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Unassociated Document

    EXHIBIT
      10.1

    

    SECURITIES
      PURCHASE AGREEMENT

     

    THIS
      SECURITIES PURCHASE AGREEMENT
      (the
“Agreement”),
      is
      dated as of October 19, 2007, by and among Intelligentias, Inc., a Nevada
      corporation (the “Company”)
      and
      the investors listed on Exhibit
      A
      hereto
      (each an “Investor”
and
      collectively, the “Investors”).
      

     

    BACKGROUND

     

    A. The
      Company and the Investors are executing and delivering this Agreement in
      reliance upon the exemption from registration afforded by Section 4(2) of
      the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      Rule 506
      of
      Regulation D
      (“Regulation
      D”)
      as
      promulgated by the United States Securities and Exchange Commission (the
“SEC”)
      under
      the Securities Act. 

    

    B. The
      Investors wish, severally, and not jointly, to purchase, and the Company wishes
      to sell and issue to the Investors, upon the terms and subject to the conditions
      stated in this Agreement, (i) an aggregate of up to 12,500,000 shares of the
      Company’s Series A Preferred Stock, par value $0.0001 per share (“Preferred
      Stock”),
      which
      will be convertible into shares (“Conversion
      Shares”)
      of the
      Company’s Common Stock (as hereinafter defined) at the Rate of Conversion (as
      hereinafter defined), and which will have the rights, preferences and privileges
      set forth in the form of Certificate of Designation attached hereto as
Exhibit
      B
      (the
“Certificate
      of Designation”);
      (ii)
      warrants to purchase an aggregate of up to 6,250,000 shares of Common Stock
      at a
      price per share of $1.25 (the “Market
      Warrants”)
      in the
      form attached hereto as Exhibit
      C;
      and
      (iii) warrants to purchase an aggregate of up to 5,000,000 shares of Common
      Stock at a price per share of $1.80 (the “Premium
      Warrants”)
      in the
      form attached hereto as Exhibit
      D.

     

    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 the Investors 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:

     

    “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.

     

    “Agreement”
has
      the
      meaning set forth in the Preamble.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Best
      Efforts”
means
      the efforts that a prudent person desirous of achieving a result would use
      in
      similar circumstances to ensure that such result is achieved as expeditiously
      as
      practical.

     

    “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      The City of New York are authorized or required by law to remain
      closed.

     

    “Certificate
      of Designation”
has
      the
      meaning set forth in the Background.

    

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

     

    “Closing
      Date”
means
      the date and time of the Closing and shall be on such date and time as is
      mutually agreed to by the Company and each Investor.

     

    “Company”
      has
      the
      meaning set forth in the Preamble.

     

    “Company
      Counsel”
      means
      Greenberg
      Traurig, LLP,
      counsel
      to the Company.

     

    “Common
      Stock”
means
      the common stock of the Company, par value
      $0.0001 per
      share.

     

    “Conversion
      Price”
means,
      initially, $0.80 per share, subject to the anti-dilution adjustment set forth
      in
      Section 6.4 of the Certificate of Designation.

     

    “Conversion
      Shares”
has
      the
      meaning set forth in the Background. 

    

    “Covering
      Shares”
has
      the
      meaning set forth in Section
      4.1(b).
      

    

    “Disclosure
      Materials”
has
      the
      meaning set forth in Section 3.1(g).

     

    “Effective
      Date”
means
      the date that the Registration Statement is first declared effective by the
      SEC.

     

    “Effectiveness
      Period”
has
      the
      meaning set forth in Section 6.1(b).

     

    “Environmental
      Laws”
has
      the
      meaning set forth in Section
      3.1(r).
      

     

    “Equity
      Securities”
has
      the
      meaning set forth in Section 7.1.

    

    “Event”
has
      the
      meaning set forth in Section 6.1(d).

     

    “Event
      Payments”
has
      the
      meaning set forth in Section 6.1(d).

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    “Excluded
      Securities”
has
      the
      meaning set forth in Section 7.5.

     

    “Filing
      Date”
means
      thirty (30)
      days
      after the Closing Date.

    

    “GAAP”
has
      the
      meaning set forth in Section
      3.1(g).
      

     

    “Hazardous
      Materials”
has
      the
      meaning set forth in Section
      3.1(r).

     

    “Indemnified
      Party”
has
      the
      meaning set forth in Section 6.4(c).

     

    “Indemnifying
      Party”
has
      the
      meaning set forth in Section 6.4(c).

     

    “Insolvent”
has
      the
      meaning set forth in Section
      3.1(h).
      

    

    “Intellectual
      Property”
means
      any and all patents, patent applications, trademarks, trademark applications,
      trade names, service marks, copyrights, copyright applications, licenses,
      know-how (including trade secrets and other unpatented and/or unpatentable
      proprietary or confidential information, systems, or procedures) and other
      similar rights and proprietary knowledge.

     

    “Investor”
has
      the
      meaning set forth in the Preamble. 

    

    “Investors”
has
      the
      meaning set forth in the Preamble.

     

    “Lien”
means
      any lien, charge, claim, security interest, encumbrance, right of first refusal
      or other restriction.

     

    “Lock-Up
      Agreements”
has
      the
      meaning set forth in Section
      5.1(c).

     

    “Losses”
means
      any and all losses, claims, damages, liabilities, settlement costs and expenses,
      including, without limitation, reasonable attorneys’ fees.

    

    “Market
      Warrants”
      has
      the
      meaning set forth in the Background.

     

    “Material
      Adverse Effect”
means
      (i) a material adverse effect on the results of operations, prospects, assets,
      business or financial condition of the Company and the Subsidiaries, taken
      as a
      whole on a consolidated basis, or (ii) materially and adversely impair the
      Company’s ability to perform its obligations under any of the Transaction
      Documents.

     

    “Material
      Permits”
has
      the
      meaning set forth in Section 3.1(q).

    

    “Person”
means
      any individual, corporation, limited liability company, partnership, joint
      venture, trust, incorporated or unincorporated association, joint stock company,
      unincorporated organization, or a government or any department or agency
      thereof.

     

    “Plan
      of Distribution”
has
      the
      meaning set forth in Section
      6.1(a).

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    “Preferred
      Stock”
has
      the
      meaning set forth in the Background.

    

    “Premium
      Warrants”
has
      the
      meaning set forth in the Background.

    

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

     

    “Prospectus”
means
      the prospectus included in the Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A
      promulgated under the Securities Act), as amended or supplemented by any
      prospectus supplement, with respect to the terms of the offering of any portion
      of the Registrable Securities covered by the Registration Statement, and all
      other amendments and supplements to the Prospectus including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

     

    “Purchase
      Price”
has
      the
      meaning set forth in Section
      2.1.

    

    “Purchase
      Rights”
has
      the
      meaning set forth in Section
      7.1.

    

    “Purchasing
      Investors”
has
      the
      meaning set forth in Section
      7.2(b).

    

    “Rate
      of Conversion”
means
      the number of shares of Common Stock into which each share of Preferred Stock
      may be converted, as determined by dividing (i) the original purchase price
      of
      $0.80 per share by (ii) the Conversion Price.

    

    “Registrable
      Securities”
means
      the
      Conversion Shares and the Warrant Shares issued or issuable pursuant to the
      Transaction Documents,
      together with any securities issued or issuable upon any stock split, dividend
      or other distribution, recapitalization or similar event with respect to the
      foregoing.

     

    “Registration
      Statement”
means
      each registration statement required to be filed under Article VI,
      including (in each case) the Prospectus, amendments and supplements to such
      registration statement or Prospectus, including pre- and post-effective
      amendments, all exhibits thereto, and all material incorporated by reference
      or
      deemed to be incorporated by reference in such registration
      statement.

     

    “Regulation
      D”
has
      the
      meaning set forth in the Background. 

     

    “Required
      Effectiveness Date”
means
      the
      date
      which is one hundred and eighty (180) days after the Closing Date.

     

    “Resale
      Registration Statement”
has
      the
      meaning set forth in Section
      6.1(e).

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    “Rule 144,” “Rule
      144(k),” “Rule 415,”
and
      “Rule 424”
means
      Rule 144,
      Rule
      144(k), Rule 415
      and
      Rule 424,
      respectively, promulgated by the SEC pursuant to the Securities Act, as such
      Rules may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the SEC having substantially the same effect as such
      Rule.

     

    “SEC”
      has the
      meaning set forth in the Background.

    

    “SEC
      Reports”
has
      the
      meaning set forth in Section 3.1(g).

     

    “Securities”
means,
      collectively, the Preferred Stock, the Conversion
      Shares,
      the
      Warrants and the Warrant Shares.

     

    “Securities
      Act”
has
      the
      meaning set forth in the Background. 

     

    “Staff”
has
      the
      meaning set forth in Section
      6.1(e).

    

    “Subsidiary”
means
      any direct
      or
      indirect subsidiary of the Company.

     

    “Trading
      Day”
means
      (a) any day on which the Securities are listed or quoted and traded on their
      primary Trading Market, or (b) if trading ceases to occur on any Trading Market,
      any Business Day.

     

    “Trading
      Market”
      means
      the
      over-the-counter market or any national securities exchange,
      market or trading or quotation facility on which the Common Stock or Preferred
      Stock is then listed or quoted.

     

    “Transaction
      Documents”
means
      this Agreement, the schedules and exhibits attached hereto, the Warrants, the
      Certificate of Designation, and the Transfer Agent Instructions.

     

    “Transfer
      Agent”
means
      Holladay Stock Transfer, Inc. or
      any
      successor transfer agent for the Company.

     

    “Transfer
      Agent Instructions”
means,
      with respect to the Company, the Irrevocable Transfer Agent Instructions, in
      the
      form of Exhibit F,
      executed by the Company and delivered to and acknowledged in writing by the
      Transfer Agent.

     

    “Warrants”
means,
      collectively, the Market Warrants and the Premium Warrants.

    

    “Warrant
      Shares”
means
      the issuance of Common Stock to be issued upon exercise of the
      Warrants.

     

    ARTICLE
      II

    PURCHASE
      AND SALE

    

    2.1 Purchase
      and Sale of the Preferred Stock and Warrants.
      Subject
      to the terms and conditions of this Agreement, each of the Investors hereby
      severally, and not jointly, agrees to purchase, and the Company hereby agrees
      to
      sell and issue to each of the Investors, the number of shares of Preferred
      Stock
      and Warrants set forth opposite such Investor’s name on Exhibit
      A
      for the
      aggregate purchase price (the “Purchase
      Price”)
      set
      forth opposite such Investor’s name on Exhibit
      A.

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    2.2 Closing.
      At
      Closing, the Company shall deliver to the Investors (a) the Preferred Stock
      and
      Warrants, registered in the names of the Investors as indicated on Exhibit
      A;
      (b)
evidence
      of filing of the Certificate of Designation, in the form provided on
Exhibit
      B,
      with
      the State of Nevada; (c) executed Transfer Agent Instructions in the form
      provided on Exhibit
      F;
      (d)
      a legal
      opinion from Company Counsel in the form set forth on Exhibit
      G;
      (e)
      evidence of notification of
      filing
      with each applicable Trading
      Market of
      an
      additional shares listing application covering all of the Registrable
      Securities; (f) Lock-up Agreements in the form set forth on Exhibit
      H
      with all
      executives and directors of the Company;
      and (g)
      a certificate, in the form set forth on Exhibit
      I,
      executed by the secretary of the Company and dated as of the Closing Date,
      as to
      the Articles of Incorporation, by-laws, foreign qualification, and good standing
      of the Company and the resolutions adopted by the Company’s Board of Directors
      authorizing the transactions contemplated by the Transaction Documents. The
      Investors shall deliver the Purchase Price to the Company by wire transfer
      of
      immediately available funds to the account specified by the Company in writing,
      subject to the execution and delivery of such other documents contemplated
      hereby on or prior to the Closing. 

     

    ARTICLE
      III

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investors on and as of the date
      hereof as follows (which representations and warranties shall be deemed to
      apply, where appropriate, to each Subsidiary of the Company):

     

    (a) Subsidiaries.
      The
      Company has no Subsidiaries other than those listed in Schedule 3.1(a)
      hereto.
      Except as disclosed in Schedule 3.1(a)
      hereto,
      the Company owns, directly or indirectly, all of the capital stock or comparable
      equity interests of each Subsidiary free and clear of any Lien and all the
      issued and outstanding shares of capital stock or comparable equity interest
      of
      each Subsidiary are validly issued and are fully paid, non-assessable and free
      of preemptive and similar rights. 

     

    (b) Organization
      and Qualification.
      Each of
      the Company and, except as would not have a Material Adverse Effect, its
      Subsidiaries is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its incorporation or organization (as
      applicable), with the requisite legal authority to own or lease and use its
      properties and assets and to carry on its business as currently conducted.
      Neither the Company nor any Subsidiary is in violation 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 do 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,
      would not, individually or in the aggregate, reasonably be expected to result
      in
      a Material Adverse Effect.

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    (c) Authorization;
      Enforcement.
      The
      Company has the requisite corporate authority to enter into and to consummate
      the transactions contemplated by each of the Transaction Documents to which
      it
      is a party 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 hereby and thereby
      have been duly authorized by all necessary corporate action on the part of
      the
      Company and no further consent or action is required by the Company, its
      officers, its Board of Directors or its stockholders. Each of the Transaction
      Documents to which it is a party has been (or upon delivery will be) duly
      executed by the Company and is, or when delivered in accordance with the terms
      hereof, will constitute, the valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms, except as may
      be
      limited by (i) applicable bankruptcy, insolvency, reorganization or other
      laws of general application relating to or affecting the enforcement of
      creditors rights generally; and (ii) the effect of rules of law governing
      the availability of specific performance and other equitable remedies.

    

    (d) No
      Conflicts.
      The
      execution, delivery and performance by the Company of the Transaction Documents
      to which it is a party and the consummation by the Company of the 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;
      (ii) conflict with, or constitute a default (or an event that with notice
      or lapse of time or both would become a default) under, 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) 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 and the rules and regulations of any
      self-regulatory organization to which the Company or its securities are subject,
      including all applicable Trading Markets), or by which any property or asset
      of
      the Company or a Subsidiary is bound or affected, except, in the case of clause
      (ii) or (iii), to the extent that such conflict or violation would not
      reasonably be expected to have a Material Adverse Effect.

     

    (e) The
      Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the Transaction Documents, will be duly and validly issued, fully paid and
      nonassessable, free and clear of all Liens and will not be subject to preemptive
      rights, rights of first refusal, or similar rights of stockholders (other than
      those imposed by the Investors). The Company has reserved from its duly
      authorized capital stock the maximum number of shares of Common Stock issuable
      upon exercise of the Warrants and conversion of the Preferred Stock. The offer,
      issuance and sale of the Securities to the Investors pursuant to the Agreement,
      in the case of the Conversion Shares, pursuant to the Certificate of
      Designation, and in the case of the Warrant Shares, pursuant to the Warrants,
      are exempt from the registration requirements of the Securities
      Act.

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (f) Capitalization.
      Just
      prior to Closing, the aggregate number of shares and type of all authorized,
      issued and outstanding classes of capital stock, options and other securities
      of
      the Company (whether or not presently convertible into or exercisable or
      exchangeable for shares of capital stock of the Company) consists of (i)
      300,000,000 authorized shares of Common Stock, par value $0.0001 per share,
      with
      114,555,468 shares of Common Stock outstanding; (ii) 200,000,000 shares of
      blank
      check preferred stock, with no shares outstanding; (iii) 12,781,250 shares
      of
      Common Stock, on a diluted basis, reserved for issuance upon the exercise of
      outstanding warrants; and (iv) 2,000,000 shares of Common Stock, on a diluted
      basis, reserved for issuance upon the exercise of outstanding employee stock
      options. All outstanding shares of capital stock are duly authorized, validly
      issued, fully paid and nonassessable and have been issued in compliance with
      all
      applicable securities laws and regulations. Except as disclosed in this
Section
      3.1(f),
      the
      Company does not have outstanding any other options, warrants, 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 entered into any agreement giving any Person any right
      to
      subscribe for or acquire, any shares of Preferred Stock or Common Stock, or
      securities or rights convertible or exchangeable into shares of Preferred Stock
      or Common Stock. Except as set forth on Schedule
      3.1(f)
      hereto
      or in the SEC Reports, there are no anti-dilution or price adjustment provisions
      contained in any security issued by the Company (or in any agreement providing
      rights to security holders) and 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 Investors) and will not result in a right of any holder
      of securities to adjust the exercise, conversion, exchange or reset price under
      such securities. To the knowledge of the Company, except as disclosed in
Schedule
      3.1(f)
      hereto,
      no Person or group of related Persons beneficially owns (as determined pursuant
      to Rule 13d-3 under the Exchange Act) or has the right to acquire, by agreement
      with or by obligation binding upon the Company, beneficial ownership of in
      excess of five percent (5%) of the outstanding Common Stock.

     

    (g) SEC
      Reports; Financial Statements.
      Except
      as set forth on Schedule
      3.1(g),
      the
      Company has filed all reports required to be filed by it under Exchange Act
      Sections 13(a) or 15(d), 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. Such reports required to be filed by the Company under the Exchange
      Act, including pursuant to Section 13(a) or 15(d) thereof, together with any
      materials filed or furnished by the Company under the Exchange Act, whether
      or
      not any such reports were required being collectively referred to herein as
      the
“SEC
      Reports”
and,
      together with this Agreement and the Schedules to this Agreement, the
“Disclosure
      Materials”.
      Except
      as otherwise disclosed in later dated SEC Reports, as of their respective dates,
      or to the extent corrected by a subsequent restatement filed with the SEC,
      the
      SEC Reports filed by the Company complied as to form in all material respects
      with the requirements of the Exchange Act and the rules and regulations of
      the
      SEC promulgated thereunder, and none of the SEC Reports, when filed by the
      Company, 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. Except as otherwise disclosed in later dated SEC Reports,
      the financial statements of the Company included in the SEC Reports comply
      as to
      form in all material respects with applicable accounting requirements and the
      rules and regulations of the SEC with respect thereto as in effect at the time
      of filing. Except as otherwise disclosed in later dated SEC Reports, 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, the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP or may be condensed or summary statements, and fairly
      present in all material respects the consolidated financial position of the
      Company and its consolidated Subsidiaries taken as a whole 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, year-end audit
      adjustments. All material agreements to which the Company or any Subsidiary
      is a
      party or to which the property or assets of the Company or any Subsidiary are
      subject are included as part of or identified in the SEC Reports, to the extent
      such agreements are required to be included or identified pursuant to the rules
      and regulations of the SEC.

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (h) No
      Change.
      Since
      the date of the latest unaudited financial statements included within the SEC
      Reports, except as disclosed in Schedule
      3.1(h)
      hereto,
      (i) there has been no event, occurrence or development that, individually
      or in the aggregate, has had or that would reasonably be expected to result
      in a
      Material Adverse Effect; (ii) the Company has not incurred any liabilities
      other than (A) trade payables, accrued expenses and other liabilities
      incurred in the ordinary course of business consistent with past practice,
      (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
      SEC, and (C) other liabilities that would not, individually or in the aggregate,
      have a Material Adverse Effect; (iii) the Company has not altered its
      method of accounting or the changed its auditors, except as disclosed in its
      SEC
      Reports; (iv) the Company has not declared or made any dividend or
      distribution of cash or other property to its stockholders, in their capacities
      as such, or purchased, redeemed or made any agreements to purchase or redeem
      any
      shares of its capital stock (except for repurchases by the Company of shares
      of
      capital stock held by employees, officers, directors, or consultants pursuant
      to
      an option of the Company to repurchase such shares upon the termination of
      employment or services); and (v) the Company has not issued any equity
      securities to any officer, director or Affiliate, except pursuant to existing
      Company stock-based plans. The Company has not taken any steps to seek
      protection pursuant to any bankruptcy law nor does the Company believe that
      its
      creditors intend to initiate involuntary bankruptcy Proceedings or any actual
      knowledge of any fact which would reasonably lead a creditor to do so. The
      Company is not Insolvent (as hereinafter defined) as of the date hereof, and
      will not be Insolvent after giving effect to the transactions contemplated
      hereby to occur at the applicable Closing. For purposes of this Section 3.1(h),
      “Insolvent”
means
      (i) the present fair saleable value of the Company’s assets is less than the
      amount required to pay the Company’s total indebtedness, (ii) the Company is
      unable to pay its debts and liabilities, subordinated, contingent or otherwise,
      as such debts and liabilities become absolute and matured or (iii) the Company
      has unreasonably small capital with which to conduct the business in which
      it is
      engaged as such business is now conducted and is proposed to be
      conducted.

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (i) Obligations
      to Related Parties.
      Except
      as set forth in Schedule
      3.1(i),
      there
      are no arrangements which would be required to be disclosed by Item 404 of
      Regulation S-B under the Securities Act except as disclosed in the SEC Reports.
      

    

    (j)  Title
      to Properties and Assets.
      Each of
      the Company and its Subsidiaries has good and valid title to all of the
      properties and assets reflected as owned in the Company’s financial statements,
      free and clear of all Liens, mortgages (statutory or otherwise), security
      interests, pledges, claims or encumbrances except those, if any, disclosed
      in
      the Company’s financial statements and except as would not have a Material
      Adverse Effect. Each of the Company and its Subsidiaries holds its leased
      properties under valid and binding leases, with such exceptions as are not
      materially significant in relation to the business of the Company or the
      Subsidiary. Each of the Company and its Subsidiaries owns or leases all of
      the
      properties which, to its knowledge, are necessary to its operations as now
      conducted.

