any fraction of a share
                  which Holder would otherwise be entitled to purchase upon such
                  exercise, the Company shall pay a cash adjustment in respect
                  of such final fraction in an amount equal to such fraction
                  multiplied by the Exercise Price.

                                       5

<PAGE>

                        vii. Charges, Taxes and Expenses. Issuance of
                  certificates for Warrant Shares shall be made without charge
                  to the Holder for any issue or transfer tax or other
                  incidental expense in respect of the issuance of such
                  certificate, all of which taxes and expenses shall be paid by
                  the Company, and such certificates shall be issued in the name
                  of the Holder or in such name or names as may be directed by
                  the Holder; provided, however, that in the event certificates
                  for Warrant Shares are to be issued in a name other than the
                  name of the Holder, this Warrant when surrendered for exercise
                  shall be accompanied by the Assignment Form attached hereto
                  duly executed by the Holder; and the Company may require, as a
                  condition thereto, the payment of a sum sufficient to
                  reimburse it for any transfer tax incidental thereto.

                        viii. Closing of Books. The Company will not close its
                  stockholder books or records in any manner which prevents the
                  timely exercise of this Warrant, pursuant to the terms hereof.

      Section 3. Certain Adjustments.

            a) Stock Dividends and Splits. If the Company, at any time while
      this Warrant is outstanding: (A) pays a stock dividend or otherwise make a
      distribution or distributions on shares of its Common Stock or any other
      equity or equity equivalent securities payable in shares of Common Stock
      (which, for avoidance of doubt, shall not include any shares of Common
      Stock issued by the Company pursuant to this Warrant), (B) subdivides
      outstanding shares of Common Stock into a larger number of shares, (C)
      combines (including by way of reverse stock split) outstanding shares of
      Common Stock into a smaller number of shares, or (D) issues by
      reclassification of shares of the Common Stock any shares of capital stock
      of the Company, then in each case the Exercise Price shall be multiplied
      by a fraction of which the numerator shall be the number of shares of
      Common Stock (excluding treasury shares, if any) outstanding immediately
      before such event and of which the denominator shall be the number of
      shares of Common Stock outstanding immediately after such event and the
      number of shares issuable upon exercise of this Warrant shall be
      proportionately adjusted. Any adjustment made pursuant to this Section
      3(a) shall become effective immediately after the record date for the
      determination of stockholders entitled to receive such dividend or
      distribution and shall become effective immediately after the effective
      date in the case of a subdivision, combination or re-classification.

            b) Subsequent Equity Sales. If the Company or any Subsidiary
      thereof, as applicable, at any time while this Warrant is outstanding,
      shall offer, sell, grant any option to purchase or offer, sell or grant
      any right to reprice its securities, or otherwise dispose of or issue (or
      announce any offer, sale, grant or any option to purchase or other
      disposition) any Common Stock or Common Stock Equivalents entitling any
      Person to acquire shares of Common Stock, at an effective price per share
      less than the then Exercise Price (such lower price, the "Base Share
      Price" and such issuances collectively, a "Dilutive Issuance"), as
      adjusted hereunder (if the holder of the Common Stock or Common Stock
      Equivalents so issued shall at any time, whether by operation of purchase

                                       6

<PAGE>

      price adjustments, reset provisions, floating conversion, exercise or
      exchange prices or otherwise, or due to warrants, options or rights per
      share which is issued in connection with such issuance, be entitled to
      receive shares of Common Stock at an effective price per share which is
      less than the Exercise Price, such issuance shall be deemed to have
      occurred for less than the Exercise Price on such date of the Dilutive
      Issuance), then, the Exercise Price shall be reduced and only reduced to
      equal the Base Share Price. Such adjustment shall be made whenever such
      Common Stock or Common Stock Equivalents are issued. Notwithstanding the
      foregoing, no adjustments shall be made, paid or issued under this Section
      3(b) in respect of an Exempt Issuance. The Company shall notify the Holder
      in writing, no later than the Trading Day following the issuance of any
      Common Stock or Common Stock Equivalents subject to this section,
      indicating therein the applicable issuance price, or of applicable reset
      price, exchange price, conversion price and other pricing terms (such
      notice the "Dilutive Issuance Notice"). For purposes of clarification,
      whether or not the Company provides a Dilutive Issuance Notice pursuant to
      this Section 3(b), upon the occurrence of any Dilutive Issuance, after the
      date of such Dilutive Issuance the Holder is entitled to receive Warrant
      Shares based upon the Base Share Price regardless of whether the Holder
      accurately refers to the Base Share Price in the Notice of Exercise.