    

    (k)  Intellectual
      Property.
      Except
      as set forth in Schedule
      3.1(k),
      each of
      the Company and its Subsidiaries owns or possesses adequate and enforceable
      rights to use all Intellectual Property used or necessary for the conduct of
      its
      business as now being conducted, proposed to be conducted, and as described
      in
      the Company’s SEC Reports. To the Company’s knowledge, neither the Company nor
      any Subsidiary of the Company infringes on or is in conflict with any right
      of
      any other person with respect to any Intellectual Property nor is there any
      claim of infringement made by a third party against or involving the Company
      or
      any of its Subsidiaries, which infringement, conflict or claim, individually
      or
      in the aggregate, if the subject of an unfavorable decision, ruling or finding,
      would have a Material Adverse Effect. None of the Intellectual Property used
      in
      the Company’s business is expected to expire or terminate within two (2) years
      from the date of this Agreement, except where such expiration or termination
      would not result, either individually or in the aggregate, in a Material Adverse
      Effect. The Company and its Subsidiaries have taken reasonable security measures
      to protect the secrecy, confidentiality and value of all of their Intellectual
      Property. The Company has never agreed to indemnify any person for or against
      any interference. infringement, misappropriation or other conflict with respect
      to any Intellectual Property, except as would not have a Material Adverse
      Effect. To the Company’s knowledge, none of the key employees of the Company are
      obligated under any contract (including, without limitation, licenses,
      covenants, or commitments of any, nature) or other agreement, or subject to
      any
      judgment, decree, or order of any court or administrative agency, that would
      interfere with the use of his or her reasonable diligence to promote the
      interests of the Company or that would conflict with the Company’s business as
      presently conducted, except as would not have a Material Adverse Effect.

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

    (l) Compliance
      with Other Instruments.
      Except
      as would not have a Material Adverse Effect, the Company is not in violation
      or
      default of any provision of any mortgage, indenture, contract, agreement,
      instrument or contract to which it is party or by which it is bound or of any
      judgment, decree, order or writ. None of the Company’s Subsidiaries is in
      violation or default of any provision of any material mortgage, indenture,
      contract, agreement, instrument or contract to which it is party or by which
      it
      is bound or of any judgment, decree, order or writ. 

    

    (m)  Litigation.
      Except
      as disclosed in Schedule
      3.1(m),
      there
      is no Proceeding pending or, to the Company’s knowledge, currently threatened
      against the Company or any Subsidiary that questions the validity of this
      Agreement, or the Transaction Documents, or the right of the Company to enter
      into any of such agreements or to consummate the transactions contemplated
      hereby or thereby, or which might result, either individually or in the
      aggregate, in any material adverse change in the assets, condition, affairs
      or
      prospects of the Company or any Subsidiary, financially or otherwise, or any
      change in the current equity ownership of the Company or any Subsidiary, nor
      is
      the Company aware that there is any basis for any of the foregoing. The
      foregoing includes, without limitation, actions pending or, to the Company’s
      knowledge, threatened involving the prior employment of any of the employees
      of
      the Company or any Subsidiary, their use in connection with the business of
      the
      Company or any Subsidiary of any information or techniques allegedly proprietary
      to any of their former employers, or their obligations under any agreements
      with
      prior employers. Except as disclosed in Schedule
      3.1(m),
      neither
      the Company nor any Subsidiary is a party or subject to the provisions of any
      material order, writ, injunction, judgment or decree of any court or government
      agency or instrumentality. There is no material Proceeding by the Company or
      any
      Subsidiary currently pending or which the Company or any Subsidiary intends
      to
      initiate.

    

    (n) Labor
      Matters.
      The
      Company and its Subsidiaries are in compliance in all respects with all federal,
      state, local and foreign laws and regulations respecting labor, employment
      and
      employment practices and benefits, terms and conditions of employment and wages
      and hours, except where failure to be in compliance would not, either
      individually or in the aggregate, reasonably be expected to result in a Material
      Adverse Effect.

    

    (o) Key
      Employees.
      Neither
      the Company nor any of its Subsidiaries has collective bargaining agreements
      with any of its employees. There is no labor union organizing activity pending
      or, to the Company’s knowledge, threatened with respect to the Company or any
      Subsidiary. Except as disclosed on Schedule
      3.1(o),
      neither
      the Company nor any of its Subsidiaries is a party to or bound by any currently
      effective employment contract, consulting agreement, deferred compensation
      arrangement, bonus plan, incentive plan, profit sharing plan, retirement
      agreement or other employee compensation plan or agreement. 

    

    (p) Registration
      Rights and Voting Rights.
      Except
      as required pursuant Article
      VI
      of this
      Agreement and as disclosed in Schedule
      3.1(p),
      the
      Company is presently not under any obligation, and has not granted any rights,
      to register any of the Company’s presently outstanding securities or any of its
      securities that may hereafter be issued. To the Company’s knowledge, except as
      disclosed in Schedule
      3.1(p),
      no
      stockholder of the Company has entered into any agreement with respect to the
      voting of equity securities of the Company.

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

    (q) Compliance
      with Laws; Permits.
      Neither
      the Company nor any of its Subsidiaries is in violation of any applicable
      statute, rule, regulation, order or restriction of any domestic or foreign
      government or any instrumentality or agency thereof, in respect of the conduct
      of its business or the ownership of its properties which violation would have
      a
      Material Adverse Effect. Except as disclosed in Schedule
      3.1(q),
      no
      governmental orders, permissions, consents, approvals or authorizations are
      required to be obtained and no registrations or declarations are required to
      be
      filed in connection with the execution and delivery of this Agreement and the
      issuance of the Securities, the issuance of the Conversion Shares pursuant
      to
      the Certificate of Designation, or issuance of the Warrant Shares upon exercise
      of the Warrants, except such as has been duly and validly obtained or filed,
      or
      with respect to any filings that must be made after the Closing, as will be
      filed in a timely manner. Except as disclosed in Schedule
      3.1(q),
      each of
      the Company and is 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 (“Material
      Permits”),
      except where the failure to possess such permits is not, individually or in
      the
      aggregate, reasonably be expected to result in a Material Adverse Effect, and
      neither the Company nor any Subsidiary has received any written notice of
      Proceedings relating to the revocation or modification of any Material
      Permit.

    

    (r) Environmental
      and Safety Laws.
      The
      Company and its Subsidiaries (i) are in compliance in all respects with any
      and
      all Environmental Laws (as hereinafter defined); (ii) have received all
      permits, licenses or other approvals required of them under applicable
      Environmental Laws to conduct their respective businesses; and (iii) are in
      compliance in all respects with all terms and conditions of any such permit,
      license or approval where, in each of the foregoing clauses (i), (ii) and (iii),
      the failure to so comply would be reasonably expected to have, individually
      or
      in the aggregate, a Material Adverse Effect. The term “Environmental
      Laws”
means
      all federal, state, local or foreign laws relating to pollution or protection
      of
      human health or the environment (including, without limitation, ambient air,
      surface water, groundwater, land surface or subsurface strata), including,
      without limitation, laws relating to emissions, discharges, releases or
      threatened releases of chemicals, pollutants, contaminants, or toxic or
      hazardous substances or wastes (collectively, “Hazardous
      Materials”)
      into
      the environment, or otherwise relating to the manufacture, processing,
      distribution, use, treatment, storage, disposal, transport or handling of
      Hazardous Materials, as well as all authorizations, codes, decrees, demands
      or
      demand letters, injunctions, judgments, licenses, notices or notice letters,
      orders, permits, plans or regulations issued, entered, promulgated or approved
      thereunder.

    

    (s) Offering
      Valid.
      Assuming the accuracy of the representations and warranties of the Investors
      contained in Section
      3.2
      hereof,
      the offer, sale and issuance of the Preferred Stock, the Warrants, and the
      Warrant Shares will be exempt from the registration requirements of the
      Securities Act, and will have been registered or qualified (or are exempt from
      registration and qualification) under the registration, permit or qualification
      requirements of all applicable state securities laws. Neither the Company nor
      any agent on its behalf has solicited or will solicit any offers to sell or
      has
      offered to sell or will offer to sell all or any part of the Securities to
      any
      person or persons so as to bring the sale of such Securities by the Company
      within the registration provisions of the Securities Act or any state securities
      laws.

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    (t) Private
      Placement.
      Neither
      the Company, nor any of its Affiliates, nor any Person acting on its or their
      behalf, has engaged in any form of general solicitation or general advertising
      (within the meaning of Regulation D) in connection with the offer or sale
      of the Securities. Neither the Company nor any of its Affiliates nor, any Person
      acting on the Company’s behalf has, directly or indirectly, at any time within
      the past six months, made any offer or sale of any security or solicitation
      of
      any offer to buy any security under circumstances that would (i) eliminate
      the availability of the exemption from registration under Regulation D in
      connection with the offer and sale by the Company of the Securities as
      contemplated hereby or (ii) cause the offering of the Securities pursuant
      to the Transaction Documents to be integrated with prior offerings by the
      Company for purposes of any applicable law, regulation or stockholder approval
      provisions, including, without limitation, under the rules and regulations
      of
      any Trading Market in a manner which would require any stockholder or other
      approval. 

    

    (u) Insurance.
      The
      Company maintains insurance of the types and in the amounts it deems adequate
      for its business covering all risks customarily insured against, provided
      that the
      Company has a general directors and officers liability insurance policy with
      coverage customary for companies similarly situated to the Company.

    

    (v)  Illegal
      Payments.
      The
      Company and its Subsidiaries have not, and to the best knowledge of the Company,
      no director, officer, agent or employee of the Company or any of its
      Subsidiaries has paid, caused to be paid, or agreed to pay, directly or
      indirectly, in connection with the business of the Company (i) to any government
      or agency thereof, any agent or any supplier or customer, any bribe, kickback
      or
      other similar payment; (ii) any contribution to any political party or candidate
      (other than from personal funds of directors. officers or employees not
      reimbursed by their respective employers or as otherwise permitted by applicable
      law; or (iii) intentionally established or maintained any unrecorded fund or
      asset or made any false entries on any books or records for any
      purpose.

    

    (w)  Transfer
      Taxes.
      On the
      Closing Date, all stock transfer or other taxes (other than income taxes)
      required to be paid in connection with the sale and transfer of the Shares
      to be
      sold to the Purchasers hereunder will be, or will have been, fully paid or
      provided for by the Company, and all laws imposing such taxes will be or will
      have been complied with fully.

    

    (x) Placement
      Agent’s Fees.
      The
      Company is not, directly or indirectly, obligated to pay any placement agent’s
      fees, financial advisory fees, or brokers’ commission (other than for persons
      engaged by any Investor or its investment advisor) relating to or arising out
      of
      the execution, delivery or performance of the Transaction Documents or issuance
      of the Securities. The Company shall pay, and hold each Investor harmless
      against, any liability, loss or expense (including, without limitation,
      reasonable attorney’s fees and out-of-pocket expenses) arising in connection
      with any such claim for fees arising out of the issuance of the Securities
      pursuant to this Agreement. 

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

    (y) Application
      of Takeover Protections.
      Except
      as described in Schedule
      3.1(y),
      there
      is no control share acquisition, business combination, poison pill (including
      any distribution under a rights agreement) or other similar anti-takeover
      provision under
      the
      Company’s charter documents or the laws of its state of incorporation or
      otherwise, that is or could become applicable to any of the Investors as a
      result of the Investors 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
      Investors’ ownership of the Securities.

     

    (z) Disclosure.
      All
      disclosure provided by the Company to the Investors regarding the Company,
      its
      business and the transactions contemplated hereby, including the Schedules
      to
      this Agreement, furnished by or on the behalf of the Company are true and
      correct in all material respects 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 the light of the circumstances under which they
      were
      made, not misleading. To the Company’s knowledge, except for the transactions
      contemplated by this Agreement, no event or circumstance has occurred or
      information exists with respect to the Company or any of its Subsidiaries or
      its
      or their business, properties, operations or financial condition, which, under
      applicable law, rule or regulation, required public disclosure or announcement
      by the Company prior to the date hereof but which has not been so publicly
      announced or disclosed. The Company acknowledges and agrees that no Investor
      makes or has made any representations or warranties with respect to the
      transactions contemplated hereby other than those set forth in the Transaction
      Documents. 

     

    (aa) Acknowledgment
      Regarding Investors’ Purchase of Securities.
      Based
      upon the assumption that the transactions contemplated by this Agreement are
      consummated in all material respects in conformity with the Transaction
      Documents, the Company acknowledges and agrees it has been advised that each
      of
      the Investors is acting solely in the capacity of an arm’s length purchaser with
      respect to the Transaction Documents and the transactions contemplated hereby
      and thereby. The Company further acknowledges that no Investor 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 Investor or any of their respective representatives or
      agents in connection with the Transaction Documents and the transactions
      contemplated hereby and thereby is merely incidental to the Investors’ purchase
      of the Securities. The Company further represents to each Investor 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. 

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    (bb) Internal
      Accounting Controls.
      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 generally accepted accounting principles
      and to maintain asset accountability, (iii) access to assets is permitted
      only in accordance with management’s general or specific authorization, and
      (iv) the recorded accountability for assets is compared with the existing
      assets at reasonable intervals and appropriate action is taken with respect
      to
      any differences.

    

    (cc) Sarbanes-Oxley
      Act.
      Except
      as disclosed in SEC Reports, the Company is in compliance in all material
      respects with applicable requirements of the Sarbanes-Oxley Act of 2002 and
      applicable rules and regulations promulgated by the SEC thereunder, except
      where
      such noncompliance would not have, individually or in the aggregate, a Material
      Adverse Effect.

     

    (dd)  Tax
      Status.
      Except
      as disclosed in Schedule
      3.1(dd),
      the
      Company and each of its Subsidiaries (i) has made or filed all foreign, federal,
      state and local income and all other tax returns, reports and declarations
      required by any jurisdiction to which it is subject, to the extent the final
      deadlines for which were on or before the date hereof; (ii) has paid all taxes
      and other governmental assessments and charges that are material in amount,
      shown or determined to be due on such returns, reports and declarations, except
      those being contested in good faith; and (iii) has set aside on its books
      provision reasonably adequate for the payment of all taxes for periods
      subsequent to the periods to which such returns, reports or declarations apply.
      

    

    (ee) Investment
      Company.
      The
      Company is not now, and after the sale of the Securities under the Transaction
      Documents and the application of net proceeds from the sale of the Securities
      described in Section
      4.6
      herein
      will not be, an “investment company” within the meaning of the Investment
      Company Act of 1940, as amended.

    

    3.2 Representations,
      Warranties and Covenants of the Investors.
      Each
      Investor hereby, as to itself only and for no other Investor, represents,
      warrants and covenants to the Company as follows:

     

    (a) Organization;
      Authority.
      Such
      Investor is an entity duly organized, validly existing and in good standing
      under the laws of the jurisdiction of its organization with the requisite
      corporate, partnership or other 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 purchase
      by
      such Investor of the Securities hereunder has been duly authorized by all
      necessary corporate, partnership or other action on the part of such Investor.
      This Agreement has been duly executed and delivered by such Investor and
      constitutes the valid and binding obligation of such Investor, enforceable
      against it in accordance with its terms, except as may be limited by
      (i) applicable bankruptcy, insolvency, reorganization or other laws of
      general application relating to or affecting the enforcement of creditors rights
      generally, and (ii) the effect of rules of law governing the availability
      of specific performance and other equitable remedies.

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

    (b) No
      Public Sale or Distribution.
      Such
      Investor is (i) acquiring the Preferred Stock and the Warrants and
      (ii) upon exercise of the Warrants will acquire the Warrant Shares issuable
      upon exercise thereof, not with a view towards, or for resale in connection
      with, the public sale or distribution thereof, except pursuant to sales
      registered under the Securities Act or under an exemption from such registration
      and in compliance with applicable federal and state securities laws, and such
      Investor does not have a present arrangement to effect any distribution of
      the
      Securities to or through any person or entity; provided,
      however,
      that by
      making the representations herein, such Investor does not agree to hold any
      of
      the Securities for any minimum or other specific term and reserves the right
      to
      dispose of the Securities at any time in accordance with or pursuant to a
      registration statement or an exemption under the Securities Act. 

     

    (c) Investor
      Status.
      At the
      time such Investor was offered the Securities, it was, and at the date hereof
      it
      is, an “accredited investor” as defined in Rule 501(a) under the Securities Act
      or a “qualified institutional buyer” as defined in Rule 144A(a) under the
      Securities Act. 

     

    (d) Experience
      of Such Investor.
      Such
      Investor, 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
      Investor understands that it must bear the economic risk of this investment
      in
      the Securities indefinitely, and is able to bear such risk and is able to afford
      a complete loss of such investment.

     

    (e) Access
      to Information.
      Such
      Investor acknowledges that it has had access to the Disclosure Materials and
      information about the Company and the Subsidiaries and their respective
      financial condition, results of operations, business, properties, management
      and
      prospects sufficient to enable it to evaluate its investment. No information,
      inquiry, or investigation conducted by or on behalf of such Investor or its
      representatives or counsel shall modify, amend or affect such Investor’s right
      to rely on the truth, accuracy and completeness of the Disclosure Materials
      and
      the Company’s representations and warranties contained in the Transaction
      Documents. 

    

    (f) Restricted
      Securities.
      The
      Investors understand that the Securities are characterized as “restricted
      securities” under the U.S. federal securities laws inasmuch as they are being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations such securities may be resold
      without registration under the Securities Act only in certain limited
      circumstances.

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

    (g) Short
      Sales.
      No
      Investor, directly or indirectly, and no Person acting on behalf of any
      Investor, has engaged in any purchases or sales of any securities, including
      any
      derivatives, of the Company (including, without limitation, any Short Sales
      involving any of the Company’s securities) since the time that such Investor was
      first contacted by the Company regarding the sale of Securities as contemplated
      under the Transaction Documents. “Short Sales” include, without limitation, all
“short sales” as defined in Rule 200 promulgated under Regulation SHO under the
      Exchange Act and all types of direct and indirect stock pledges, forward sale
      contracts, options, puts, calls, short sales, swaps, derivatives and similar
      arrangements (including on a total return basis), and sales and other
      transactions through non-U.S. broker-dealers or foreign regulated
      brokers.

    

    (h) Legends.
      It is
      understood that, except as provided in Section
      4.1(b)
      of this
      Agreement, certificates evidencing such Securities may bear the legend set
      forth
      in Section
      4.1(b).

     

    ARTICLE
      IV

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
      Restrictions.

    

    (a) The
      Investors covenant that the Securities will only be disposed of pursuant to
      an
      effective registration statement under, and in compliance with the requirements
      of, the Securities Act or pursuant to an available exemption from the
      registration requirements of the Securities Act, and in compliance with any
      applicable state securities laws. In connection with any transfer of Securities
      other than pursuant to an effective registration statement or to the Company,
      or
      pursuant to Rule 144(k), the Company may require the transferor to provide
      to
      the Company an opinion of counsel selected by the transferor, the form and
      substance of which opinion shall be reasonably satisfactory to the Company,
      to
      the effect that such transfer does not require registration under the Securities
      Act. Notwithstanding the foregoing, the Company hereby consents to and agrees
      to
      register on the books of the Company and with its Transfer Agent, without any
      such legal opinion, except to the extent that the Transfer Agent requests such
      legal opinion, any transfer of Securities by an Investor to an Affiliate of
      such
      Investor, provided
      that the
      transferee certifies to the Company that it is an “accredited investor,” as
      defined in Rule 501(a) under the Securities Act, and provided
      that
      such Affiliate does not request any removal of any existing legends on any
      certificate evidencing the Securities.

     

    (b) The
      Investors agree to the imprinting, so long as is required by this Section 4.1(b),
      of the
      following legend on any certificate evidencing any of the Securities:

    

    THESE
      SECURITIES HAVE NOT 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”), OR ANY APPLICABLE STATE SECURITIES LAWS 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
      COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. 

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

    Certificates
      evidencing Securities shall not be required to contain such legend or any other
      legend (i) while a registration statement (including the Registration Statement)
      covering the resale of the Securities is effective under the Securities Act;
      (ii) following any sale of such Securities pursuant to Rule 144
      if
      the
      holder provides the Company with a legal opinion reasonably acceptable to the
      Company to the effect that the Securities can be sold under Rule 144; (iii)
      if
      the Securities
      are eligible for sale under Rule 144(k); or (iv) if the
      holder provides the Company with a legal opinion reasonably acceptable to the
      Company to the effect that the
      legend
      is not required under applicable requirements of the Securities Act (including
      controlling judicial interpretations and pronouncements issued by the staff
      of
      the SEC). Subject to receipt of the undertaking referred to above, the Company
      shall use its Best Efforts to cause its counsel to issue the legal opinion
      included in the Transfer Agent Instructions to the Transfer Agent on the
      Effective Date. Following the Effective Date or at such earlier time as a legend
      is no longer required for certain Securities, the Company will no later than
      three
      (3)
      Trading Days following the delivery by an Investor to the Company or the
      Transfer Agent of (i) a legended certificate representing such Securities,
      and
      (ii) an opinion of counsel to the extent required by Section
      4.1(a),
      deliver
      or cause to be delivered to such Investor a certificate representing such
      Securities that is free from the legend referred to above. The Company may
      not
      make any notation on its records or give instructions to the Transfer Agent
      that
      enlarge the restrictions on transfer set forth in this Section.

     

    If
      within
three
      (3)
      Trading Days after the Company’s receipt of a legended certificate and the other
      documents as specified in clauses (i) and (ii) of the paragraph immediately
      above, the Company shall fail to issue and deliver to such Investor a
      certificate representing such Securities that is free from the legend referred
      to above, and if on or after such third Trading Day the Investor purchases
      (in
      an open market transaction) shares of Common Stock to deliver in satisfaction
      of
      a sale by the Investor of shares of Common Stock that the Investor anticipated
      receiving from the Company without any restrictive legend (the “Covering
      Shares”),
      then
      the Company shall, within three
      (3)
      Trading Days after the Investor’s
      request,
      pay cash
      to the Investor in an amount equal to the excess
      (if any) of the Investor’s
      total
      purchase price (including reasonable brokerage commissions, if any) for the
      Covering Shares,
      over the
      product of (A) the number of Covering Shares, times (B) the closing sale
      price
      on the
      date of delivery of such certificate.

    

    (c) The
      Company will not object to and shall permit (except as prohibited by law) an
      Investor to pledge or grant a security interest in some or all of the Securities
      in connection with a bona fide margin agreement or other loan or financing
      arrangement secured by the Securities, and if required under the terms of such
      agreement, loan or arrangement, the Company will not object to and shall permit
      (except as prohibited by law) such Investor to transfer pledged or secured
      Securities to the pledges or secured parties. Except as required by law, such
      a
      pledge or transfer would not be subject to approval of the Company, no legal
      opinion of the pledgee, secured party or pledgor shall be required in connection
      therewith, and no notice shall be required of such pledge. Each Investor
      acknowledges that the Company shall not be responsible for any pledges relating
      to, or the grant of any security interest in, any of the Securities or for
      any
      agreement, understanding or arrangement between any Investor and its pledgee
      or
      secured party. At the appropriate Investor’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 the preparation and filing of any required prospectus
      supplement under Rule 424(b)(3) of the Securities Act or other applicable
      provision of the Securities Act to appropriately amend the list of selling
      stockholders thereunder. Provided that the Company is in compliance with the
      terms of this Section
      4.1(c),
      the
      Company’s indemnification obligations pursuant to Section
      6.4
      shall
      not extend to any Proceeding or Losses arising out of or related to this
Section
      4.1(c).

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    4.2 Furnishing
      of Information.
      During
      the time the Registration Statement is required to be effective, 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. 

     

    4.3 Integration.
      The
      Company shall not, and shall use its commercially reasonably efforts to ensure
      that no Affiliate thereof shall, 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 Investors or that would be integrated
      with the offer or sale of the Securities for purposes of the rules and
      regulations of any Trading Market.

     

    4.4 Reservation
      of Securities.
      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 to issue Conversion Shares and Warrant
      Shares under the Transaction Documents. In the event that at any time the then
      authorized shares of Common Stock are insufficient for the Company to satisfy
      its obligations to issue such Conversion Shares and Warrant Shares under the
      Transaction Documents, the Company shall promptly take such actions as may
      be
      required to increase the number of authorized shares.

     

    4.5 Use
      of
      Proceeds.
      The
      Company intends to use the net proceeds from the sale of the Securities for
      working capital and general corporate purposes.

    
      
        
        

      

      
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    ARTICLE
      V

    CONDITIONS
      AND COVENANTS

     

    5.1 Conditions
      Precedent to the Obligations of the Investors.
      The
      obligation of each Investor to acquire Securities at the Closing is subject
      to
      the satisfaction or waiver by such Investor, at or before the Closing, of each
      of the following conditions:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Company contained herein shall be true
      and
      correct in all material respects (other than those representations and
      warranties that are qualified by materiality or Material Adverse Effect
      qualifiers, which shall be true and correct in all respects) as of the date
      when
      made and as of the Closing as though made on and as of such date; 

     

    (b) Performance.
      The
      Company and each other Investor shall have performed, satisfied and complied
      in
      all material respects with all covenants, agreements and conditions required
      by
      the Transaction Documents to be performed, satisfied or complied with by it
      at
      or prior to the Closing;
      and

    

    (c) Lock-Up
      Agreements.
      Lock-up
      agreements, in the form attached as Exhibit
      H
      shall
      have been put in place covering all shares of Common Stock held by Company
      executive officers and directors (the “Lock-Up
      Agreements”).
      The
      lock-up restrictions in such Lock-Up Agreements will be released only after
      one
      hundred eighty (180) days following the Effective Date of the Registration
      Statement referred to in Section
      6.1(b)
      below.

    

    (d) Payment
      of Expenses.
      The
      Company shall pay, in accordance with Section
      8.2,
      the
      reasonable fees, expenses and disbursements of Ropes & Gray LLP, as counsel
      to the Investors. 

     

    5.2 Conditions
      Precedent to the Obligations of the Company.
      The
      obligation of the Company to sell the Securities at the Closing is subject
      to
      the satisfaction or waiver by the Company, at or before the Closing, of each
      of
      the following conditions:

    

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Investors contained herein shall be true
      and correct in all material respects as of the date when made and as of the
      Closing Date as though made on and as of such date; and

     

    (b) Performance.
      The
      Investors shall have performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the Transaction
      Documents to be performed, satisfied or complied with by the Investors at or
      prior to the Closing.

    

    5.3
      Covenants
      of the Company.
      The
      Company hereby covenants as follows:

    

    (a) Observation
      Rights.
      So long
      as Investors own a majority of the shares of Preferred Stock acquired hereunder,
      at any time that the Investors do not choose to designate a director to serve
      on
      the Board of Directors of the Company pursuant to Section 2 of the Certificate
      of Designation, Investors will be entitled to designate one individual as an
      observer to attend all meetings of the Board of Directors and to receive all
      information provided to the directors. The Company will reimburse all costs
      associated with the attendance of the meetings of the Board of Directors, or
      any
      committees thereof, by any director or observer designated by the Investors.
      

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

    (b) NASDAQ
      Listing.
      If
      requested by the Investors, the Company will use its Best Efforts to list its
      shares for trading on the NASDAQ Global Market, NASDAQ Global Select Market,
      or
      NASDAQ Capital Market (or any other exchange specified by the Investors) as
      promptly as practicable, including using its Best Efforts to take all action
      necessary to meet, and maintain compliance, with all qualifications for such
      listing. 

     

    ARTICLE
      VI

    REGISTRATION
      RIGHTS 

     

    6.1 Registration
      Statement.

     

    (a) As
      soon
      as practicable but in no event later than the Filing Date, the Company shall
      prepare and file with the SEC a Registration Statement covering the resale
      of
      all Registrable Securities for an offering to be made on a continuous basis
      pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except
      if
      the Company is not then eligible to register for resale the Registrable
      Securities on Form S-3, in which case such registration shall be on another
      appropriate form in accordance with the Securities Act and the Exchange Act)
      and
      shall contain (except if otherwise directed by the Investors or requested by
      the
      SEC) the “Plan
      of Distribution”
in
      substantially the form attached hereto as Exhibit E.

     

    (b) The
      Company shall use its reasonable Best Efforts to cause the Registration
      Statement to be declared effective by the SEC as promptly as practical after
      the
      filing thereof, but in any event prior to the Required Effectiveness Date,
      and
      shall use its reasonable Best Efforts to keep the Registration Statement
      continuously effective under the Securities Act for all Registrable Securities
      until the date that all Conversion Shares and Warrant Shares covered by such
      Registration Statement have been sold or can be sold publicly under Rule 144
      on
      a single day (the “Effectiveness
      Period”).

    

    (c) The
      Company shall notify the Investors in writing promptly (and in any event within
      two (2) Trading Days) after receiving notification from the SEC that the
      Registration Statement has been declared effective.

     

    (d) Should
      an
      Event (as defined below) occur, then upon the occurrence of such Event, and
      on
      every monthly anniversary thereof for fifteen (15) months or until the
      applicable Event is cured, whichever is longer, as relief for the damages
      suffered therefrom by the Investors (the parties hereto agreeing that the
      liquidated damages provided for in this Section
      6.1(d)
      constitute a reasonable estimate of the damages that may be incurred by the
      Investors by reason of the Event and that such liquidated damages represent
      the
      exclusive monetary remedy for the Investors for damages suffered due to an
      Event), the Company shall pay to each Investor an amount in cash, as liquidated
      damages and not as a penalty, equal to one and a half percent (1.5%) of the
      aggregate Purchase Price paid by such Investor hereunder, subject to a cap
      of
      twenty-two and a half percent (22.5%) (provided
      that, to
      the extent an Event occurs with respect to only a portion of the Registrable
      Securities, the Event Payments with respect to such Event shall be reduced
      proportionately to the portion of Registrable Securities with regard to which
      no
      Event has occurred). The payments to which an Investor shall be entitled
      pursuant to this Section 6.1(d)
      are
      referred to herein as “Event
      Payments.”
Any
      Event Payments payable pursuant to the terms hereof shall apply on a pro rated
      basis for any portion of a month prior to the cure of an Event. In the event
      the
      Company fails to make Event Payments in a timely manner, such Event Payments
      shall bear interest at the rate of one percent (1.0%) per month (prorated for
      partial months) until paid in full. All pro rated calculations made pursuant
      to
      this Section
      6.1
      shall be
      based upon the actual number of days in such pro rated month. 

     

    For
      such
      purposes, each of the following shall constitute an “Event”:

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

    (i) the
      Registration Statement is not filed on or prior to the Filing Date or is not
      declared effective on or prior to the Required Effectiveness Date; 

     

    (ii) the
      Registration Statement is not kept continuously effective under the Securities
      Act during the Effectiveness Period;

     

    (iii) the
      exercise rights of the Investors pursuant to the Warrants are
      suspended.

     

    (e) Notwithstanding
      anything to the contrary contained in this Agreement, if the staff of the SEC
      (the “Staff”)
      or the
      SEC seeks to characterize any offering pursuant to a Registration Statement
      filed pursuant to this Agreement as constituting a primary offering of
      securities by or on behalf of the Company, or in any other manner, such that
      the
      Staff or the SEC does not permit such Registration Statement to become effective
      and used for resales in a continuous at the market offering pursuant to Rule
      415
      under the Securities Act by the Investors (or as otherwise may be acceptable
      to
      each Investor) without being named therein as “underwriters” (a “Resale
      Registration Statement”),
      and
      the Company has used its Best Efforts to contest such determination, and as
      a
      result the Company is not able to register all of the Registrable Securities,
      but is able to register at least eighty percent (80%) of the Registrable
      Securities, then no Event shall be deemed to have accrued as a result of such
      failure. If any reduction in the number of Registrable Securities included
      in a
      Registration Statement is made pursuant to this Section
      6.1(e),
      then an
      affected Investor shall have the right, upon delivery of a written request
      to
      the Company signed by the Investor, to require the Company to file a Resale
      Registration Statement under Rule 415 within ninety (90) days after its receipt
      of such request (subject to any restrictions imposed by Rule 415 or required
      by
      the Staff or the SEC) for resale by such Investor in a manner reasonably
      acceptable to such Investor, and the Company shall, following such request,
      use
      its Best Efforts to cause such registration statement to be declared and kept
      effective in the same manner as otherwise contemplated in this Agreement for
      registration statements hereunder, in each case for a period equal to that
      specified in Section
      6.1(b)
      herein
      (it being understood that the special demand right under this sentence may
      be
      exercised by a Investor multiple times and with respect to limited amounts
      of
      Registrable Securities to the extent limitations are required in order to permit
      the resale thereof by such Investor pursuant to a Resale Registration Statement
      as contemplated above); and the Company shall otherwise use its Best Efforts
      to
      satisfy the registration rights set forth in Sections
      6.1
      through
6.8
      herein
      as promptly as practicable. 

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

    (f) The
      Company shall not, from the date hereof until the Effective Date of the
      Registration Statement, prepare and file with the SEC a registration statement
      relating to an offering for cash for its own account, or for the account of
      any
      other person, under the Securities Act of any of its equity securities,
other
      than any registration statement or post-effective amendment to a registration
      statement (or supplement thereto) relating to the Company’s employee benefit
      plans registered on Form S-8. 

    

    (g) The
      Company may require each Investor to provide such information regarding such
      Investor as may be required under the Securities Act to effect the registration
      contemplated hereunder.

     

    6.2 Registration
      Procedures.
      In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

     

    (a) (i) Prepare
      and file with the SEC such amendments, including post-effective amendments,
      to
      each Registration Statement and the Prospectus used in connection therewith
      as
      may be necessary to keep the Registration Statement continuously effective,
      as
      to the applicable Registrable Securities for the Effectiveness Period and
      prepare and file with the SEC such additional Registration Statements in order
      to register for resale under the Securities Act all of the Registrable
      Securities during the Effectiveness Period; (ii) cause the related
      Prospectus to be amended or supplemented by any required Prospectus supplement,
      and as so supplemented or amended to be filed pursuant to Rule 424;
      (iii) respond as promptly as reasonably practical, and in any event within
      ten (10) Trading Days (except to the extent that the Company reasonably requires
      additional time to respond to accounting comments), to any comments received
      from the SEC with respect to the Registration Statement or any amendment
      thereto; and (iv) comply in all material respects with the provisions of
      the Securities Act and the Exchange Act applicable to the Company with respect
      to the disposition of all Registrable Securities covered by the Registration
      Statement during the applicable period in accordance with the intended methods
      of disposition by the Investors thereof set forth in the Registration Statement
      as so amended or in such Prospectus as so supplemented.

     

    (b) Notify
      the Investors as promptly as reasonably practical, and confirm such notice
      in
      writing no later than two (2) Trading Days thereafter, of any of the following
      events: (i) any Registration Statement or any post-effective amendment is
      declared effective; (ii) the SEC issues any stop order suspending the
      effectiveness of any Registration Statement or initiates any Proceedings for
      that purpose; (iii) the Company receives notice of any suspension of the
      qualification or exemption from qualification of any Registrable Securities
      for
      sale in any jurisdiction, or the initiation or threat of any Proceeding for
      such
      purpose; or (iv) the financial statements included in any Registration
      Statement become ineligible for inclusion therein or any Registration Statement
      or Prospectus or other document contains any untrue statement of a material
      fact
      or omits to state any material fact required to be stated therein or necessary
      to make the statements therein, in the light of the circumstances under which
      they were made, not misleading.

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

    (c) Use
      its
      reasonable Best Efforts to avoid the issuance of or, if issued, obtain the
      withdrawal of (i) any order suspending the effectiveness of any
      Registration Statement, or (ii) any suspension of the qualification (or
      exemption from qualification) of any of the Registrable Securities for sale
      in
      any jurisdiction, as soon as possible.

     

    (d) If
      requested by an Investor, promptly provide such Investor, without charge, at
      least one conformed copy of each Registration Statement and each amendment
      thereto, including financial statements and schedules, and all exhibits to
      the
      extent requested by such Person (including those previously furnished or
      incorporated by reference) promptly after the filing of such documents with
      the
      SEC.

    

    (e) Promptly
      deliver to each Investor, without charge, as many copies of the Prospectus
      or
      Prospectuses (including each form of prospectus) and each amendment or
      supplement thereto as such Persons may reasonably request. The Company hereby
      consents to the use of such Prospectus and each amendment or supplement thereto
      by each of the selling Investors in connection with the offering and sale of
      the
      Registrable Securities covered by such Prospectus and any amendment or
      supplement thereto to the extent permitted by federal and state securities
      laws
      and regulations.

     

    (f) Prior
      to
      any public offering of Registrable Securities, use its reasonable Best Efforts
      to register or qualify or cooperate with the selling Investors in connection
      with the registration or qualification (or exemption from such registration
      or
      qualification) of such Registrable Securities for offer and sale under the
      securities or Blue Sky laws of such jurisdictions within the United States
      as
      any Investor requests in writing, to keep each such registration or
      qualification (or exemption therefrom) effective for so long as required, but
      not to exceed the duration of the Effectiveness Period, and to do any and all
      other acts or things reasonably necessary or advisable to enable the disposition
      in such jurisdictions of the Registrable Securities covered by a Registration
      Statement; provided,
      however,
      that
      the Company shall not be obligated to file any general consent to service of
      process or to qualify as a foreign corporation or as a dealer in securities
      in
      any jurisdiction in which it is not so qualified or to subject itself to
      taxation in respect of doing business in any jurisdiction in which it is not
      otherwise so subject.

     

    (g) Cooperate
      with the Investors to facilitate the timely preparation and delivery of
      certificates representing Registrable Securities to be delivered to a transferee
      pursuant to a Registration Statement, which certificates shall be free, to
      the
      extent permitted by this Agreement and under law, of all restrictive legends,
      and to enable such Registrable Securities to be in such denominations and
      registered in such names as any such Investors may reasonably
      request.

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

    

    (h) Promptly
      upon the occurrence of any event described in Section
      6.1(d),
      prepare a supplement or amendment, including a post-effective amendment, to
      the
      Registration Statement or a supplement to the related Prospectus or any document
      incorporated or deemed to be incorporated therein by reference, and file any
      other required document so that, as thereafter delivered, neither the
      Registration Statement nor such Prospectus will contain an untrue statement
      of a
      material fact or omit to state a material fact required to be stated therein
      or
      necessary to make the statements therein, in the light of the circumstances
      under which they were made, not misleading.

     

    (i) Comply
      with all rules and regulations of the SEC applicable to the Company in
      connection with the registration of the Securities.

    

    (j) The
      Company shall comply with all applicable rules and regulations of the SEC under
      the Securities Act and the Exchange Act, including, without limitation, Rule
      172
      under the Securities Act, file any final Prospectus, including any supplement
      or
      amendment thereof, with the SEC pursuant to Rule 424 under the Securities Act,
      promptly inform the Holders in writing if, at any time during the Effectiveness
      Period, the Company does not satisfy the conditions specified in Rule 172 and,
      as a result thereof, the Holders are required to make available a Prospectus
      in
      connection with any disposition of Registrable Securities and take such other
      actions as may be reasonably necessary to facilitate the registration of the
      Registrable Securities hereunder.

     

    6.3 Registration
      Expenses.
      The
      Company shall pay all fees and expenses incident to the performance of or
      compliance with Article VI
      of this
      Agreement, but excluding underwriting discounts and commissions of the
      Investors, including without limitation (a) all registration and filing
      fees and expenses, including without limitation those related to filings with
      the SEC, any Trading Market and in connection with applicable state securities
      or Blue Sky laws, (b) printing expenses (including without limitation
      expenses of printing certificates for Registrable Securities),
      (c) messenger, telephone and delivery expenses incurred by the Company,
      (d) fees and disbursements of counsel for the Company, (e) fees and
      expenses of all other Persons retained by the Company in connection with the
      consummation of the transactions contemplated by this Agreement, (f) reasonable
      fees and expenses of one special counsel for the Investors; and (g) all
      listing fees to be paid by the Company to the Trading Market.

     

    6.4 Indemnification

     

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Investor, the officers, directors, partners, members, agents
      and employees of each of them, each Person who controls or is alleged to control
      any such Investor (within the meaning of Section 15 of the Securities Act
      or Section 20 of the Exchange Act) and the officers, directors, partners,
      members, agents and employees of each such controlling Person, to the fullest
      extent permitted by applicable law, from and against any and all Losses, as
      incurred, arising out of or relating to any untrue or alleged untrue statement
      of a material fact contained in the Registration Statement, any Prospectus
      or
      any form of Company prospectus or in any amendment or supplement thereto or
      in
      any Company preliminary prospectus, or arising out of or relating to any
      omission or alleged omission of a material fact required to be stated therein
      or
      necessary to make the statements therein (in the case of any Prospectus or
      form
      of prospectus or supplement thereto, in the light of the circumstances under
      which they were made) not misleading, provided,
      however,
      that
      the Company shall not be liable in any such case to the extent that such Loss
      arises out of, or is based upon, an untrue statement or omission or alleged
      untrue statement or omission made in such Registration Statement in reliance
      upon and in conformity with information that relates to such Investor or such
      Investor’s proposed method of distribution of Registrable Securities and was
      provided by such Investor in writing for use in the Registration Statement,
      such
      Prospectus or such form of Prospectus or in any amendment or supplement thereto.
      

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

    

    (b) Indemnification
      by Investors.
      Each
      Investor shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and
      Section 20 of the Exchange Act), and the directors, officers, agents or
      employees of such controlling Persons, to the fullest extent permitted by
      applicable law, from and against all Losses (as determined by a court of
      competent jurisdiction in a final judgment not subject to appeal or review)
      arising out of any untrue statement of a material fact contained in the
      Registration Statement, any Prospectus, or any form of prospectus, or in any
      amendment or supplement thereto, or arising out of or relating to any omission
      of a material fact required to be stated therein or necessary to make the
      statements therein (in the case of any Prospectus or form of prospectus or
      supplement thereto, in the light of the circumstances under which they were
      made) not misleading, in each case, on the effective date thereof, but only
      to
      the extent that such untrue statement or omission is based solely upon
      information regarding such Investor furnished to the Company by such Investor
      in
      writing expressly for use therein, or to the extent that such information
      relates to such Investor or such Investor’s proposed method of distribution of
      Registrable Securities and was provided by such Investor for use in the
      Registration Statement, such Prospectus or such form of Prospectus or in any
      amendment or supplement thereto. In no event shall the liability of any selling
      Investor under this Section
      6
      be
      greater in amount than the excess of the dollar amount of the net proceeds
      received by such Investor upon the sale of the Registrable Securities giving
      rise to such indemnification obligation over the dollar amount of an other
      damages incurred by Investor in connection with such registration.