            c) Pro Rata Distributions. If the Company, at any time prior to the
      Termination Date, shall distribute to all holders of Common Stock (and not
      to Holders of the Warrants) evidences of its indebtedness or assets
      (including cash and cash dividends) or rights or warrants to subscribe for
      or purchase any security other than the Common Stock (which shall be
      subject to Section 3(b)), then in each such case the Exercise Price shall
      be adjusted by multiplying the Exercise Price in effect immediately prior
      to the record date fixed for determination of stockholders entitled to
      receive such distribution by a fraction of which the denominator shall be
      the VWAP determined as of the record date mentioned above, and of which
      the numerator shall be such VWAP on such record date less the then per
      share fair market value at such record date of the portion of such assets
      or evidence of indebtedness so distributed applicable to one outstanding
      share of the Common Stock as determined by the Board of Directors in good
      faith. In either case the adjustments shall be described in a statement
      provided to the Holder of the portion of assets or evidences of
      indebtedness so distributed or such subscription rights applicable to one
      share of Common Stock. Such adjustment shall be made whenever any such
      distribution is made and shall become effective immediately after the
      record date mentioned above.

            d) Fundamental Transaction. If, at any time while this Warrant is
      outstanding, (A) the Company effects any merger or consolidation of the
      Company with or into another Person, (B) the Company effects any sale of
      all or substantially all of its assets in one or a series of related
      transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of
      Common Stock are permitted to tender or exchange their shares for other
      securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange
      pursuant to which the Common Stock is effectively converted into or
      exchanged for other securities, cash or property (in any such case, a
      "Fundamental Transaction"), then, upon any subsequent exercise of this
      Warrant, the

                                       7

<PAGE>

      Holder shall have the right to receive, for each Warrant Share that would
      have been issuable upon such exercise immediately prior to the occurrence
      of such Fundamental Transaction, at the option of the Holder, (a) upon
      exercise of this Warrant, the number of shares of Common Stock of the
      successor or acquiring corporation or of the Company, if it is the
      surviving corporation, and any additional consideration (the "Alternate
      Consideration") receivable upon or as a result of such reorganization,
      reclassification, merger, consolidation or disposition of assets by a
      Holder of the number of shares of Common Stock for which this Warrant is
      exercisable immediately prior to such event or (b) if the Company is
      acquired in an all cash transaction, cash equal to the value of this
      Warrant as determined in accordance with the Black-Scholes option pricing
      formula. For purposes of any such exercise, the determination of the
      Exercise Price shall be appropriately adjusted to apply to such Alternate
      Consideration based on the amount of Alternate Consideration issuable in
      respect of one share of Common Stock in such Fundamental Transaction, and
      the Company shall apportion the Exercise Price among the Alternate
      Consideration in a reasonable manner reflecting the relative value of any
      different components of the Alternate Consideration. If holders of Common
      Stock are given any choice as to the securities, cash or property to be
      received in a Fundamental Transaction, then the Holder shall be given the
      same choice as to the Alternate Consideration it receives upon any
      exercise of this Warrant following such Fundamental Transaction. To the
      extent necessary to effectuate the foregoing provisions, any successor to
      the Company or surviving entity in such Fundamental Transaction shall
      issue to the Holder a new warrant consistent with the foregoing provisions
      and evidencing the Holder's right to exercise such warrant into Alternate
      Consideration. The terms of any agreement pursuant to which a Fundamental
      Transaction is effected shall include terms requiring any such successor
      or surviving entity to comply with the provisions of this Section 3(d) and
      insuring that this Warrant (or any such replacement security) will be
      similarly adjusted upon any subsequent transaction analogous to a
      Fundamental Transaction.

            e) Calculations. All calculations under this Section 3 shall be made
      to the nearest cent or the nearest 1/100th of a share, as the case may be.
      For purposes of this Section 3, the number of shares of Common Stock
      deemed to be issued and outstanding as of a given date shall be the sum of
      the number of shares of Common Stock (excluding treasury shares, if any)
      issued and outstanding.

            f) Voluntary Adjustment By Company. The Company may at any time
      during the term of this Warrant reduce the then current Exercise Price to
      any amount and for any period of time deemed appropriate by the Board of
      Directors of the Company.

            g) Notice to Holders.