     

    (c) Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall assume the defense thereof, including
      the employment of counsel reasonably satisfactory to the Indemnified Party
      and
      the payment of all reasonable fees and expenses incurred in connection with
      defense thereof; provided,
      that
      the failure of any Indemnified Party to give such notice shall not relieve
      the
      Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
      except (and only) to the extent that such failure shall have materially and
      adversely prejudiced the Indemnifying Party. An Indemnified Party shall have
      the
      right to employ separate counsel in any such Proceeding and to participate
      in
      the defense thereof, but the fees and expenses of such counsel shall be at
      the
      expense of such Indemnified Party or Parties unless: (i) the Indemnifying
      Party has agreed in writing to pay such fees and expenses; (ii) the
      Indemnifying Party shall have failed promptly to assume the defense of such
      Proceeding; or (iii) the named parties to any such Proceeding (including
      any impleaded parties) include both such Indemnified Party and the Indemnifying
      Party, and such Indemnified Party shall have been advised by counsel that a
      conflict of interest is likely to exist if the same counsel were to represent
      such Indemnified Party and the Indemnifying Party or that additional or
      different defenses may be available to the Indemnified Party (in which case,
      if
      such Indemnified Party notifies the Indemnifying Party in writing that it elects
      to employ separate counsel at the expense of the Indemnifying Party, the
      Indemnifying Party shall not have the right to assume the defense thereof and
      the reasonable fees and expenses of separate counsel shall be at the expense
      of
      the Indemnifying Party). It being understood, however, that the Indemnifying
      Party shall not, in connection with any one such Proceeding (including separate
      Proceedings that have been or will be consolidated before a single judge) be
      liable for the fees and expenses of more than one separate firm of attorneys
      at
      any time for all Indemnified Parties, which firm shall be appointed by a
      majority of the Indemnified Parties. The Indemnifying Party shall not be liable
      for any settlement of any such Proceeding effected without its written consent,
      unless such consent is unreasonably withheld or delayed. No Indemnifying Party
      shall, without the prior written consent of the Indemnified Party, effect any
      settlement of any pending Proceeding in respect of which any Indemnified Party
      is a party, unless such settlement includes an unconditional release of such
      Indemnified Party from all liability on claims that are the subject matter
      of
      such Proceeding. All reasonable fees and expenses of the Indemnified Party
      (including reasonable fees and expenses to the extent incurred in connection
      with investigating or preparing to defend such Proceeding in a manner not
      inconsistent with this Section) shall be paid to the Indemnified Party, as
      incurred, within twenty (20) Trading Days of written notice thereof to the
      Indemnifying Party (regardless of whether it is ultimately determined that
      an
      Indemnified Party is not entitled to indemnification hereunder; provided,
      that
      the Indemnifying Party shall reimburse all such fees and expenses to the extent
      it is finally judicially determined that such Indemnified Party is not entitled
      to indemnification hereunder). 

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    (d) Contribution.
      If a
      claim for indemnification under Section
      6.4(a)
      or  (b)
      is
      unavailable to an Indemnified Party (by reason of public policy or otherwise),
      then each Indemnifying Party, in lieu of indemnifying such Indemnified Party,
      shall contribute to the amount paid or payable by such Indemnified Party as
      a
      result of such Losses, in such proportion as is appropriate to reflect the
      relative fault of the Indemnifying Party and Indemnified Party in connection
      with the actions, statements or omissions that resulted in such Losses as well
      as any other relevant equitable considerations. The relative fault of such
      Indemnifying Party and Indemnified Party shall be determined by reference to,
      among other things, whether any action in question, including any untrue or
      alleged untrue statement of a material fact or omission or alleged omission
      of a
      material fact, has been taken or made by, or relates to information supplied
      by,
      such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. The amount paid or payable by a party as a result
      of any Losses shall be deemed to include, subject to the limitations set forth
      in Section
      6.4(c),
      any
      reasonable attorneys’ or other reasonable fees or expenses incurred by such
      party in connection with any Proceeding to the extent such party would have
      been
      indemnified for such fees or expenses if the indemnification provided for in
      this Section was
      available to such party in accordance with its terms.

    
      
        
        

      

      
        -27-

        
          

        

      

      
        
        

      

    

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section
      6.4(d)
      were
      determined by pro rata allocation or by any other method of allocation that
      does
      not take into account the equitable considerations referred to in the
      immediately preceding paragraph. Notwithstanding the provisions of this
Section
      6.4(d),
      no
      Investor shall be required to contribute, in the aggregate, any amount in excess
      of the amount by which the net proceeds actually received by such Investor
      from
      the sale of the Registrable Securities subject to the Proceeding exceeds the
      amount of any damages that such Investor has otherwise been required to pay
      by
      reason of such untrue or alleged untrue statement or omission or alleged
      omission. No Person guilty of fraudulent misrepresentation (within the meaning
      of Section
      11(f) of
      the Securities Act) shall be entitled to contribution from any Person who was
      not guilty of such fraudulent misrepresentation.

     

    6.5 Dispositions.
      Each
      Investor agrees that it will comply with the prospectus delivery requirements
      of
      the Securities Act as applicable to it in connection with sales of Registrable
      Securities pursuant to the Registration Statement and shall sell its Registrable
      Securities in accordance with the Plan of Distribution set forth in the
      Prospectus. Each Investor further agrees that, upon receipt of a notice from
      the
      Company of the occurrence of any event of the kind described in Sections
      6.2(b)(ii),
      (iii)
      or
(iv),
      such
      Investor will use commercially reasonable efforts to discontinue disposition
      of
      such Registrable Securities under the Registration Statement until such Investor
      is advised in writing by the Company that the use of the Prospectus, or amended
      Prospectus, as applicable, may be used. The Company may provide appropriate
      stop
      orders to enforce the provisions of this paragraph.

     

    6.6 Assignment
      of Registration Rights.
      The
      registration rights under Article
      VI
      of this
      Agreement shall be automatically assignable by the Investors to any transferee
      of all or any potion of such Investor’s Registrable Securities if (i) the
      Investor agrees in writing with the transferee or assignee to assign such rights
      and a copy of such agreement is furnished to the Company within a reasonable
      time after such assignment; (ii) the Company is furnished with written notice of
      (a) the name and address of such transferee or assignee, and (b) the securities
      with respect to which such registration rights are being transferred or
      assigned; (iii) following such transfer or assignment, the further disposition
      of such securities by the transferee or assignee is restricted under the
      Securities Act and applicable state securities laws; (iv) at or before the
      time
      the Company receives the written notice contemplated by clause (ii) of this
      sentence the transferee or assignee agrees in writing to be bound by all of
      the
      provisions contained herein; and (v) such transfer shall have been made in
      accordance with the applicable requirements of this Agreement. 

    

    6.7 No
      Piggyback on Registrations.
      Neither
      the Company nor any of its security holders (other than the Investors in such
      capacity pursuant hereto)
      may
      include
      securities of the Company in the Registration Statement other than the
      Registrable Securities. The Company will not file a registration statement
      relating to the resale of Company securities for the account of any other holder
      of Company securities prior to the Effective Date.

    
      
        
        

      

      
        -28-

        
          

        

      

      
        
        

      

    

    6.8 Piggy-Back
      Registrations.
      If at
      any time during the Effectiveness Period there is not an effective Registration
      Statement covering all of the Registrable Securities and the Company shall
      determine to prepare and file with the SEC a registration statement relating
      to
      an offering for its own account or the account of others under the Securities
      Act of any of its equity securities, other than on Form S-4 or Form S-8 (each
      as
      promulgated under the Securities Act) or their then equivalents relating to
      equity securities to be issued solely in connection with any acquisition of
      any
      entity or business or equity securities issuable in connection with stock option
      or other employee benefit plans, then the Company shall send to each Investor
      not then eligible to sell all of its Registrable Securities under Rule 144(k),
      written notice of such determination and if, within ten (10) days after receipt
      of such notice, any such Investor shall so request in writing, the Company
      shall
      include in such registration statement all or any part of such Registrable
      Securities such Investor requests to be registered. Notwithstanding the
      foregoing, in the event that, in connection with any underwritten public
      offering, the managing underwriter(s) thereof shall impose a limitation on
      the
      number of shares which may be included in the Registration Statement because,
      in
      such underwriter(s)’ judgment, marketing or other factors dictate such
      limitation is necessary to facilitate public distribution, then the Company
      shall be obligated to include in such Registration Statement only such limited
      portion of the Registrable Securities with respect to which such Investor has
      requested inclusion hereunder as the underwriter shall permit. If an offering
      in
      connection with which an Investor is entitled to registration under this
Section
      6.8
      is an
      underwritten offering, then each Investor whose Registrable Securities are
      included in such Registration Statement shall, unless otherwise agreed by the
      Company, offer and sell such Registrable Securities in an underwritten offering
      using the same underwriter or underwriters and, subject to the provisions of
      this Agreement, on the same terms and conditions as other shares of Preferred
      Stock and Common Stock included in such underwritten offering and
      shall
      enter into an underwriting agreement in a form and substance reasonably
      satisfactory to the Company and the underwriter or underwriters. 

    

    

    ARTICLE
      VII

    PURCHASE
      RIGHTS

    

    7.1 Subsequent
      Offerings.
      So long
      as a majority of the shares of Preferred Stock remain outstanding, the Investors
      will have the right of first refusal (the “Purchase
      Rights”)
      to
      purchase, on the same terms as other investors, up to twenty-five percent (25%)
      of any equity securities, securities convertible into equity securities, or
      options or warrants therefor (“Equity
      Securities”)
      that
      the Company proposes to offer, other than the securities excluded by
Section
      7.5
      hereof.

    

    7.2  Exercise
      of Rights.

    

    (a) If
      the
      Company proposes to issue any Equity Securities, it shall give each Investor
      written notice of its intention, describing the Equity Securities, the price
      and
      the terms and conditions upon which the Company proposes to issue the same.
      Each
      Investor shall have fifteen (15) days from the giving of such notice to elect
      to
      purchase its pro rata share (based on the number of shares of Preferred Stock
      owned by it in relation to the number of shares of Preferred Stock owned by
      all
      Investors) of Equity Securities for the price and upon the terms and conditions
      specified in the notice by giving written notice to the Company and stating
      therein the quantity of such Equity Securities to be purchased.

    
      
        
        

      

      
        -29-

        
          

        

      

      
        
        

      

    

    (b) If
      not
      all of the Investors elect to purchase their share of the Equity Securities,
      then the Company shall promptly notify in writing the Investors who have
      elected to purchase their full share of such Equity Securities
      and
      shall offer such Investors (the “Purchasing
      Investors”)
      the
      right to acquire such unsubscribed shares. The Purchasing Investors shall have
      ten (10) days after receipt of such notice to notify the Company of their
      election to purchase all or a portion thereof of the unsubscribed shares. If
      the
      Purchasing Investors have, in the aggregate, elected to purchase more than
      the
      number of unsubscribed shares being offered in such notice, then the
      unsubscribed shares shall be allocated according to each Purchasing Investor’s
      share up to the number of unsubscribed shares set forth in the notice to the
      Purchasing Investors. The Purchasing Investors shall then effect the purchase
      of
      the Equity Securities at the closing of the issuance of Equity Securities
      described in the notice delivered by the Company pursuant to Section
      7.2(a).
      On the
      date of such closing, the Company shall deliver to the Investors the
      certificates representing the Equity Securities to be purchased by the
      Purchasing Investors, each certificate to be properly endorsed for transfer,
      and
      at such time, the Purchasing Investors shall pay the purchase price for the
      Equity Securities.

    

    7.3 Issuance
      of Equity Securities to Other Persons.
      If the
      Investors fail to exercise in full their Purchase Rights, the Company shall
      have
      forty-five (45) days thereafter to sell the Equity Securities in respect of
      which the Investor’s rights were not exercised, at a price and upon general
      terms and conditions no more favorable to the purchasers thereof than specified
      in the Company’s notice to the Investors pursuant to Section
      7.2(a)
      hereof.
      If the Company has not sold such Equity Securities within such forty-five (45)
      days, the Company shall not thereafter issue or sell any Equity Securities,
      without first again complying with this Article
      VII.

    

    7.4 Transfer
      of Purchase Rights.
      The
      Purchase Rights of each Investor under this Article
      VII
      may be
      transferred to any Affiliate of such Investor. 

    

    7.5 Excluded
      Securities.
      The
      Purchase Rights established by this Article
      VII
      shall
      have no application to any of the following issuances of Equity Securities
      (collectively, the “Excluded
      Securities”):

     

    (a) shares
      of
      Common Stock issued or issuable to employees, directors or consultants pursuant
      to equity holder plans maintained by the Company and registered with the SEC
      on
      Form S-8;

    

    (b) shares
      of
      Common Stock issued or issuable upon the exercise or conversion of currently
      outstanding options, warrants, or convertible securities;

    

    (c) shares
      of
      Common Stock issued or issuable on the exercise of the Warrants or conversion
      of
      the Preferred Stock;

    

    (d) shares
      of
      Common Stock issued or issuable solely as consideration for bank financings,
      equipment leases, investor relations/public relations services, business
      acquisitions, mergers or strategic partnerships, and not for financing purposes.
      

    
      
        
        

      

      
        -30-

        
          

        

      

      
        
        

      

    

    ARTICLE
      VIII

    MISCELLANEOUS

     

    8.1 Termination.
      This
      Agreement may be terminated by the Company or any Investor, by written notice
      to
      the other parties, if the Closing has not been consummated by the third Business
      Day following the date of this Agreement; provided
      that no
      such termination will affect the right of any party to sue for any breach by
      the
      other party (or parties).

     

    8.2 Fees
      and Expenses.
      The
      Company shall pay, reimburse and hold the Investors harmless from liability
      for
      the payment of all reasonable fees and expenses incurred by them in connection
      with the preparation and negotiation of this Agreement and the consummation
      of
      the transactions contemplated hereby. The fees and expenses of the Investors
      may
      include, without limitation, the fees and expenses of counsel (which shall
      not
      exceed, without the Company’s prior written consent, the sum of $[ ]) and
      accountants and out of pocket expenses of the Investors arising in connection
      with the preparation, negotiation and execution of the Transaction Documents
      and
      the consummation of the transactions contemplated thereby (an estimate of the
      fees and expenses of such counsel may be paid by check delivered or wire
      transfer to such counsel at the Closing by the Investors, the amount of such
      check or wire transfer being deducted from the aggregate amount to be paid
      by
      the Investors at the Closing for the Preferred Stock to be purchased by them
      under this Agreement). The Company shall pay all Transfer Agent fees, stamp
      taxes and other taxes and duties levied in connection with the sale and issuance
      of the Securities. 

     

    8.3 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. 

     

    8.4 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 or email at the facsimile number or
      email address specified in this Section  prior
      to
      6:30 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 or email at the facsimile number or email address specified in this
      Section on a day that is not a Trading Day or later than 6:30 p.m. (New York
      City time) on any Trading Day, (c) the Trading Day following the date of
      deposit with a nationally recognized overnight courier service, or (d) upon
      actual receipt by the party to whom such notice is required to be given. The
      addresses, facsimile numbers and email addresses for such notices and
      communications are as follows: 

    

    Notices
      for the Company:

    

    Intelligentias,
      Inc.  

    303
      Twin
      Dolphin Drive, 6th Floor

    Redwood
      City, California 94101

    Attention:
      Mr. Ian Rice, Chairman and CEO

    Telephone
      No.: 650-632-4526

    Facsimile
      No.: 650-357-6901

     

    with
      a
      copy to:

    

    Greenberg
      Traurig, LLP 

    MetLife
      Building

    200
      Park
      Avenue, 15th Floor

    New
      York,
      New York 10166

    Attention:
      Spencer G. Feldman, Esq.

    Telephone
      No.: 212-801-9200

    Facsimile
      No.: 212-801-6400

    Email
      Address: feldmans@gtlaw.com

    

    Notices
      for the Investors:

    

    Kingdon
      Capital Management, LLC

    152
      West
      57th Street, 50th Floor

    New
      York,
      New York 10019

    Attention:
      Alfred Barbagallo

    Telephone
      No.: 212-333-0123

    Email
      Address: alfred.barbagallo@kingdon.com

    

    with
      a
      copy to:

    

    Ropes
      & Gray LLP

    One
      International Place 

    Boston,
      MA 02110 

    Attention:
      Joel F. Freedman

    Telephone
      No.: 617-951-7309

    Facsimile
      No.: 617-951-7050

     

    8.5 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 the holders
      of at least 80% of the Registrable Securities held on the date of such amendment
      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. Notwithstanding the foregoing, a waiver or
      consent to depart from the provisions hereof with respect to a matter that
      relates exclusively to the rights of Investors under Article VI
      may be
      given by Investors holding at least a majority of the Registrable Securities
      to
      which such waiver or consent relates, and any such amendment shall be binding
      upon the Company and all holders of Registrable Securities.

    
      
        
        

      

      
        -31-

        
          

        

      

      
        
        

      

    

    8.6 Construction.
      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.

     

    8.7 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 the Investors. Any Investor may assign its rights under this
      Agreement to any Person to whom such Investor assigns or transfers any
      Securities, provided (i)
      the
      Investor agrees in writing with the transferee or assignee to assign such rights
      and a copy of such agreement is furnished to the Company within a reasonable
      time after such assignment; (ii) the Company is furnished with written notice
      of
      (a) the name and address of such transferee or assignee, and (b) the Registrable
      Securities with respect to which such rights are being transferred or assigned;
      (iii) following such transfer or assignment, the further disposition of such
      securities by the transferee or assignee is restricted under the Securities
      Act
      and applicable state securities laws; (iv) at or before the time the Company
      receives the written notice contemplated by clause (ii) of this sentence the
      transferee or assignee agrees in writing to be bound by all of the provisions
      contained herein; and (v) such transfer shall have been made in accordance
      with
      the applicable requirements of this Agreement. 

    

    8.8 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, nor may any
      provision hereof be enforced by, any other Person, except that each Indemnified
      Party is an intended third party beneficiary of Section 6.4
      and (in
      each case) may enforce the provisions of such Sections directly against the
      parties with obligations thereunder.

     

    8.9 Governing
      Law; Venue; Waiver of Jury Trial.
      ALL
      QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
      OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
      LAWS
      OF THE STATE OF NEW YORK. THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT
      TO
      THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
      CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE
      BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, 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
      WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY
      THE
      COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
      JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS
      IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS
      AND
      CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
      MAILING A COPY THEREOF 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 COMPANY AND INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL
      BY JURY.

    
      
        
        

      

      
        -32-

        
          

        

      

      
        
        

      

    

    8.10 Survival.
      The
      representations and warranties contained herein shall survive the
      Closing.

     

    8.11 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 or email attachment, 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 or email-attached
      signature page were an original thereof.

     

    8.12 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.

     

    8.13 Replacement
      of Securities.
      If any
      certificate or instrument evidencing any Securities is mutilated, lost, stolen
      or destroyed, the Company shall promptly 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 at no cost to the
      Investor. The Company may require the execution by the holder thereof of a
      customary lost certificate affidavit of that fact and a customary agreement
      to
      indemnify and hold harmless the Company (and Transfer Agent, if applicable)
      for
      any losses in connection therewith. 

    

    8.14 Remedies.
      In
      addition to being entitled to exercise all rights provided herein or granted
      by
      law, including recovery of damages, each of the Investors and the Company will
      be entitled to seek 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 (other than in connection with any action for temporary
      restraining order) the defense that a remedy at law would be adequate.

    
      
        
        

      

      
        -33-

        
          

        

      

      
        
        

      

    

    8.15 Adjustments
      in Share Numbers and Prices.
      In the
      event of any stock split, subdivision, dividend or distribution payable in
      shares of Common Stock (or other securities or rights convertible into, or
      entitling the holder thereof to receive directly or indirectly shares of Common
      Stock), combination or other similar recapitalization or event occurring after
      the date hereof and prior to the Closing, each reference in any Transaction
      Document to a number of shares or a price per share shall be amended to
      appropriately account for such event.

     

    8.16 Independent
      Nature of Investors’ Obligations and Rights.
      The
      obligations of each Investor under any Transaction Document are several and
      not
      joint with the obligations of any other Investor, and no Investor shall be
      responsible in any way for the performance of the obligations of any other
      Investor under any Transaction Document. The decision of each Investor to
      purchase Securities pursuant to this Agreement has been made by such Investor
      independently of any other Investor and independently of any information,
      materials, statements or opinions as to the business, affairs, operations,
      assets, properties, liabilities, results of operations, condition (financial
      or
      otherwise) or prospects of the Company which may have been made or given by
      any
      other Investor or by any agent or employee of any other Investor, and no
      Investor or any of its agents or employees shall have any liability to any
      other
      Investor (or any other person) relating to or arising from any such information,
      materials, statements or opinions. Nothing contained herein or in any
      Transaction Document, and no action taken by any Investor pursuant thereto,
      shall be deemed to constitute the Investors as a partnership, an association,
      a
      joint venture or any other kind of entity, or create a presumption that the
      Investors are in any way acting in concert or as a group with respect to such
      obligations or the transactions contemplated by the Transaction Document. Each
      Investor acknowledges that no other Investor has acted as agent for such
      Investor in connection with making its investment hereunder and that no other
      Investor will be acting as agent of such Investor in connection with monitoring
      its investment hereunder. Each Investor 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 Investor to be joined as an additional party
      in
      any Proceeding for such purpose.

     

    [SIGNATURE
      PAGES TO FOLLOW]

    
      
        
        

      

      
        -34-

        
          

        

      

      
        
        

      

    

    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.

    

    
      	 	 	 
	 	INTELLIGENTIAS,
              INC.
	 
 	 
 	 
 
	
            	By:  	/s/ Luigi
              Caramico
	 	
              
Name:
 Luigi
              Caramico
	 	Title:   
              President

     

     

     

    Securities
      Purchase
      Agreement

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	 	 	 
	 	INVESTORS:
	 	 
	 	Kingdon Capital Management, LLC,
              the
Investment Manager to M.
              Kingdon Offshore Ltd. 
	 
 	 
 	 
 
	
            	By:  	/s/ Alan
              P. Winters
	 	
              
Name: 
Alan
              P. Winters
	 	Title: 
              Chief Operating Officer 

    

     

    
      
        	 	 	 
	 	 
	 	By: Kingdon Capital Management, LLC,
                the
Investment Adviser to Kingdon
                Associates 
	 
 	 
 	 
 
	
              	By:  	/s/ Alan
                P. Winters
	 	
                
Name: 
Alan
                P. Winters
	 	Title: 
                Chief Operating Officer 

      

       

    

    
      
        
          	 	 	 
	 	 
	 	By: Kingdon Capital Management,
                  LLC, the
                  
Investment Adviser to Kingdon
                  Family Partnership, L.P. 
	 
 	 
 	 
 
	
                	By:  	/s/ Alan
                  P. Winters
	 	
                  
Name: 
Alan
                  P. Winters
	 	Title: 
                  Chief Operating Officer 

        

         

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit A

    Schedule
      of Investors

    

    
      	
              Investor

            	 	
              Preferred
                Stock

            	 	
              Market
                Warrants

            	 	
              Premium
                Warrants

            	 	
              Purchase
                Price

            
	 	 	 	 	 	 	 	 	 
	
              M.
                Kingdon Offshore Ltd.

            	 	
              8,875,000

            	 	
              4,437,500

            	 	
              3,550,000

            	 	
              7,100,000

            
	 	 	 	 	 	 	 	 	 
	
              Kingdon
                Associates

            	 	
              3,143,750

            	 	
              1,571,875

            	 	
              1,257,500

            	 	
              2,515,000

            
	 	 	 	 	 	 	 	 	 
	
              Kingdon
                Family Partnership, L.P.

            	 	
              481,250

            	 	
              240,625

            	 	
              192,500

            	 	
              385,000

            
	 	 	 	 	 	 	 	 	 
	
              TOTAL

            	 	
              12,500,000

            	 	
              6,250,000

            	 	
              5,000,000

            	 	
              $10,000,000Unassociated Document

    EXHIBIT
      4.1 

    

    
      	
              Purchase
                Agreement

              By
                and Among

              Internet
                America, Inc.

              and

              The
                Investors Listed in Schedule 1 hereto

              Series
                A Preferred Stock

              October
                17, 2007

            

    

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

     

    
      	
              ARTICLE
                I.

            
	
              DEFINITIONS

            
	
              1

            
	 	 	 
	
              Section
                1.1

            	
              Definitions

            	
              1

            
	
              Section
                1.2

            	
              References
                and Titles

            	
              4

            
	
               

            
	
              ARTICLE
                II.

            
	
              PURCHASE
                OF THE SHARES

            
	
              4

            
	 	
               

            	 
	
              Section
                2.1

            	
              Purchase
                of the Shares

            	
              4

            
	
               

            
	
              ARTICLE
                III.

            
	
              REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY

            
	
              5

            
	 	 	
               

            
	
              Section
                3.1

            	
              Organization,
                Standing and Power

            	
              5

            
	
              Section
                3.2

            	
              Subsidiaries

            	
              5

            
	
              Section
                3.3

            	
              Capital
                Structure

            	
              5

            
	
              Section
                3.4

            	
              Authority;
                No Violations; Approvals

            	
              7

            
	
              Section
                3.5

            	
              SEC
                Documents

            	
              8

            
	
              Section
                3.6

            	
              Absence
                of Certain Changes or Events

            	
              9

            
	
              Section
                3.7

            	
              No
                Undisclosed Material Liabilities

            	
              9

            
	
              Section
                3.8

            	
              No
                Default

            	
              10

            
	
              Section
                3.9

            	
              Compliance
                with Applicable Laws

            	
              10

            
	
              Section
                3.10

            	
              Litigation

            	
              11

            
	
              Section
                3.11

            	
              Certain
                Agreements

            	
              11

            
	
              Section
                3.12

            	
              Status
                of Shares

            	
              11

            
	
              Section
                3.13

            	
              Intellectual
                Property

            	
              12

            
	
              Section
                3.14

            	
              Environmental
                Matters

            	
              12

            
	
              Section
                3.15

            	
              No
                Brokers or Finders

            	
              12

            
	
              Section
                3.16

            	
              Vote

            	
              13

            
	
              Section
                3.17

            	
              Related
                Party Transactions

            	
              13

            
	 
	
              ARTICLE
                IV.

            
	
              REPRESENTATIONS
                AND WARRANTIES OF THE INVESTORS

            
	
              13

            
	 	 	 
	
              Section
                4.1

            	
              Organization,
                Standing and Power

            	
              13

            
	
              Section
                4.2

            	
              Authority;
                Approvals

            	
              13

            
	
              Section
                4.3

            	
              Investment
                Intent

            	
              14

            
	
              Section
                4.4

            	
              Investor
                Status

            	
              14

            
	
              Section
                4.5

            	
              No
                Brokers or Finders

            	
              14

            

    

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    

     

    
      	
              ARTICLE
                V.

            
	
              COVENANTS

            
	
              14

            
	 	 	 
	
              Section
                5.1

            	
              Affirmative
                Covenants of the Company

            	
              14

            
	
              Section
                5.2

            	
              Negative
                Covenants of the Company

            	
              14

            
	
              Section
                5.3

            	
              Cooperation;
                Approvals

            	
              15

            
	
              Section
                5.4

            	
              Notification
                of Certain Matters

            	
              15

            
	
              Section
                5.5

            	
              Registration
                Rights Agreement

            	
              15

            
	
              Section
                5.6

            	
              Transfer
                Restrictions

            	
              15

            
	
              Section
                5.7

            	
              Stock
                Exchange Listing

            	
              16

            
	
              Section
                5.8

            	
              Access;
                Confidentiality

            	
              17

            
	
              Section
                5.9

            	
              Indemnification

            	
              17

            
	 	 	
               

            
	
              ARTICLE
                VI.

            
	
              CONDITIONS
                PRECEDENT TO THE CLOSING

            
	
              18

            
	 	 	 
	
              Section
                6.1

            	
              Conditions
                Precedent to Each Party’s Obligation

            	
              18

            
	
              Section
                6.2

            	
              Conditions
                Precedent to Obligation of the Investors

            	
              18

            
	
              Section
                6.3

            	
              Conditions
                Precedent to Obligations of Company

            	
              19

            
	 	 	
               

            
	
              ARTICLE
                VII.

            
	
              THE
                CLOSING

            
	
              20

            
	 	 	
               

            
	
              Section
                7.1

            	
              The
                Closing

            	
              20

            
	
              Section
                7.2

            	
              Actions
                to Occur at the Closing

            	
              20

            
	 	 	
               

            
	
              ARTICLE
                VIII.

              TERMINATION

              21

            
	 	 	
               

            
	
              Section
                8.1

            	
              Termination

            	
              21

            
	
              Section
                8.2

            	
              Effect
                of Termination

            	
              21

            
	 	 	
               

            
	
              ARTICLE
                IX.

              RECOVERY
                OF FEES

              22

            
	 	 	
               

            
	
              ARTICLE
                X.

              MISCELLANEOUS

              22

            
	 	 	
               

            
	
              Section
                10.1

            	
              Survival
                of Provisions

            	
              22

            
	
              Section
                10.2

            	
              No
                Waiver; Modification in Writing

            	
              22

            
	
              Section
                10.3

            	
              Specific
                Performance

            	
              23

            
	
              Section
                10.4

            	
              Severability

            	
              23

            
	
              Section
                10.5

            	
              Fees
                and Expenses

            	
              23

            
	
              Section
                10.6

            	
              Parties
                in Interest

            	
              23

            

    

     

     

    
      
         

      

      
        ii

        
          

        

      

      
         

      

    

     

    
      	
              Section
                10.7

            	
              Notices

            	
              23

            
	
              Section
                10.8

            	
              Counterparts

            	
              24

            
	
              Section
                10.9

            	
              Entire
                Agreement; Termination of Confidentiality Agreement

            	
              24

            
	
              Section
                10.10

            	
              Governing
                Law

            	
              24

            
	
              Section
                10.11

            	
              Assignment

            	
              24

            
	
              Section
                10.12

            	
              Headings

            	
              24

            

    

    
      	
              Exhibit
                A

            	
              Statement
                of Resolution relating to Series A Preferred Stock

            	
               

            
	
              Exhibit
                B

            	
              Registration
                Rights Agreement

            	
               

            

    

    
      
         

      

      
        iii

        
          

        

      

      
         

      

    

    PURCHASE
      AGREEMENT

     

    This
      Purchase Agreement, dated as of October 17, 2007, is made by and among Internet
      America, Inc., a Texas corporation (the “Company”), and the investors listed in
Schedule 1
      hereto
      (each, an “Investor”, and collectively, the “Investors”).

     

    In
      consideration of the mutual covenants and agreements set forth herein and for
      good and valuable consideration, the receipt and sufficiency of which is hereby
      acknowledged, the parties hereto agree as follows:

     

    ARTICLE
      I.

    DEFINITIONS

     

    Section
      1.1 Definitions.
      As used
      in this Agreement, and unless the context requires a different meaning, the
      following terms have the meanings indicated:

     

    “Affiliate”
      means, with respect to any Person, any other Person directly, or indirectly
      through one or more intermediaries, controlling, controlled by or under common
      control with such Person. For purposes of this definition and this Agreement,
      the term “control” (and correlative terms “controlling,” “controlled by” and
“under common control with”) means possession of the power, whether by contract,
      equity ownership or otherwise, to direct the policies or management of a
      Person.

     

    “Agreement”
      means this Purchase Agreement, as the same may be amended, supplemented or
      modified from time to time in accordance with the terms hereof.

     

    “Approval”
      means any approval, authorization, grant of authority, consent, order,
      qualification, permit, license, variance, exemption, franchise, concession,
      certificate, filing or registration or any waiver of the foregoing, or any
      notice, statement or other communication required to be filed with, delivered
      to
      or obtained from any Governmental Entity or any other Person.

     

    “Articles
      of Incorporation” means the Company’s Articles of Incorporation, as amended from
      time to time.

     

    “Board”
      means the Board of Directors of the Company.

     

    “Business
      Combination” means (i) any consolidation, merger, share exchange or similar
      business combination transaction involving the Company with any Person or
      (ii) the sale, assignment, conveyance, transfer, lease or other disposition
      by the Company of all or substantially all of its assets.

     

    “Business
      Day” means any day except Saturday, Sunday and any day which shall be a legal
      holiday or a day on which banking institutions in Houston, Texas generally
      are
      authorized or required by law or other government actions to close.

     

    “Bylaws”
      mean the Company’s bylaws, as amended from time to time.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    “Capital
      Stock” means (i) with respect to any Person that is a corporation or
      company, any and all shares, interests, participations or other equivalents
      (however designated) of capital or capital stock of such Person and
      (ii) with respect to any Person that is not a corporation or company, any
      and all partnership or other equity interests of such Person.

     

    “Closing”
      has the meaning set forth in Section 7.1(b).

     

    “Closing
      Date” has the meaning set forth in Section 7.1(b).

     

    “Code”
      means the Internal Revenue Code of 1986, as amended, and the rules and
      regulations thereunder as in effect on the date hereof.

     

    “Common
      Stock” means the Company’s common stock, par value $.01 per share, and any
      Capital Stock for or into which such Common Stock hereafter is exchanged,
      converted, reclassified or recapitalized by the Company or pursuant to an
      agreement or Business Combination to which the Company is a party.

     

    “Company”
      has the meaning set forth in the introductory paragraph hereof.

     

    “Company
      Disclosure Schedule” has the meaning set forth in Article III.

     

    “Company
      Options” has the meaning set forth in Section 3.3(c).

     

    “Company
      SEC Documents” has the meaning set forth in Section 3.5.

     

    “Contracts”
      means all agreements, contracts, or other binding commitments, arrangements
      or
      plans, written or oral (including any amendments and other modifications
      thereto), to which the Company or any of its Subsidiaries is a party or is
      otherwise bound.

     

    “Current
      SEC Reports” means the Company’s Annual Report on Form 10-KSB for the year ended
      June 30, 2007, the Company’s proxy statement its Company’s 2006 annual
      meeting of shareholders, and all Company SEC Documents filed by the Company
      since the time of filing of the Company’s Annual Report on Form 10-KSB for the
      year ended June 30, 2007.

     

    “Environmental
      Laws” has the meaning set forth in Section 3.14.

     

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

     

    “GAAP”
      has the meaning set forth in Section 3.5(b).

     

    “Governmental
      Entity” means any agency, bureau, commission, court, authority, department,
      official, political subdivision, tribunal or other instrumentality of any
      government, whether (i) regulatory, administrative or otherwise,
      (ii) federal, state or local, or (iii) domestic or
      foreign.

     

    “Hazardous
      Materials” has the meaning set forth in Section 3.14.

     

    “Intellectual
      Property” has the meaning set forth in Section 3.13.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

     

    “Investor(s)”
      has the meaning set forth in the introductory paragraph hereto.

     

    “Investors’
      Expenses” means all reasonable out-of-pocket fees, costs and expenses incurred
      by the Investors in connection with the transactions contemplated by this
      Agreement and the other Transaction Documents and their due diligence efforts
      in
      connection therewith, including fees, costs and expenses of its accountants,
      counsel and other similar advisors.

     

    “Knowledge”
      of any Person means the actual knowledge of such Person’s executive and
      financial officers and directors, in each case after reasonable inquiry of
      such
      other officers of such Person with direct responsibility for the Person’s
      business relating to such knowledge.

     

    “Law”
      means any constitutional provision, statute or other law, ordinance, rule,
      regulation or interpretation of any thereof and any Order of any Governmental
      Entity (including Environmental Laws) now in effect.

     

    “Lien”
      means any mortgage, lien, pledge, encumbrance, easement, charge or security
      interest of any kind (including any agreement to give any of the foregoing,
      any
      conditional sale or other title retention agreement or any lease in the nature
      thereof).

     

    “Litigation”
      has the meaning set forth in Section 3.10.

     

    “Material
      Adverse Effect” or “Material Adverse Change” means any effect, change, event or
      occurrence that is materially adverse to the business, operations, properties,
      condition (financial or otherwise), results of operations, assets, liabilities
      or prospects of the Company and its Subsidiaries taken as a whole.

     

    “Material
      Contracts” has the meaning set forth in Section 3.11(a).

     

    “Order”
      means any decree, injunction, judgment, settlement, order, ruling, assessment
      or
      writ of a court.

     

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

     

    “Purchase
      Price” has the meaning set forth in Section 2.1(b).

     

    “Registration
      Rights Agreement” means the Registration Rights Agreement substantially in the
      form attached hereto as Exhibit B.

     

    “SEC”
      means the Securities and Exchange Commission.

     

    “Securities
      Act” means the Securities Act of 1933, as amended, and the rules and regulations
      of the SEC promulgated thereunder.

     

    “Series
      A
      Preferred Stock” means the Company’s Series A Preferred Stock, $.01 par value
      per share, which shall have the terms set forth in the Statement of Resolution
      attached hereto as Exhibit A.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

     

    “Shares”
      has the meaning set forth in Section 2.1(a).

     

    “Statement
      of Resolution” shall mean the Statement of Resolution for the Series A Preferred
      Stock substantially the form attached hereto as Exhibit A, with such changes
      as
      are contemplated by the terms thereof or this Agreement.

     

    “Stock
      Plans” means the Company’s stock option, stock incentive, restricted stock,
      employee stock purchase or other similar plans.

     

    “Subsidiary”
      means, (i) a corporation, a majority of whose stock with voting power,
      under ordinary circumstances, to elect directors is at the time, directly or
      indirectly, owned by the Company, by a Subsidiary of the Company or by the
      Company and another Subsidiary, or (ii) any other Person (other than a
      corporation) in which the Company, a Subsidiary or the Company and a Subsidiary,
      directly or indirectly, at the date of determination thereof has at least a
      majority ownership interest.

     

    “Transaction
      Documents” means this Agreement, the Statement of Resolution and the
      Registration Rights Agreement.

     

    “Transfer”
      has the meaning set forth in Section 5.5.

     

    “Underlying
      Shares” means the shares of Common Stock issuable upon conversion of the Shares
      in accordance with the terms thereof.

     

    Section
      1.2 References
      and Titles.
      All
      references in this Agreement to Exhibits, Schedules, Articles, Sections,
      subsections, and other subdivisions refer to the corresponding Exhibits,
      Schedules, Articles, Sections, subsections, and other subdivisions of this
      Agreement unless expressly provided otherwise. Titles appearing at the beginning
      of any Articles, Sections, subsections, or other subdivisions of this Agreement
      are for convenience only, do not constitute any part of such Articles, Sections,
      subsections or other subdivisions, and shall be disregarded in construing the
      language contained therein. The words “this Agreement,” “herein,” “hereby,”
“hereunder,” and “hereof,” and words of similar import, refer to this Agreement
      as a whole and not to any particular subdivision unless expressly so limited.
      The words “this Section,” “this subsection,” and words of similar import, refer
      only to the Sections or subsections hereof in which such words occur. The word
      “including” (in its various forms) means “including without limitation.”
Pronouns in masculine, feminine, or neuter genders shall be construed to state
      and include any other gender and words, terms, and titles (including terms
      defined herein) in the singular form shall be construed to include the plural
      and vice versa, unless the context otherwise expressly requires. Unless the
      context otherwise requires, all defined terms contained herein shall include
      the
      singular and plural forms of such defined terms.

     

    ARTICLE
      II.

    PURCHASE
      OF THE SHARES

     

    Section
      2.1 Purchase
      of the Shares.

     

    (a) Subject
      to the terms and conditions herein set forth, at the Closing, the Company will
      sell to the Investors, and each of the Investors will purchase from the Company,
      the number of shares of the Series A Preferred Stock set forth opposite such
      Investor’s name on Schedule 1 hereto (collectively, the
“Shares”).

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

     

    (b) The
      purchase price payable for each Share shall be $.586 per share (the “Purchase
      Price”).

     

    (c) Delivery
      of the Shares shall be made at the Closing by delivery to the Investors, against
      payment of the Purchase Price therefor as provided herein, of one or more share
      certificates, registered in the name of each Investor, representing the Shares
      purchased by such Investor.

     

    (d) Payment
      of the Purchase Price for the Shares to be purchased hereunder shall be made
      by
      or on behalf of the Investors by wire transfer of immediately available funds
      to
      an account of the Company (the wire transfer instructions for which shall have
      been furnished to the Investors at least three Business Days prior to the
      Closing Date).

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

     

    The
      Company represents and warrants to each Investor as follows (in each case as
      qualified by matters reflected on the disclosure schedule dated as of the date
      of this Agreement by reference to the Section of this Agreement so qualified
      and
      delivered by the Company to the Investors prior to the date of this Agreement
      (the “Company Disclosure Schedule”) and made a part hereof by
      reference):

     

    Section
      3.1 Organization,
      Standing and Power.
      Each of
      the Company and each of its Subsidiaries is a corporation or other entity duly
      organized, validly existing and in good standing under the laws of the
      jurisdiction in which it is incorporated or organized and has the requisite
      corporate or other such entity power and authority to own its properties and
      carry on its business as now being conducted. Each of the Company and each
      of
      its Subsidiaries is duly qualified or licensed to transact business and is
      in
      good standing in each jurisdiction in which the nature of its business or the
      ownership or leasing of its properties makes such qualification or licensing
      necessary. The Company has delivered to the Investors prior to the execution
      of
      this Agreement complete and correct copies of its Articles of Incorporation
      and
      Bylaws, each as amended to date, and, in the case of the Company’s Subsidiaries,
      made available similar organizational documents, in each case, as in effect
      on
      the date of this Agreement.

     

    Section
      3.2 Subsidiaries.
      All the
      outstanding Capital Stock of each Subsidiary of the Company has been validly
      issued and is fully paid and nonassessable (with respect to corporate
      Subsidiaries) and is owned directly or indirectly by the Company, free and
      clear
      of all Liens other than Liens securing obligations for money borrowed by the
      Company and not issued in violation of preemptive or similar
      rights.

     

    Section
      3.3 Capital
      Structure.