                        i. Adjustment to Exercise Price. Whenever the Exercise
                  Price is adjusted pursuant to this Section 3, the Company
                  shall promptly mail to each Holder a notice setting forth the
                  Exercise Price after such adjustment and setting forth a brief
                  statement of the facts requiring such adjustment. If the
                  Company issues a variable rate security, despite the
                  prohibition thereon in the Purchase Agreement, the Company
                  shall be deemed to have

                                       8

<PAGE>

                  issued Common Stock or Common Stock Equivalents at the lowest
                  possible conversion or exercise price at which such securities
                  may be converted or exercised in the case of a Variable Rate
                  Transaction (as defined in the Purchase Agreement).

                        ii. Notice to Allow Exercise by Holder. If (A) the
                  Company shall declare a dividend (or any other distribution)
                  on the Common Stock; (B) the Company shall declare a special
                  nonrecurring cash dividend on or a redemption of the Common
                  Stock; (C) the Company shall authorize the granting to all
                  holders of the Common Stock rights or warrants to subscribe
                  for or purchase any shares of capital stock of any class or of
                  any rights; (D) the approval of any stockholders of the
                  Company shall be required in connection with any
                  reclassification of the Common Stock, any consolidation or
                  merger to which the Company is a party, any sale or transfer
                  of all or substantially all of the assets of the Company, of
                  any compulsory share exchange whereby the Common Stock is
                  converted into other securities, cash or property; (E) the
                  Company shall authorize the voluntary or involuntary
                  dissolution, liquidation or winding up of the affairs of the
                  Company; then, in each case, the Company shall cause to be
                  mailed to the Holder at its last address as it shall appear
                  upon the Warrant Register of the Company, at least 20 calendar
                  days prior to the applicable record or effective date
                  hereinafter specified, a notice stating (x) the date on which
                  a record is to be taken for the purpose of such dividend,
                  distribution, redemption, rights or warrants, or if a record
                  is not to be taken, the date as of which the holders of the
                  Common Stock of record to be entitled to such dividend,
                  distributions, redemption, rights or warrants are to be
                  determined or (y) the date on which such reclassification,
                  consolidation, merger, sale, transfer or share exchange is
                  expected to become effective or close, and the date as of
                  which it is expected that holders of the Common Stock of
                  record shall be entitled to exchange their shares of the
                  Common Stock for securities, cash or other property
                  deliverable upon such reclassification, consolidation, merger,
                  sale, transfer or share exchange; provided, that the failure
                  to mail such notice or any defect therein or in the mailing
                  thereof shall not affect the validity of the corporate action
                  required to be specified in such notice. The Holder is
                  entitled to exercise this Warrant during the 20-day period
                  commencing on the date of such notice to the effective date of
                  the event triggering such notice.

      Section 4. Transfer of Warrant.

            a) Transferability. Subject to compliance with any applicable
      securities laws and the conditions set forth in Sections 5(a) and 4(d)
      hereof and to the provisions of Section 4.1 of the Purchase Agreement,
      this Warrant and all rights hereunder are transferable, in whole or in
      part, upon surrender of this Warrant at the principal office of the
      Company, together with a written assignment of this Warrant substantially
      in the form attached hereto duly executed by the Holder or its agent or
      attorney and funds sufficient

                                       9

<PAGE>

      to pay any transfer taxes payable upon the making of such transfer. Upon
      such surrender and, if required, such payment, the Company shall execute
      and deliver a new Warrant or Warrants in the name of the assignee or
      assignees and in the denomination or denominations specified in such
      instrument of assignment, and shall issue to the assignor a new Warrant
      evidencing the portion of this Warrant not so assigned, and this Warrant
      shall promptly be cancelled. A Warrant, if properly assigned, may be
      exercised by a new holder for the purchase of Warrant Shares without
      having a new Warrant issued.

            b) New Warrants. This Warrant may be divided or combined with other
      Warrants upon presentation hereof at the aforesaid office of the Company,
      together with a written notice specifying the names and denominations in
      which new Warrants are to be issued, signed by the Holder or its agent or
      attorney. Subject to compliance with Section 4(a), as to any transfer
      which may be involved in such division or combination, the Company shall
      execute and deliver a new Warrant or Warrants in exchange for the Warrant
      or Warrants to be divided or combined in accordance with such notice.

            c) Warrant Register. The Company shall register this Warrant, upon
      records to be maintained by the Company for that purpose (the "Warrant
      Register"), in the name of the record Holder hereof from time to time. The
      Company may deem and treat the registered Holder of this Warrant as the
      absolute owner hereof for the purpose of any exercise hereof or any
      distribution to the Holder, and for all other purposes, absent actual
      notice to the contrary.