     

    (a) The
      authorized capital stock of the Company consists of 40,000,000 shares of Common
      Stock and 5,000,000 shares of preferred stock, $.01 par value per share, which
      may be divided into and issued in one or more series upon the creation thereof
      by the Board of Directors of the Company (the “Board”). As of the date of this
      Agreement, (i) 12,508,914 shares of Common Stock are issued and outstanding,
      (ii) 2,317,015 shares of Common Stock have been authorized and reserved for
      issuance under Stock Plans; (iii) no shares of Common Stock are held by the
      Company in its treasury, (iv) 4,000,000 shares of preferred stock have been
      designated as Series A Preferred Stock, (v) 50,000 shares of Common Stock have
      been authorized and reserved for issuance pursuant to the Stock Purchase
      Agreement (the “SPA”) between the Company and TeleShare Communications Services,
      Inc.; and (vi) up to 360,000 shares of Common Stock have been authorized and
      reserved for issuance pursuant to a purchase price adjustment set forth in
      the
      SPA. Except as set forth in this Section 3.3(a), the Company has no authorized,
      issued or outstanding stock as of the date of this Agreement.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

     

    (b) There
      are
      no restrictions or limitations, contractual or otherwise, binding the Company
      or
      any of its Subsidiaries or to which Company or any of its Subsidiaries is
      subject that prohibit or limit the enforceability of the terms and provisions
      of
      the Statement of Resolution or will prohibit or limit the right of a holder
      of
      Shares to convert the Shares into shares of Common Stock in accordance with
      their terms; and the conversion of any Shares into shares of Common Stock will
      not violate or result in or constitute a default under any loan or credit
      agreement, note, bond, mortgage, indenture, lease, permit, concession,
      franchise, license or any other contract, agreement, arrangement or
      understanding to which the Company or any of its Subsidiaries is a party or
      by
      which they or any of their properties or assets are bound.

     

    (c) There
      are
      no outstanding warrants, share or stock options, share or stock appreciation
      rights or other rights to receive or purchase any Capital Stock of the Company
      or any of its Subsidiaries granted under any stock plans or otherwise except
      as
      set forth in Section 3.3(c) of the Company Disclosure Schedule (such warrants,
      share or stock appreciation rights or other rights disclosed thereon,
      collectively, the “Company Options”). Except
      for the Company Options and except as provided in the Transaction Agreements,
      there are no outstanding securities, options, warrants, calls, rights,
      commitments, agreements, arrangements or undertakings of any kind to which
      the
      Company or any of its Subsidiaries is a party or by which any of them is bound
      obligating the Company or any of its Subsidiaries to issue, deliver or sell,
      or
      cause to be issued, delivered or sold, any Capital Stock of the Company or
      of
      any of its Subsidiaries or obligating the Company or any of its Subsidiaries
      to
      issue, grant, extend or enter into any such security, option, warrant, call,
      right, commitment, agreement, arrangement or undertaking. There are no
      outstanding obligations of the Company or any of its Subsidiaries (contingent
      or
      otherwise) to repurchase, redeem or otherwise acquire any Capital Stock of
      the
      Company or any of its Subsidiaries or any security exchangeable for or
      convertible into such Capital Stock.

     

    (d) All
      outstanding Capital Stock of the Company are duly authorized, validly issued,
      fully paid and nonassessable and not issued in violation of preemptive or
      similar rights.

     

    (e) Except
      as
      contemplated hereby or in the other Transaction Documents or as set forth in
      Current SEC Reports, there are not any registration rights agreements,
      stockholder agreements, voting agreements or trusts, proxies or other agreements
      or contractual obligations to which the Company or any Subsidiary is a party
      or
      bound with respect to the registration with any Government Entity, or the voting
      or disposition of any Capital Stock of the Company or any of its Subsidiaries
      and, to the Company’s Knowledge there are no other shareholder agreements,
      voting agreements or trusts, proxies or other agreements or contractual
      obligations among the shareholders of the Company with respect to the voting
      or
      disposition of any Capital Stock of the Company or any of its
      Subsidiaries.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

     

    Section
      3.4 Authority;
      No Violations; Approvals.

     

    (a) The
      Board
      has approved this Agreement, the other Transaction Documents and the
      transactions contemplated hereby and thereby, and declared this Agreement,
      the
      other Transaction Documents and the transactions contemplated hereby and thereby
      to be in the best interests of the Company. The Board has approved the issue
      and
      sale of the Shares and, upon any conversion of the Shares hereunder, the
      issuance of the Common Stock issuable upon such conversion. The Company has
      all
      requisite corporate power and authority to enter into this Agreement and each
      of
      the other Transaction Documents and to consummate each of the transactions
      and
      perform each of the obligations contemplated hereby and thereby. The execution
      and delivery of this Agreement and each of the other Transaction Documents
      and
      the consummation of each of the transactions and the performance of each of
      the
      obligations contemplated hereby and thereby have been duly authorized by all
      necessary corporate action on the part of the Company. This Agreement has been,
      and at or prior to the Closing the other Transaction Documents will be, duly
      executed and delivered by the Company and the Statement of Resolution has been
      duly adopted by the Board of Directors in accordance with applicable Law. The
      Statement of Resolution and, assuming this Agreement and each of the other
      Transaction Documents to which such Investor is a party constitute the valid
      and
      binding obligations of such Investor, this Agreement and each of the other
      Transaction Documents constitutes a valid and binding obligation of the Company
      enforceable in accordance with its terms, subject, as to enforceability, to
      bankruptcy, insolvency, reorganization, moratorium and other similar laws of
      general applicability relating to or affecting creditors' rights and to general
      principles of equity (regardless of whether such enforceability is considered
      in
      a proceeding in equity or at law).

     

    (b) The
      execution and delivery of this Agreement and each of the other Transaction
      Documents does not, and the consummation of the transactions contemplated hereby
      and thereby and compliance with the provisions hereof and thereof will not,
      conflict with, require the consent of any other Person to or result in any
      violation of, or default (with or without notice or lapse of time, or both)
      under, or give rise to a right of termination, cancellation or acceleration
      of
      any material obligation or to the loss of any material benefit under, or give
      rise to a right of purchase under, result in the creation of any Lien upon
      any
      of the properties or assets of the Company or any of its Subsidiaries under,
      any
      provision of (i) the Articles of Incorporation or Bylaws or any provision of
      the
      comparable organizational documents of any of the Company's Subsidiaries, (ii)
      any loan or credit agreement, note, bond, mortgage, indenture, lease,
      instrument, permit, concession, franchise, license or other contract or
      agreement, arrangement or understanding to which the Company or any of its
      Subsidiaries is a party or otherwise is bound or by which any of them or their
      respective properties are bound or any existing Approval applicable to the
      Company or any of its Subsidiaries, (iii) any joint venture or other ownership
      arrangement to which the Company or any of its Subsidiaries is a party or
      otherwise is bound or by which any of them or their respective properties are
      bound or (iv) assuming the Approvals referred to in Section 3.4(c) are duly
      and
      timely obtained or made, any Law or Order applicable to the Company or any
      of
      its Subsidiaries or any of their respective properties or assets.

     

    
      
         

      

      
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    (c) No
      Approval from any Governmental Entity is required by or with respect to the
      Company or any of its Subsidiaries in connection with the execution and delivery
      of this Agreement or any other Transaction Document by the Company or the
      consummation by the Company of the transactions contemplated hereby or thereby,
      except for the filing of the Statement of Resolution in accordance with Section
      2.13 of the Texas Business Corporations Act.

     

    Section
      3.5 SEC
      Documents.

     

    (a) The
      Company has made available to the Investors a true and complete copy of each
      report, schedule, registration statement and definitive proxy statement filed
      by
      the Company with the SEC since June 30, 2004 (the “Company SEC Documents”)
      including the Company’s Annual Report on Form 10-KSB for the year ended June 30,
      2007, which are all the documents (other than preliminary materials) that the
      Company was required to file with the SEC since June 30, 2004. As of their
      respective dates, the Company SEC Documents complied in all material respects
      with the requirements of the Securities Act, or the Exchange Act, as the case
      may be, and the rules and regulations of the SEC thereunder applicable to such
      Company SEC Documents, and none of the Company SEC Documents contained as of
      their respective dates any untrue statement of a material fact or omitted to
      state a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading.

     

    (b) The
      financial statements of the Company included in the Company SEC Documents,
      including the notes and schedules thereto, complied as to form in all material
      respects with the rules and regulations of the SEC with respect thereto, were
      prepared in accordance with United States generally accepted accounting
      principles (“GAAP”) applied on a consistent basis during the periods involved
      (except as may be indicated in the notes thereto or, in the case of the
      unaudited statements, as permitted by Rule 10-01 of Regulation S-X of the SEC)
      and fairly present the consolidated financial position of the Company and its
      consolidated Subsidiaries as of their respective dates and the consolidated
      results of operations and the consolidated cash flows of the Company and its
      consolidated Subsidiaries for the periods presented therein in accordance with
      applicable requirements of GAAP (subject, in the case of the unaudited
      statements, to normal, recurring adjustments, none of which are material)
      applied on a consistent basis during the periods presented.

     

    
      
         

      

      
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    Section
      3.6 Absence
      of Certain Changes or Events.

     

    (a) Except
      as
      disclosed in the Current SEC Reports filed prior to the date of this Agreement
      or Section 3.6 of the Company Disclosure Schedule, or except as contemplated
      by
      this Agreement, since June 30, 2007, each of the Company and its Subsidiaries
      has conducted its business only in the ordinary course of business consistent
      with past practice, and there has not been: (i) any declaration, setting
      aside or payment of any dividend or other distribution (whether in cash, stock
      or property) with respect to any Capital Stock of the Company; (ii) any
      split, combination, reclassification or amendment of any term of any outstanding
      Capital Stock or other security of the Company or any of its Subsidiaries or
      (other than issuance of Common Stock upon the exercise of any Company Options)
      any issuance or the authorization of the issuance of any securities of the
      Company or any of its Subsidiaries, other than in connection with the
      transactions contemplated hereby; (iii) any repurchase, redemption or other
      acquisition by the Company or any Subsidiary of the Company of any outstanding
      Capital Stock or other securities of the Company or any Subsidiary of the
      Company, except as contemplated by the Stock Plans; (iv) (A) any grant
      by the Company or any of its Subsidiaries to any officer of the Company or
      any
      of its Subsidiaries of any increase in compensation, except for increases in
      the
      ordinary course of business consistent with past practice or as required under
      employment or other agreements or benefit arrangements in effect as of June
      30,
      2007, or (B) any grant by the Company or any of its Subsidiaries to any
      such officer of any increase in severance or termination pay, except as was
      required or provided for under any employment, severance, termination or other
      agreements or benefit arrangements in effect as of June 30, 2007;
      (v) except as required by a change in GAAP, any material change in
      accounting methods, principles or practices by the Company or any of its
      Subsidiaries; and (vi) any material casualties affecting the Company and
      its Subsidiaries, taken as a whole, or any material loss, damage or destruction
      to any of their properties or assets, whether covered by insurance or
      not.

     

    (b) Except
      as
      disclosed in the Company’s consolidated financial statements included in the
      Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007, and the
      notes thereto, or as disclosed in the other Current SEC Reports, since June
      30,
      2007, there has not been any event, circumstance or fact that (i) has had
      or could reasonably be expected to have a Material Adverse Effect, (ii) has
      impaired or could reasonably be expected to impair the ability of the Company
      to
      perform its obligations under any of the Transaction Documents in any material
      respect, or (iii) could reasonably be expected to delay in any material
      respect or prevent the consummation of any of the transactions contemplated
      by
      any of the Transaction Documents.

     

    Section
      3.7 No
      Undisclosed Material Liabilities.
      Except
      as disclosed in Section 3.7 of the Company Disclosure Schedule or the Company’s
      financial statements included in the Company’s Annual Report on Form 10-KSB for
      the year ended June 30, 2007, and the notes thereto, or as disclosed in the
      other Current SEC Reports, there are no liabilities or obligations of the
      Company or any of its Subsidiaries of any kind whatsoever, whether accrued,
      contingent, absolute, determined, determinable or otherwise, other than:
      (i) liabilities incurred in the ordinary course of business consistent with
      past practice since June 30, 2007, which liabilities, individually or in the
      aggregate, could not reasonably be expected to have a Material Adverse Effect;
      (ii) liabilities arising under the Transaction Documents; and
      (iii) liabilities not required by GAAP to be recognized or disclosed on a
      consolidated balance sheet of the Company and its consolidated Subsidiaries
      or
      in the notes thereto, which liabilities, individually or in the aggregate,
      could
      not reasonably be expected to have a Material Adverse Effect.

     

    
      
         

      

      
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    Section
      3.8 No
      Default.
      Except
      as disclosed in Section 3.8 of the Company Disclosure Schedule or in the Current
      SEC Reports, neither the Company nor any of its Subsidiaries is in default
      or
      violation (and no event has occurred which, with notice or the lapse of time
      or
      both, would constitute a default or violation) of any term, condition or
      provision of (i) the Articles of Incorporation or Bylaws of the Company or
      the comparable organizational documents of any of its Subsidiaries,
      (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease,
      instrument, permit, concession, franchise, license or any other contract,
      agreement, arrangement or understanding to which the Company or any of its
      Subsidiaries is a party or by which the Company or any of its Subsidiaries
      or
      any of their respective properties or assets is bound, or (iii) any Order
      or Law applicable to the Company or any of its Subsidiaries. Except as disclosed
      in Section 3.8 of the Company Disclosure Schedule or in the Current SEC Reports,
      the Company and its Subsidiaries (i) are not in breach of or default under
      any covenant, including financial covenants, under agreements relating to money
      borrowed in excess of $5 million, and (ii) do not believe that it is
      reasonably likely that they will be in breach of or default under any covenant
      under any such agreement as of the next date on which they are required to
      be in
      compliance with any such covenants.

     

    Section
      3.9 Compliance
      with Applicable Laws.

     

    (a) The
      Company and each of its Subsidiaries has in effect all Approvals of all
      Governmental Entities necessary for the lawful conduct of their respective
      businesses, and there has occurred no default or violation (and no event has
      occurred which, with notice or the lapse of time or both, would constitute
      a
      default or violation) under any such Approval.

     

    (b) Except
      as
      otherwise disclosed in the Current SEC Reports, the Company and its Subsidiaries
      are in compliance with all applicable Laws and Orders, except for possible
      noncompliance which, individually or in the aggregate, (i) has not had and
      could not reasonably be expected to have a Material Adverse Effect,
      (ii) has not impaired and could not reasonably be expected to impair the
      ability of the Company to perform its obligations under any of the Transaction
      Documents in any material respect, and (iii) could not reasonably be
      expected to delay in any material respect or prevent the consummation of any
      of
      the transactions contemplated by any of the Transaction Documents.

     

    (c) No
      investigation or review by any Governmental Entity with respect to the Company,
      any of its Subsidiaries or the transactions contemplated by this Agreement
      and
      the other Transaction Documents is pending or, to the Knowledge of the Company,
      threatened, nor has any Governmental Entity notified the Company or any of
      its
      Subsidiaries in writing or, to the Company’s Knowledge, otherwise of any
      intention to conduct the same.

     

    
      
         

      

      
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    Section
      3.10 Litigation.
      Except
      as disclosed in the Current SEC Reports or Section 3.10 of the Company
      Disclosure Schedule, there is no suit, action, proceeding or indemnification
      claim, at law or in equity, pending before any Governmental Entity or
      arbitrator, or, to the Knowledge of the Company, threatened, against or
      affecting the Company, any Subsidiary of the Company or any of its Material
      Contracts (“Litigation”), and neither the Company nor any Subsidiary is a party
      to any Litigation, that (i) has had or could reasonably be expected to have
      a Material Adverse Effect, (ii) has impaired or reasonably could be
      expected to impair the ability of the Company to perform its obligations under
      any of the Transaction Documents in any material respect, or
      (iii) reasonably could be expected to delay in any material respect or
      prevent the consummation of any of the transactions contemplated by any of
      the
      Transaction Documents, nor is there any Order of any Governmental Entity or
      arbitrator outstanding against or binding upon the Company or any Subsidiary
      of
      the Company or any of its Material Contracts which (i) has had or could
      reasonably be expected to have a Material Adverse Effect, (ii) has impaired
      or reasonably could be expected to impair the ability of the Company to perform
      its obligations under any of the Transaction Documents in any material respect,
      or (iii) reasonably could be expected to delay in any material respect or
      prevent the consummation of any of the transactions contemplated by any of
      the
      Transaction Documents.

     

    Section
      3.11 Certain
      Agreements.

     

    (a) Except
      as
      disclosed in the Current SEC Reports and Section 3.11(a) of the Company
      Disclosure Schedule, there are no Contracts, whether in oral or written form,
      that are material to the Company and its Subsidiaries, taken as a whole, or
      their respective business, (such Contracts disclosed or required to be disclosed
      herein, in the Current SEC Reports or in the Company Disclosure Schedule, the
      “Material Contracts”). Each Material Contract is a valid and binding obligation
      of the Company or one of its Subsidiaries and, to the Company’s Knowledge, of
      each other party thereto, enforceable in accordance with its terms, and is
      in
      full force and effect.

     

    (b) The
      Company or the relevant Subsidiary and, to the Company’s Knowledge, each other
      party to the Material Contracts has performed in all material respects the
      obligations required to be performed by it under the Material Contracts and
      is
      not (with or without lapse of time or the giving of notice, or both) in breach
      or default thereunder. No party to any Material Contract has given written
      or,
      to the Company’s Knowledge, oral notice of any action to terminate, cancel,
      rescind or procure a judicial reformation thereof.

     

    Section
      3.12 Status
      of Shares.
      The
      issuance and sale of the Shares and the reservation and issuance of the
      Underlying Shares have been duly authorized by all necessary corporate action
      on
      the part of the Company (other than the filing of the Statement of Resolution
      with the Secretary of State of the State of Texas) and the Shares, when
      delivered to the Investors at the Closing, against payment therefor as provided
      herein, and the Underlying Shares, when issued upon conversion of the Shares
      in
      accordance with the terms thereof, will be validly issued, fully paid and
      non-assessable and the issuance and sale of the Shares and the issuance of
      the
      Underlying Shares are not and will not be subject to preemptive rights of any
      Person.

     

    
      
         

      

      
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    Section
      3.13 Intellectual
      Property.
      The
      Company and the Subsidiaries own, possess or license, or, to the Company’s
      Knowledge can acquire on reasonable terms, adequate patents, patent rights,
      licenses, inventions, copyrights, know-how (including trade secrets and other
      unpatented and/or unpatentable proprietary or confidential information, systems
      or procedures), trademarks, service marks, trade names or other intellectual
      property (collectively, “Intellectual Property”) necessary to carry on the
      business now operated by them, and neither the Company nor any of the
      Subsidiaries has received any notice or is otherwise aware of any infringement
      of or conflict with asserted rights of others with respect to any Intellectual
      Property (including Intellectual Property which is licensed) or of any facts
      or
      circumstances which would render any Intellectual Property invalid or inadequate
      to protect the interest of the Company or any of the Subsidiaries therein,
      and
      which infringement or conflict (if the subject of any unfavorable decision,
      ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
      could reasonably be expected to result in a Material Adverse
      Effect.

     

    Section
      3.14 Environmental
      Matters.
      Except
      for such matters as could not, singly or in the aggregate, reasonably be
      expected to result in a Material Adverse Effect, (i) neither the Company
      nor any of the Subsidiaries is in violation of any federal, state, local or
      foreign statute, law, rule, regulation, ordinance, code, policy or rule of
      common law or any judicial or administrative interpretation thereof, including
      any judicial or administrative order, consent, decree or judgment, relating
      to
      pollution or protection of human health, the environment (including, without
      limitation, ambient air, surface water, groundwater, land surface or subsurface
      strata) or wildlife, including, without limitation, laws and regulations
      relating to the release or threatened release of chemicals, pollutants,
      contaminants, wastes, toxic substances, hazardous substances, petroleum or
      petroleum products (collectively, “Hazardous Materials”) or to the manufacture,
      processing, distribution, use, treatment, storage, disposal, transport or
      handling of Hazardous Materials (collectively, “Environmental Laws”),
      (ii) the Company and the Subsidiaries have all permits, authorizations and
      approvals required under any applicable Environmental Laws and are each in
      compliance with their requirements, (iii) there are no pending or, to the
      Company’s Knowledge or any of the Subsidiaries, threatened administrative,
      regulatory or judicial actions, suits, demands, demand letters, claims, liens,
      notices of noncompliance or violation, investigation or proceedings relating
      to
      any Environmental Law against the Company or any of the Subsidiaries and
      (iv) there are no events or circumstances known to the Company or any of
      the Subsidiaries that might reasonably be expected to form the basis of an
      order
      for clean-up or remediation, or an action, suit or proceeding by any private
      party or governmental body or agency, against or affecting the Company or any
      of
      the Subsidiaries relating to Hazardous Materials or Environmental
      Laws.

     

    Section
      3.15 No
      Brokers or Finders.
      No
      agent, broker, finder or investment or commercial banker, or other Person or
      firm engaged by or acting on behalf of the Company or its Subsidiaries in
      connection with the negotiation, execution or performance of this Agreement
      is
      or will be entitled to any brokerage or finder’s or similar fee or other
      commission as a result of this Agreement, the other Transaction Documents or
      the
      transactions contemplated hereby or thereby, other than any such fees or
      commissions that have been disclosed to the Investors and as to which the
      Company shall have full responsibility.