            d) Transfer Restrictions. If, at the time of the surrender of this
      Warrant in connection with any transfer of this Warrant, the transfer of
      this Warrant shall not be registered pursuant to an effective registration
      statement under the Securities Act and under applicable state securities
      or blue sky laws, the Company may require, as a condition of allowing such
      transfer (i) that the Holder or transferee of this Warrant, as the case
      may be, furnish to the Company a written opinion of counsel (which opinion
      shall be in form, substance and scope customary for opinions of counsel in
      comparable transactions) to the effect that such transfer may be made
      without registration under the Securities Act and under applicable state
      securities or blue sky laws, (ii) that the holder or transferee execute
      and deliver to the Company an investment letter in form and substance
      acceptable to the Company and (iii) that the transferee be an "accredited
      investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
      promulgated under the Securities Act or a qualified institutional buyer as
      defined in Rule 144A(a) under the Securities Act.

      Section 5. Miscellaneous.

            a) Title to Warrant. Prior to the Termination Date and subject to
      compliance with applicable laws and Section 4 of this Warrant, this
      Warrant and all rights hereunder are transferable, in whole or in part, at
      the office or agency of the Company by the Holder in person or by duly
      authorized attorney, upon surrender of this Warrant together with the
      Assignment Form annexed hereto properly endorsed. The transferee shall
      sign an investment letter in form and substance reasonably satisfactory to
      the Company.

                                       10

<PAGE>

            b) No Rights as Shareholder Until Exercise. This Warrant does not
      entitle the Holder to any voting rights or other rights as a shareholder
      of the Company prior to the exercise hereof. Upon the surrender of this
      Warrant and the payment of the aggregate Exercise Price (or by means of a
      cashless exercise), the Warrant Shares so purchased shall be and be deemed
      to be issued to such Holder as the record owner of such shares as of the
      close of business on the later of the date of such surrender or payment.

            c) Loss, Theft, Destruction or Mutilation of Warrant. The Company
      covenants that upon receipt by the Company of evidence reasonably
      satisfactory to it of the loss, theft, destruction or mutilation of this
      Warrant or any stock certificate relating to the Warrant Shares, and in
      case of loss, theft or destruction, of indemnity or security reasonably
      satisfactory to it (which, in the case of the Warrant, shall not include
      the posting of any bond), and upon surrender and cancellation of such
      Warrant or stock certificate, if mutilated, the Company will make and
      deliver a new Warrant or stock certificate of like tenor and dated as of
      such cancellation, in lieu of such Warrant or stock certificate.

            d) Saturdays, Sundays, Holidays, etc. If the last or appointed day
      for the taking of any action or the expiration of any right required or
      granted herein shall be a Saturday, Sunday or a legal holiday, then such
      action may be taken or such right may be exercised on the next succeeding
      day not a Saturday, Sunday or legal holiday.

            e) Authorized Shares.

                  The Company covenants that during the period the Warrant is
            outstanding, it will reserve from its authorized and unissued Common
            Stock a sufficient number of shares to provide for the issuance of
            the Warrant Shares upon the exercise of any purchase rights under
            this Warrant. The Company further covenants that its issuance of
            this Warrant shall constitute full authority to its officers who are
            charged with the duty of executing stock certificates to execute and
            issue the necessary certificates for the Warrant Shares upon the
            exercise of the purchase rights under this Warrant. The Company will
            take all such reasonable action as may be necessary to assure that
            such Warrant Shares may be issued as provided herein without
            violation of any applicable law or regulation, or of any
            requirements of the Trading Market upon which the Common Stock may
            be listed.

                  Except and to the extent as waived or consented to by the
            Holder, the Company shall not by any action, including, without
            limitation, amending its certificate of incorporation or through any
            reorganization, transfer of assets, consolidation, merger,
            dissolution, issue or sale of securities or any other voluntary
            action, avoid or seek to avoid the observance or performance of any
            of the terms of this Warrant, but will at all times in good faith
            assist in the carrying out of all such terms and in the taking of
            all such actions as may be necessary or appropriate to protect the
            rights of Holder as set forth in this Warrant against impairment.
            Without limiting the generality of the foregoing, the Company will
            (a) not increase the par value of any Warrant Shares above the
            amount payable

                                       11

<PAGE>

            therefor upon such exercise immediately prior to such increase in
            par value, (b) take all such action as may be necessary or
            appropriate in order that the Company may validly and legally issue
            fully paid and nonassessable Warrant Shares upon the exercise of
            this Warrant, and (c) use commercially reasonable efforts to obtain
            all such authorizations, exemptions or consents from any public
            regulatory body having jurisdiction thereof as may be necessary to
            enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
            in the number of Warrant Shares for which this Warrant is
            exercisable or in the Exercise Price, the Company shall obtain all
            such authorizations or exemptions thereof, or consents thereto, as
            may be necessary from any public regulatory body or bodies having
            jurisdiction thereof.

            f) Jurisdiction. All questions concerning the construction,
      validity, enforcement and interpretation of this Warrant shall be
      determined in accordance with the provisions of the Purchase Agreement.

            g) Restrictions. The Holder acknowledges that the Warrant Shares
      acquired upon the exercise of this Warrant, if not registered, will have
      restrictions upon resale imposed by state and federal securities laws.

            h) Nonwaiver and Expenses. No course of dealing or any delay or
      failure to exercise any right hereunder on the part of Holder shall
      operate as a waiver of such right or otherwise prejudice Holder's rights,
      powers or remedies, notwithstanding the fact that all rights hereunder
      terminate on the Termination Date. If the Company willfully and knowingly
      fails to comply with any provision of this Warrant, which results in any
      material damages to the Holder, the Company shall pay to Holder such
      amounts as shall be sufficient to cover any costs and expenses including,
      but not limited to, reasonable attorneys' fees, including those of
      appellate proceedings, incurred by Holder in collecting any amounts due
      pursuant hereto or in otherwise enforcing any of its rights, powers or
      remedies hereunder.

            i) Notices. Any notice, request or other document required or
      permitted to be given or delivered to the Holder by the Company shall be
      delivered in accordance with the notice provisions of the Purchase
      Agreement.

            j) Limitation of Liability. No provision hereof, in the absence of
      any affirmative action by Holder to exercise this Warrant or purchase
      Warrant Shares, and no enumeration herein of the rights or privileges of
      Holder, shall give rise to any liability of Holder for the purchase price
      of any Common Stock or as a stockholder of the Company, whether such
      liability is asserted by the Company or by creditors of the Company.

            k) Remedies. Holder, in addition to being entitled to exercise all
      rights granted by law, including recovery of damages, will be entitled to
      specific performance of its rights under this Warrant. The Company agrees
      that monetary damages would not be adequate compensation for any loss
      incurred by reason of a breach by it of the

                                       12

<PAGE>

      provisions of this Warrant and hereby agrees to waive the defense in any
      action for specific performance that a remedy at law would be adequate.

            l) Successors and Assigns. Subject to applicable securities laws,
      this Warrant and the rights and obligations evidenced hereby shall inure
      to the benefit of and be binding upon the successors of the Company and
      the successors and permitted assigns of Holder. The provisions of this
      Warrant are intended to be for the benefit of all Holders from time to
      time of this Warrant and shall be enforceable by any such Holder or holder
      of Warrant Shares.

            m) Amendment. This Warrant may be modified or amended or the
      provisions hereof waived with the written consent of the Company and the
      Holder.

            n) Severability. Wherever possible, each provision of this Warrant
      shall be interpreted in such manner as to be effective and valid under
      applicable law, but if any provision of this Warrant shall be prohibited
      by or invalid under applicable law, such provision shall be ineffective to
      the extent of such prohibition or invalidity, without invalidating the
      remainder of such provisions or the remaining provisions of this Warrant.

            o) Headings. The headings used in this Warrant are for the
      convenience of reference only and shall not, for any purpose, be deemed a
      part of this Warrant.

                              ********************

                                       13

<PAGE>

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

Dated: June 16, 2005

                                          US DATAWORKS, INC.

                                          By:___________________________________
                                             Name:
                                             Title:

                                       14

<PAGE>

                               NOTICE OF EXERCISE

TO: US DATAWORKS, INC.

            (1)______The undersigned hereby elects to purchase ________ Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

            (2)______Payment shall take the form of (check applicable box):

                  [ ] in lawful money of the United States; or

                  [ ] the cancellation of such number of Warrant Shares as is
                  necessary, in accordance with the formula set forth in
                  subsection 2(c), to exercise this Warrant with respect to the
                  maximum number of Warrant Shares purchasable pursuant to the
                  cashless exercise procedure set forth in subsection 2(c).

            (3)______Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below:

                     _____________________________________

The Warrant Shares shall be delivered to the following:

                     _____________________________________

                     _____________________________________

                     _____________________________________

            (4) Accredited Investor. The undersigned is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ______________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________
Name of Authorized Signatory: __________________________________________________
Title of Authorized Signatory: _________________________________________________
Date: __________________________________________________________________________

<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)

            FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

_____________________________________________________________________

_____________________________________________________________________

                                           Dated: ______________, _______

                  Holder's Signature: _____________________________

                  Holder's Address:   _____________________________

                                      _____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

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