     

    
      
         

      

      
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    Section
      3.16 Vote.
      There
      are no approvals required of the holders of Capital Stock of the Company
      necessary to approve this Agreement or any other Transaction Documents and
      the
      transactions contemplated hereby or thereby.

     

    Section
      3.17 Related
      Party Transactions.
      No
      relationship, direct or indirect, exists between or among any of the Company,
      the Subsidiaries or any affiliate of the Company, on the one hand, and any
      director, officer, stockholder, customer or supplier of any of them, on the
      other hand, which would be required by the Exchange Act to be described in
      the
      Company’s proxy statement for the election of directors in 2006 which is not
      described in the Current SEC Reports or Section 3.17 of the Company Disclosure
      Schedule.

     

    ARTICLE
      IV.

    REPRESENTATIONS
      AND WARRANTIES OF THE INVESTORS

     

    Each
      of
      the Investors represents and warrants to the Company with respect to such
      Investor as follows:

     

    Section
      4.1 Organization,
      Standing and Power.
      Such
      Investor, if a corporation or other business entity, has all requisite power
      and
      authority to own, lease, and operate its properties and to carry on its business
      as now being conducted and to execute and deliver this Agreement and the other
      Transaction Documents to which such Investor is a party and consummate the
      transactions contemplated hereby and thereby.

     

    Section
      4.2 Authority;
      Approvals.

     

    (a) (i) The
      execution and delivery of this Agreement and the other Transaction Documents
      to
      which it is a party and the purchase of the Shares to be purchased by it have
      been duly and properly authorized by all necessary action on the part of such
      Investor, (ii) this Agreement and the other Transaction Documents to which
      it is a party have been duly executed and delivered by it or on its behalf
      and,
      assuming the accuracy of the representations and warranties of the Company
      in
      Section 3.4 hereof, constitute the valid and legally binding obligations of
      such
      Investor, enforceable against it in accordance with their respective terms,
      subject to bankruptcy, insolvency, reorganization, moratorium and other similar
      laws of general applicability relating to or affecting creditors’ rights and to
      general principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); (iii) the purchase of the
      Shares to be purchased by such Investor does not conflict with or violate
      (A) any material agreement to which it is a party or to which its
      properties are subject or (B) assuming the approvals referred to in Section
      4.2(b) are duly and timely made or obtained, any Law applicable to such
      Investor, in each case in a manner that could reasonably be expected to
      materially hinder or impair the completion of any of the transactions
      contemplated hereby; and (iv) the purchase of Shares to be purchased by
      such Investor does not impose any penalty or other onerous condition on such
      Investor that could reasonably be expected to materially hinder or impact the
      completion of any of the transactions contemplated hereby.

     

    
      
         

      

      
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    (b) No
      Approval from any Governmental Entity is required by or with respect to such
      Investor in connection with the execution and delivery by such Investor of
      this
      Agreement or any other Transaction Document to which it is a party or the
      consummation by such Investor of the transactions contemplated hereby or
      thereby, except for any such Approval the failure of which to be made or
      obtained (i) has not impaired and could not reasonably be expected to
      impair the ability of such Investor to perform its obligations under any of
      the
      Transaction Documents in any material respect and (ii) could not reasonably
      be expected to delay in any material respect or prevent the consummation of
      any
      of the transactions contemplated by any of the Transaction
      Documents.

     

    Section
      4.3 Investment
      Intent.
      The
      Shares to be acquired by such Investor hereunder and any Underlying Shares
      to be
      acquired upon the conversion of such Shares are being, or in the case of the
      Underlying Shares, will be, acquired for such Investor’s own account for
      investment and with no intention of distributing or reselling such Shares or
      Underlying Shares or any part thereof or interest therein in any transaction
      which would be in violation of the securities Laws of the United States of
      America or any applicable state or any foreign country or
      jurisdiction.

     

    Section
      4.4 Investor
      Status.
      Such
      Investor (i) at the time it was offered the Shares, was, (ii) at the
      date hereof, is, and (iii) at the Closing Date, will be, an accredited
      investor as defined in Rule 501(a) under the Securities Act, and has such
      knowledge, sophistication and experience in business and financial matters
      so as
      to be capable of evaluating the Company and an investment in the Shares, and
      is
      able to bear the economic risk of such investment.

     

    Section
      4.5 No
      Brokers or Finders.
      No
      agent, broker, finder or investment or commercial banker, or other Person or
      firm engaged by or acting on behalf of such Investor in connection with the
      negotiation, execution or performance of this Agreement is or will be entitled
      to any brokerage or finder’s or similar fee or other commission as a result of
      this Agreement, other than any such fees or commissions that have been disclosed
      to the Company and as to which such Investor shall have full
      responsibility.

     

    ARTICLE
      V.

    COVENANTS

     

    Section
      5.1 Affirmative
      Covenants of the Company.
      The
      Company hereby covenants and agrees that, until the earlier of the Closing
      or
      the termination of this Agreement, unless otherwise expressly contemplated
      by
      this Agreement or consented to in writing by all of the Investors (such consent
      not to be unreasonably withheld), the Company will and will cause each of its
      Subsidiaries to operate its business in the usual and ordinary course consistent
      with past practices except as contemplated by this Agreement and except as
      set
      forth in Section 5.1 of the Company Disclosure Schedule.

     

    Section
      5.2 Negative
      Covenants of the Company.

     

    (a) Except
      as
      expressly contemplated by this Agreement or otherwise consented to in writing
      by
      all of the Investors, from the date of this Agreement until earlier of the
      Closing or the termination of this Agreement, the Company shall not do, and
      shall not permit any of its Subsidiaries to do, any of the
      following:

     

    
      
         

      

      
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    (i) adopt
      or
      propose to adopt any amendments to the Company’s Articles of Incorporation or
      Bylaws, adopt resolutions authorizing a liquidation, dissolution, merger,
      consolidation, restructuring, recapitalization, or other reorganization of
      the
      Company or any Subsidiary or make any other changes in the Company’s capital
      structure;

     

    (ii) declare
      or pay any dividend or make any other distribution (whether in cash, stock
      or
      property) with respect to its Capital Stock, other than dividends paid by any
      Subsidiary to the Company or another Subsidiary in the ordinary and usual course
      of the Company’s business, or take any other action that, if taken after the
      issuance of the Shares, would result in an adjustment to the number of shares
      acquirable upon conversion of the Shares;

     

    (iii) take
      any
      action that will, or is reasonably likely to cause, the conditions in Section
      6.2 not to be satisfied; or

     

    (iv) agree
      in
      writing or otherwise to do any of the foregoing.

     

    Section
      5.3 Cooperation;
      Approvals.
      Each of
      the Company and each Investor agrees to cooperate and use all commercially
      reasonable efforts to take, or cause to be taken, all action and to do, or
      cause
      to be done, all things necessary, proper or advisable to consummate and make
      effective the transactions contemplated by this Agreement, including cooperating
      fully with the other parties to obtain (and will promptly prepare all
      registrations, filings and applications, requests and notices preliminary to)
      all Approvals that may be necessary or which may be reasonably requested by
      the
      Company or the Investors to consummate the transactions contemplated by this
      Agreement and the other Transaction Documents. In case at any time after the
      date hereof any further action is necessary or desirable to carry out the
      purposes of this Agreement, the parties shall take all such necessary
      action.

     

    Section
      5.4 Notification
      of Certain Matters.
      The
      Company shall give prompt notice to the Investors, and the Investors shall
      give
      prompt notice to the Company, of (a) the occurrence, or failure to occur,
      of any event that causes any representation or warranty contained in any
      Transaction Document to be untrue or inaccurate in any material respect at
      any
      time from the date of this Agreement to the Closing Date and (b) any
      failure of the Company or an Investor to comply with or satisfy, in any material
      respect, any covenant, condition or agreement to be complied with or satisfied
      by it under any Transaction Document. The provisions of this Section 5.4 shall
      survive for so long as any representation, warranty, covenant, or agreement
      shall survive hereunder.

     

    Section
      5.5 Registration
      Rights Agreement.
      At the
      Closing, the Company agrees to enter into a Registration Rights Agreement with
      the Investors in substantially the form attached hereto as Exhibit
      B.

     

    Section
      5.6 Transfer
      Restrictions.
      (a) If an Investor should decide to dispose of any of the Shares to be
      purchased by it or any Underlying Shares to be issued to it upon the conversion
      of such Shares, such Investor understands and agrees that it may do so only
      pursuant to an effective registration statement under the Securities Act or
      pursuant to an exemption from registration under the Securities Act. In
      connection with any offer, resale, pledge or other transfer (individually and
      collectively, a “Transfer”) of any Shares or Underlying Shares other than
      pursuant to an effective registration statement, the Company may require that
      the transferor of such Shares or Underlying Shares provide to the Company an
      opinion of counsel which opinion shall be reasonably satisfactory in form and
      substance to the Company, to the effect that such Transfer is being made
      pursuant to an exemption from, or in a transaction not subject to, the
      registration requirements of the Securities Act and any applicable state or
      foreign securities Laws. Such Investor agrees to the imprinting, so long as
      appropriate, of substantially the following legend on certificates representing
      the Shares and any Underlying Shares:

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    

     

    THE
      SECURITIES (THE “SECURITIES”) EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
      ITS
      ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE
      OR
      OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A “TRANSFER”) THE SECURITIES
      EVIDENCED HEREBY, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
      THE SECURITIES ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
      SECURITIES ACT. IF THE PROPOSED TRANSFER IS TO BE MADE OTHER THAN PURSUANT
      TO
      THE IMMEDIATELY PRECEDING SENTENCE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
      FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH CERTIFICATIONS, LEGAL
      OPINIONS OR OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT
      SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
      NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR ANY
      STATE
      OR FOREIGN SECURITIES LAW.

     

    The
      legend set forth above may be removed if and when the Shares or Underlying
      Shares, as the case may be, represented by such certificate are disposed of
      pursuant to an effective registration statement under the Securities Act or
      the
      opinion of counsel referred to above has been provided to the Company. The
      Share
      certificates shall also bear any additional legends required by applicable
      federal, state or foreign securities Laws, which legends may be removed when,
      in
      the opinion of counsel to the Company, the same are no longer required under
      the
      applicable requirements of such securities Laws. Each Investor agrees that,
      in
      connection with any Transfer of Shares by it pursuant to an effective
      registration statement under the Securities Act, it will comply with all
      prospectus delivery requirements of the Securities Act. The Company makes no
      representation, warranty or agreement as to the availability of any exemption
      from registration under the Securities Act with respect to any resale of Shares
      or Underlying Shares.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

     

    Section
      5.7 Stock
      Exchange Listing.
      Prior
      to the time the Shares become convertible in accordance with their terms, the
      Company shall, at its expense, procure the listing of the Underlying Shares
      on
      all stock exchanges on which the Common Stock is then listed.

     

    Section
      5.8 Access;
      Confidentiality.

     

    (a) At
      all
      times during normal business hours from and after the date hereof until all
      of
      the outstanding Shares have been converted in accordance with their terms,
      the
      Company shall afford the Investors and their counsel and other authorized
      representatives reasonable access to the properties, employees and officers
      of
      the Company and to all books, accounts, tax returns, financial and other
      records, including audit work papers, correspondence and contracts of every
      kind
      of the Company as the Investors may reasonably request.

     

    (b) Each
      Investor shall, and shall cause its representatives to, hold confidential all
      information relating to the Company or its Subsidiaries it has received prior
      to
      the Closing from the Company or any of its representatives, or information,
      if
      any, it receives after the Closing from the Company or any of its
      representatives as a result of or in connection with Section 5.10(a) hereof;
      provided, however, that the foregoing shall not apply to (i) information
      that is or becomes generally available to the public other than as a result
      of a
      disclosure by such Investor or any of its Affiliates or representatives in
      violation of this Section 5.10(b), (ii) information that is or becomes
      available to such Investor or any of its representatives on a nonconfidential
      basis from a source other than the Company or its Affiliates or representatives,
      provided that such source is not known by such Investor to be bound by a
      confidentiality agreement with or other obligation of secrecy to the Company
      or
      any other party, or (iii) information that is required to be disclosed by
      such Investor or any of its representatives as a result of any applicable Law.
      The provisions of this Section 5.10(b) shall terminate on the first anniversary
      of the date that all of the outstanding Shares have been converted in accordance
      with their terms.

     

    Section
      5.9 Indemnification.

     

    (a) The
      Company agrees to indemnify each Investor and its Affiliates and hold each
      Investor and its Affiliates harmless from and against any and all liabilities,
      losses, damages, costs and expenses of any kind (including, without limitation,
      the reasonable fees and disbursements of each Investor’s counsel in connection
      with any investigative, administrative or judicial proceeding), which may be
      incurred by such Investor or such Affiliates as a result of any claims made
      against such Investor or such Affiliates by any Person that relate to or arise
      out of (i) any breach by the Company of any of its representations,
      warranties or covenants contained in this Agreement or in the Transaction
      Documents, or (ii) any litigation, investigation or proceeding instituted
      by any Person with respect to this Agreement or the Shares or Underlying Shares
      (excluding, however, any such litigation, investigation or proceeding which
      arises solely from the acts or omissions of such Investor or its
      Affiliates).

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    

     

    (b) Any
      Person entitled to indemnification hereunder will (i) give prompt notice to
      the Company of any claim with respect to which it seeks indemnification (but
      omission of such notice shall not relieve the Company from liability hereunder
      except to the extent it is actually prejudiced by such failure to give notice)
      and (ii) unless in such indemnified party’s reasonable judgment a conflict
      of interest may exist between such indemnified party and the Company with
      respect to such claim, permit the Company to assume the defense of such claim
      with counsel reasonably satisfactory to the indemnified party. If such defense
      is not assumed by the Company, the Company will not be subject to any liability
      for any settlement made without its consent (but such consent will not be
      unreasonably withheld). The Company will not consent to entry of any judgment
      or
      enter into any settlement which does not include as an unconditional term
      thereof the giving by the claimant or plaintiff to such indemnified party of
      an
      unconditional release from all liability in respect to such claim or litigation.
      If the Company elects not to or is not entitled to assume the defense of a
      claim, it will not be obligated to pay the fees and expenses of more than one
      counsel for all parties indemnified with respect to such claim, unless an actual
      conflict of interest exists between such indemnified party and any other of
      such
      indemnified parties with respect to such claim, in which event the Company
      will
      be obligated to pay the fees and expenses of such additional counsel or
      counsels.

     

     

    ARTICLE
      VI.

    CONDITIONS
      PRECEDENT TO THE CLOSING

     

    Section
      6.1 Conditions
      Precedent to Each Party’s Obligation.
      The
      respective obligations of the Investors and the Company to effect the
      transactions contemplated hereby at the Closing are subject to the satisfaction
      on or prior to the Closing Date of the following conditions:

     

    (a) Approvals.
      All
      Approvals of, or expirations of waiting periods imposed by, any Governmental
      Entity necessary for the consummation of the transactions contemplated by this
      Agreement at such Closing shall have been filed, occurred, or been obtained,
      as
      applicable.

     

    (b) No
      Injunctions or Restraints.
      No
      temporary restraining order, preliminary or permanent injunction, or other
      order
      issued by any court of competent jurisdiction or other legal restraint or
      prohibition preventing the consummation of the transactions contemplated hereby
      shall be in effect.

     

    (c) No
      Action.
      No
      action shall have been taken nor any statute, rule, or regulation shall have
      been enacted by any Governmental Entity that makes the consummation of the
      transactions contemplated hereby illegal.

     

    Section
      6.2 Conditions
      Precedent to Obligation of the Investors.
      The
      obligation of the Investors to effect the transactions contemplated by this
      Agreement at each Closing is subject to the satisfaction of the following
      conditions unless waived, in whole or in part, by the Investors:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Company set forth in this Agreement that
      are qualified by a materiality standard or a Material Adverse Effect
      qualification shall be true and correct in all respects and the representations
      and warranties of the Company set forth in this Agreement that are not so
      qualified shall be true and correct in all material respects, in each case
      as of
      the date of this Agreement and as of the Closing Date as though made on and
      as
      of the Closing Date, and the Investors shall have received a certificate to
      the
      foregoing effect signed on behalf of the Company and its Subsidiaries by the
      chief executive officer or by the chief financial officer of the
      Company.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

     

    (b) Performance
      of Obligations.
      The
      Company and its Subsidiaries shall have performed in all material respects
      all
      obligations required to be performed by it or them under this Agreement prior
      to
      the Closing Date, and the Investors shall have received a certificate to such
      effect signed on behalf of the Company and its Subsidiaries by the chief
      executive officer or by the chief financial officer of the Company.

     

    (c) No
      Adverse Action or Decision.
      There
      shall be no action, suit, investigation or proceeding, pending or threatened,
      against or affecting the Company or any of its Subsidiaries or any of their
      respective properties or rights, or any of their Affiliates, officers or
      directors, before any court, arbitrator or administrative or governmental body
      which (i) seeks to restrain, enjoin or prevent the consummation of or
      otherwise affect the transactions contemplated by this Agreement or the other
      Transaction Documents or (ii) questions the validity or legality of any
      such transaction or seeks to recover damages or to obtain other relief in
      connection with any such transaction.

     

    (d) Consents
      Under Agreements.
      The
      Investors shall have been furnished with evidence of all consents or approvals
      required to be obtained by the Company or any of its Subsidiaries with respect
      to the consummation of each of the transactions contemplated by this Agreement
      the failure of which to obtain reasonably could be expected to result in a
      Material Adverse Effect, and each such consent or approval shall be
      unconditional.

     

    (e) Closing
      Deliveries.
      The
      Company shall have delivered to the Investors all documents, instruments,
      certificates or other items required to be delivered by the Company pursuant
      to
      Section 7.2(b).

     

    (f) Statement
      of Resolution.
      The
      Statement of Resolution shall have been filed with and accepted by the Texas
      Secretary of State.

     

    Section
      6.3 Conditions
      Precedent to Obligations of Company.
      The
      obligation of the Company to effect the transactions contemplated by this
      Agreement at each Closing is subject to the satisfaction of the following
      conditions unless waived, in whole or in part, by the Company:

     

    (a) Representations
      and Warranties.
      The
      representations and warranties of the Investors set forth in this Agreement
      shall be true and correct in all material respects as of the date of this
      Agreement and as of the Closing Date as though made on and as of the Closing
      Date, and the Company shall have received a certificate to the foregoing effect
      signed by the Investors.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    

     

    (b) Performance
      of Obligations of the Investors.
      The
      Investors shall have performed in all material respects the obligations required
      to be performed by them under this Agreement prior to the Closing Date, and
      the
      Company shall have received a certificate to such effect signed by the
      Investors.

     

    (c) Closing
      Deliveries.
      The
      Investors shall have delivered to the Company all documents, instruments,
      certificates or other items required to be delivered by the Investors pursuant
      to Section 7.2(a).

     

     

    ARTICLE
      VII.

    THE
      CLOSING

     

    Section
      7.1 The
      Closing.

     

    (a) Subject
      to the satisfaction or waiver of the conditions set forth in Article VI, the
      purchase and sale of the Shares to be purchased by the Investors hereunder
      (the
“Closing”) will take place at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney Street, Suite 5100, Houston, Texas 77010 at
      10:00 a.m., local time, on such date as mutually agreed to by the parties
      hereto. The date on which the Closing occurs is herein referred to as the
“Closing Date.” All closing transactions at the Closing shall be deemed to have
      occurred simultaneously.

     

    Section
      7.2 Actions
      to Occur at the Closing.

     

    (a) At
      the
      Closing, the Investors shall deliver to the Company the following:

     

    (i) Purchase
      Price. An amount equal to the Purchase Price for the Shares in accordance with
      Article II.

     

    (ii) Certificates.
      The certificates described in Sections 6.3(a) and 6.3(b).

     

    (iii) Registration
      Rights Agreement. The Registration Rights Agreement duly executed by the
      Investors.

     

    (b) At
      the
      Closing, the Company shall deliver to the Investors the following:

     

    (i) Share
      Certificates. Certificates representing the Shares.

     

    (ii) Certificates.
      The certificates described in Sections 6.2(a) and 6.2(b).

     

    (iii) Registration
      Rights Agreement. The Registration Rights Agreement duly executed.

     

    (iv) Consents
      Under Agreements. The original of each consent or approval, if any, pursuant
      to
      Section 6.2(d).

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

     

    ARTICLE
      VIII.

    TERMINATION

     

    Section
      8.1 Termination.
      This
      Agreement may be terminated prior to the Closing:

     

    (a) by
      mutual
      consent of the Investors and the Company;

     

    (b) by
      either
      the Investors or the Company:

     

    (i) in
      the
      event of a breach by the other party of any representation, warranty, covenant
      or agreement contained in this Agreement which (A) would give rise to the
      failure of a condition set forth in Section 6.2 or 6.3, and (B) cannot be
      cured or, if curable, has not been cured within 20 days following receipt by
      the
      breaching party of written notice of such breach;

     

    (ii) if
      a
      court of competent jurisdiction or other Governmental Entity shall have issued
      an order, decree, or ruling or taken any other action (which order, decree,
      or
      ruling the Investors and the Company shall use all commercially reasonable
      efforts to lift), in each case permanently restraining, enjoining, or otherwise
      prohibiting the transactions contemplated by this Agreement, and such order,
      decree, ruling, or other action shall have become final and nonappealable;
      provided, however, that the right to terminate this Agreement under this clause
      (ii) shall not be available to any party whose breach of this Agreement has
      been
      the cause of, or resulted in, such order, decree, ruling or other action;
      or

     

    (iii) if
      the
      Closing shall not have occurred by December 31, 2007; provided,
      however,
      that
      the right to terminate this Agreement under this clause (iii) shall not be
      available to any party whose breach of this Agreement has been the cause of,
      or
      resulted in, the failure of the Closing to occur on or before such
      date.

     

    The
      right
      of any party hereto to terminate this Agreement pursuant to this Section 8.1
      shall remain operative and in full force and effect regardless of any
      investigation made by or on behalf of any party hereto, any person controlling
      any such party or any of their respective officers, directors, employees,
      accountants, consultants, legal counsel, agents, or other representatives
      whether prior to or after the execution of this Agreement.

     

    Section
      8.2 Effect
      of Termination.
      In the
      event of the termination of this Agreement, written notice thereof shall
      forthwith be given to the other party specifying the provision hereof pursuant
      to which such termination is made, and this Agreement shall forthwith become
      null and void, except for liability of a party arising out of a willful breach
      of, or misrepresentation under, this Agreement prior to such termination (but
      in
      no event shall any party hereto be entitled to recover punitive, consequential,
      special or exemplary damages).

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    ARTICLE
      IX.

    RECOVERY
      OF FEES

     

    Any
      party
      who shall obtain a final judgment in a court of competent jurisdiction for
      the
      payment of damages by another party for a breach of this Agreement or any other
      Transaction Document shall be entitled to recover reasonable attorneys’ fees and
      court costs incurred in connection with the obtaining of such
      judgment.

     

    ARTICLE
      X.

    MISCELLANEOUS

     

    Section
      10.1 Survival
      of Provisions.

     

    (a) The
      representations and warranties of the Company and the Investors made herein
      or
      in any other Transaction Document and the covenants of the Company and the
      Investors to be complied with on or prior to the Closing shall remain operative
      and in full force and effect pursuant to their terms, regardless of (i) any
      investigation made by or on behalf of the Investors or the Company, as the
      case
      may be, or (ii) acceptance of any of the Shares and payment by the
      Investors therefor, until the date which is 18 months following the Closing;
      provided,
      that
      the representations and warranties contained in Sections 3.1, 3.3, 3.4 and
      3.12
      shall survive until the sixth anniversary of the Closing; and provided,
      further,
      that
      such representations and warranties shall survive as to any claim or demand
      made
      prior to their termination date until such claim or demand is fully paid or
      otherwise resolved by the parties hereto in writing or otherwise.

     

    (b) The
      covenants and agreements of the Company and the Investors contained in this
      Agreement that, by their terms, are to be performed or complied with after
      either Closing Date will survive until the period specified herein with respect
      to such covenant or agreement; and provided, further, that such covenants and
      agreements shall survive as to any claim or demand made prior to their
      termination date until such claim or demand is fully paid or otherwise resolved
      by the parties hereto in writing or otherwise.

     

    Section
      10.2 No
      Waiver; Modification in Writing.
      No
      failure or delay on the part of the Company or the Investors in exercising
      any
      right, power or remedy hereunder shall operate as a waiver thereof, nor shall
      any single or partial exercise of any such right, power or remedy preclude
      any
      other or further exercise thereof or the exercise of any other right, power
      or
      remedy. The provisions of this Agreement, including the provisions of this
      sentence, may not be amended, modified or supplemented, and waivers or consents
      to departures from the provisions hereof may not be given without the written
      consent of the Company and all of the Investors. Any amendment, supplement
      or
      modification of or to any provision of this Agreement, or any waiver of any
      provision of this Agreement, shall be effective only in the specific instance
      and for the specific purpose for which made or given. Except where notice is
      specifically required by this Agreement, no notice to or demand on any party
      hereto in any case shall entitle the other party to any other or further notice
      or demand in similar or other circumstances.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    

     

    Section
      10.3 Severability.
      If any
      term or other provision of this Agreement is invalid, illegal, or incapable
      of
      being enforced by any rule of applicable law, or public policy, all other
      conditions and provisions of this Agreement shall nevertheless remain in full
      force and effect so long as the economic or legal substance of the transactions
      contemplated herein are not affected in any manner materially adverse to any
      party. Upon such determination that any term or other provision is invalid,
      illegal, or incapable of being enforced, the parties hereto shall negotiate
      in
      good faith to modify this Agreement so as to effect the original intent of
      the
      parties as closely as possible in a mutually acceptable manner in order that
      the
      transactions contemplated herein are consummated as originally contemplated
      to
      the fullest extent possible.

     

    Section
      10.4 Fees
      and Expenses.
      Within
      30 days after the Closing, the Company shall pay to the Investors an amount
      equal to Investors’ Expenses through the Closing Date (the amount of such costs
      and expenses shall have been furnished to the Company at least within 25 days
      after the Closing Date).

     

    Section
      10.5 Parties
      in Interest.
      This
      Agreement shall be binding upon and, except as provided below, inure solely
      to
      the benefit of each party hereto and their successors and assigns, and nothing
      in this Agreement, express or implied, is intended to confer upon any other
      Person any rights or remedies of any nature whatsoever under or by reason of
      this Agreement.

     

    Section
      10.6 Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed given if delivered personally or by facsimile or mailed by registered
      or
      certified mail (return receipt requested) or Federal Express or another
      recognized overnight courier to the parties at the following addresses (or
      at
      such other address for a party as shall be specified
      by like notice):

     

    
      	 	
              (a)

            	
              If
                to the Investors, to:

            

    

     

    To
      the
      address set forth immediately below such Investor’s name on the signature page
      to the Subscription Agreement delivered by such Investor to the Company on
      or
      prior to the date hereof.

     

    with
      a
      copy to:

     

    Fulbright &
      Jaworski L.L.P.

    1301
      McKinney St., Ste 5100

    Houston,
      TX 77010

    Attn:
      Charles D. Powell

    Tele: (713)
      651-5396

    Fax: (713)
      651-5246

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (b)

            	
              If
                to the Company, to:

            

    

     

    Internet
      America, Inc.

    10930
      W.
      Sam Houston Pkwy, North

    Suite
      200

    Houston,
      TX 77064

    Tele: (713)
      968-2501

    Fax: (713)
      589-3000

     

    with
      a
      copy to:

     

    Mayer
      Brown LLP

    700
      Louisiana St., Ste. 3400

    Houston,
      TX 77002

    Attn:
      Robert F. Gray, Jr.

    Tele: (713)
      238-2600

    Fax: (713)
      238-4600

     

    Any
      of
      the above addresses may be changed at any time by notice given as provided
      above; provided, however, that any such notice of change of address shall be
      effective only upon receipt. All notices, requests or instructions given in
      accordance herewith shall be deemed received on the date of delivery, if hand
      delivered, on the date of receipt, if telecopied, three Business Days after
      the
      date of mailing, if mailed by registered or certified mail, return receipt
      requested, and one Business Day after the date of sending, if sent by Federal
      Express or other recognized overnight courier.

     

    Section
      10.7 Counterparts.
      This
      Agreement may be executed and delivered (including by facsimile transmission)
      in
      one or more counterparts, all of which shall be considered one and the same
      agreement and shall become effective when one or more counterparts have been
      signed by each of the parties and delivered to the other parties, it being
      understood that all parties need not sign the same counterpart.

     

    Section
      10.8 Entire
      Agreement; Termination of Confidentiality Agreement.
      This
      Agreement (which term shall be deemed to include the Exhibits and Schedules
      hereto and the other certificates, documents and instruments delivered
      hereunder) and the other Transaction Documents constitute the entire agreement
      of the parties hereto with respect to the subject matter hereof and thereof
      and
      supersede all prior agreements, letters of intent and understandings, both
      written and oral, among the parties with respect to the subject matter hereof
      and thereof. There are no representations or warranties, agreements, or
      covenants of the parties with respect to the subject matter hereof and thereof
      other than those expressly set forth in this Agreement and the other Transaction
      Documents. 

     

    Section
      10.9 Governing
      Law.
      THIS
      AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
      THE
      STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW
      PROVISIONS.

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    

     

    Section
      10.10 Assignment.
      Neither
      this Agreement nor any of the rights, interests, or obligations hereunder shall
      be assigned by any of the parties hereto, whether by operation of Law or
      otherwise.

     

    Section
      10.11 Headings.
      The
      headings of this Agreement are for convenience of reference only and are not
      part of the substance of this Agreement.

     

    [The
      remainder of this page is intentionally left blank.]

     

    

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
      executed by its duly authorized officer as of the date first written
      above.

     

    
      	 	
              Internet
                America, Inc.

               

              /s/
                William E. Ladin            

              William
                E. Ladin

              Chairman
                and Chief Executive Officer

            
	 	 

    

    

    

    [Investor
      Signature Pages Follow]

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      	 	
              INVESTOR:

               

              ____________________________________

              Name

               

              ____________________________________

              Signature

            

    

     

     

    
 

    
      
         

      

      
        Investor
          Signature
          Page to Purchase Agreement

        
          

        

      

      
         

      

    

    SCHEDULE
      TO PURCHASE AGREEMENT INTENTIONALLY OMITTED.

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    Exhibit
      A

     

     

    STATEMENT
      OF RESOLUTION

     

    OF

    SERIES
      A PREFERRED STOCK

    

    To
      The Secretary of State

     
      of The State of Texas

    

    Pursuant
      to Article 2.13 of the Texas Business Corporation Act, Internet America, Inc.,
      a
      corporation organized and existing under the laws of the State of Texas (the
      “Corporation”), submits the following statement for the purpose of establishing
      and designating a series of shares and fixing and determining the preferences,
      limitations and relative rights thereof:

     

    1. The
      name
      of the Corporation is Internet America, Inc.

     

    2. The
      following resolution, establishing and designating a series of shares and fixing
      and determining the preferences, limitations and relative rights thereof, was
      duly adopted by the Board of Directors of the Corporation on October 11,
      2007.

     

    Whereas,
      Article
      IV of the Articles of Incorporation, as amended, of the Corporation (the
      "Articles of Incorporation") provides for a class of authorized shares known
      as
      "Common Stock, comprising 45,000,000 shares, with a par value of $.01 per share
      (the “Common Stock”), issuable from time to time, and for a class of authorized
      shares known as “Preferred Stock”, comprising 5,000,000 shares, with a par value
      of $.01 per share, issuable from time to time in one or more
      series;

     

    Whereas,
      pursuant to Article IV of the Articles of Incorporation, the Board of Directors
      of the Corporation is authorized to fix and determine the preferences,
      limitations and relative rights of any wholly unissued series of Preferred
      Stock, and to fix the number of shares constituting such series, and to increase
      or decrease the number of shares of an such series (but not below the number
      of
      shares then outstanding); and

     

    Whereas,
      it is
      the desire of the Board of Directors of the Corporation, pursuant to its
      authority as aforesaid, to establish, designate and issue an additional series
      of such Preferred Stock and to fix and determine the preferences, limitations
      and relative rights relating thereto;

     

    Now,
      Therefore, Be It Resolved,
      that
      the Board of Directors does hereby establish and designate a series of Preferred
      Stock of the Corporation and does hereby fix and determine the preferences,
      limitations and relative rights relating to said series of Preferred Stock,
      as
      follows:

    

    Series
      A Preferred Stock

    

    
      	 	
              1.

            	
              Designation
                and Number of Shares.
                There shall be a series of preferred stock that shall be designated
                as
                “Series A Preferred Stock” and the number of shares constituting such
                series shall be 4,000,000. Such number of shares may be increased
                or
                decreased by resolution of the Board; provided,
                however,
                that no decrease shall reduce the number of shares of the Series
                A
                Preferred Stock to less than the number of shares then issued and
                outstanding plus the number of shares issuable upon exercise of
                outstanding rights, options or warrants or upon conversion of outstanding
                securities issued by the
                Corporation.

            

    

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    

     

    
      	 	
              2.

            	
              Rank.
                The Series A Preferred Stock shall rank senior to the Common Stock
                with
                respect to the payment of dividends and as to the distribution of
                assets
                upon a liquidation, dissolution or winding up of the
                Corporation.

            

    

     

    
      	 	
              3.

            	
               Dividends
                and Distribution.

            

    

     

    
      	 	
              (a)

            	
              The
                holders of Series A Preferred Stock shall be entitled to receive
                out of
                the assets of the Corporation, when and if declared by the Board
                out of
                funds legally available for that purpose, cumulative preferred cash
                dividends at a rate per annum of 10% for each share of the Series
                A
                Preferred Stock. Such dividends shall be cumulative from the date
                the
                Series A Preferred Stock is issued to the holder (the “Issue Date”) and
                shall be payable in arrears, when and as declared by the Board, on
                March
                31, June 30, September 30 and December 31 of each year (each such
                date
                being referred to herein as a “Dividend Payment Date”), commencing on the
                first Dividend Payment Date following the Issue Date; provided,
                however,
                that if any Dividend Payment Date shall not be a Business Day, then
                the
                Dividend Payment Date shall be on the next succeeding day that is
                a
                Business Day. The period from the Issue Date to the next Dividend
                Payment
                Date and each quarterly period between consecutive Dividend Payment
                Dates
                shall hereinafter be referred to as “Dividend Periods.” “Business Day”
                means any day except Saturday, Sunday and any day which shall be
                a legal
                holiday or a day which banking institutions in Houston, Texas generally
                are authorized or required by law or other governmental actions to
                close.

            

    

     

    
      	 	
              (b)

            	
              If,
                on any Dividend Payment Date, the Corporation fails to pay dividends,
                then
                until the dividends that were scheduled to be paid on such date are
                paid,
                such dividends shall cumulate. 

            

    

     

    
      	 	
              (c)

            	
              Dividends
                on account of arrears for any past Dividend Periods may be declared
                and
                paid at any time, without reference to any Dividend Payment Date,
                to
                holders of record on a date designated by the Board, not exceeding
                30 days
                preceding the payment date thereof, as may be fixed by the
                Board.

            

    

     

    
      	 	
              (d)

            	
              The
                Corporation may not declare a dividend or distribution on the Common
                Stock
                unless it first declares a dividend or distribution on the Series
                A
                Preferred Stock. 

            

    

     

    
      	 	
              (e)

            	
              The
                Board may fix a record date for the determination of the holders
                of shares
                of Series A Preferred Stock entitled to receive payment of a dividend
                or
                distribution declared thereon, which record date shall be no more
                than 60
                days prior to the date fixed for the payment
                thereof.

            

    

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    

     

    
      	 	
              4.

            	
              Voting
                Rights.
                The holders of the Series A Preferred Stock shall vote (on an as-converted
                basis) together with the Common Stock, and not as a separate class,
                except:

            

    

     

    
      	 	
              (a)

            	
              as
                provided under “Certain Restrictions” below;
                or

            

    

     

    
      	 	
              (b)

            	
              as
                required by law.

            

    

     

    
      	 	
              5.

            	
              Certain
                Restrictions.

            

    

     

    
      	 	
              (a)

            	
              Whenever
                quarterly dividends or other dividends or distributions payable on
                the
                Series A Preferred Stock are in arrears, thereafter and until all
                accrued
                and unpaid dividends and distributions, whether or not declared,
                on shares
                of the Series A Preferred Stock outstanding shall have been paid
                in full,
                the Corporation shall not:

            

    

     

    
      	 	
              (i)

            	
              Declare
                or pay dividends on, make any other distributions on, or redeem or
                purchase or otherwise acquire for consideration any shares of stock
                ranking junior (either as to dividends or upon liquidation, dissolution
                or
                winding up of the Corporation) to the Series A Preferred
                Stock;

            

    

     

    
      	 	
              (ii)

            	
              Declare
                or pay dividends on or make any other distributions on any shares
                of stock
                ranking on a parity (either as to dividends or upon the liquidation,
                dissolution or winding up of the Corporation) with the Series A Preferred
                Stock, except dividends paid ratably with the Series A Preferred
                Stock and
                all such parity stock on which dividends are payable or in arrears
                in
                proportional to the total amounts to which the holders of all such
                shares
                are then entitled; or

            

    

     

    
      	 	
              (iii)

            	
              Purchase
                or otherwise acquire for consideration any shares of Series A Preferred
                Stock, or any shares of stock ranking on a parity with the Series
                A
                Preferred Stock, except in accordance with a purchase offer made
                in
                writing or by publication (as determined by the Board) to all holders
                of
                Series A Preferred Stock, or to such holders and holders of any such
                shares ranking on a parity therewith, upon such terms as the Board,
                after
                consideration of the respective annual dividend rates and other relative
                rights and preferences of the respective series and classes shall
                determine in good faith will result in fair and equitable treatment
                among
                the respective series or classes.

            

    

     

    
      	 	
              (b)

            	
              So
                long as any shares of Series A Preferred Stock are outstanding, the
                Corporation shall not, without the prior written consent of the holders
                of
                at least 66.66% of the Series A Preferred Stock, either directly
                or by
                amendment, merger, consolidation or otherwise:

            

    

     

    
      	 	
              (i)

            	
              amend,
                alter, or repeal any provision of the Articles of Incorporation or
                Bylaws
                of the Corporation relating to the Series A Preferred Stock;
                or

            

    

     

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (ii)

            	
              create
                or authorize the creation of or issue any other security convertible
                into
                or exercisable for any equity security, having rights, preferences
                or
                privileges senior to or on parity with the Series A Preferred Stock,
                or
                increase the authorized number of shares of Series A Preferred
                Stock.

            

    

     

    
      	 	
              6.

            	
              Liquidation
                Preference.

            

    

     

    
      	 	
              (a)

            	
              In
                the event of any liquidation of the Corporation, after payment or
                provision by the Corporation of the debts and other liabilities of
                the
                Corporation, each holder shall be entitled to receive an amount in
                case
                for each share of the then outstanding Series A Preferred Stock held
                by
                such holder equal to $.586 per share, plus an amount equal to all
                accrued
                but unpaid dividends thereon, whether or not earnings are available
                in
                respect of such dividends or such dividends have been declared, to
                and
                including, the date full payment is tendered to the holders with
                respect
                to such liquidation, and no more (such amount being referred to herein
                as
                the “Liquidation Preference”), before any distribution shall be made to
                the holders of any Common Stock upon the liquidation of the
                Corporation.

            

    

     

    
      	 	
              (b)

            	
              In
                the case the assets of the Corporation available for payment to the
                holders upon a liquidation are insufficient to pay the full Liquidation
                Preference on all outstanding shares of the Series A Preferred Stock,
                then
                the entire assets of the Corporation available for payment to the
                holders
                will be distributed ratably. 

            

    

     

    
      	 	
              (c)

            	
              Written
                notice of any liquidation of the Corporation, stating a payment date
                and
                the place where the distributable amounts shall be payable, shall
                be given
                by mail, postage prepaid, not less than 30 days prior to the payment
                date
                stated therein, to the holders of record at their respective addresses
                as
                the same shall appear on the books of the
                Corporation.

            

    

     

    
      	 	
              7.

            	
              Reacquired
                Shares.
                Any shares of the Series A Preferred Stock purchased or otherwise
                acquired
                by the Corporation in any manner whatsoever shall be retired promptly
                upon
                the acquisition thereof. All such shares shall upon retirement become
                authorized but unissued shares of preferred stock and may be reissued
                as
                part of a new series of preferred stock to be created by resolution
                or
                resolutions of the Board, subject to any conditions and restrictions
                on
                issuance set forth herein.

            

    

     

    
      	 	
              8.

            	
              Conversion
                Rights.

            

    

     

    
      	 	
              (a)

            	
              Optional
                Conversion. The
                Series A Preferred Stock shall be convertible, without the payment
                of any
                additional consideration, into an equal number of fully paid and
                nonassessable shares of Common Stock, at the option of the holder
                at any
                time, subject to adjustments for stock dividends, splits, combinations
                and
                similar events and as described below under “Anti-dilution
                Provisions.” 

            

    

     

    
      	 	
              (b)

            	
              Mandatory
                Conversion.
                In
                the event that the per share trading price of the Common Stock is
                equal to
                or greater than $3.00 per share for 90 consecutive trading days,
                the
                Series A Preferred Stock shall convert, automatically, without any
                further
                action on the part of the holders thereof and whether or not the
                certificates representing such shares are surrendered to the Corporation
                or its transfer agent and without the payment of any additional
                consideration, into an equal number of fully paid and nonassessable
                shares
                of Common Stock, subject to adjustments for stock dividends, splits,
                combinations and similar events and as described below under
                “Anti-dilution Provisions.” 

            

    

     

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    

     

    
      	 	
              (c)

            	
              Conversion
                Procedure.
                The holder of any shares of Series A Preferred Stock may exercise
                the
                conversion right specified in Section 8(a) hereof, or may receive
                a
                certificate representing the shares of Common Stock into which such
                shares
                were converted automatically pursuant to Section 8(b) hereof, by
                surrendering to the Corporation or the transfer agent of the Corporation
                the certificate(s) representing the share(s) of Series A Preferred
                Stock
                to be converted, accompanied by written notice specifying the number
                of
                such shares to be converted. If the certificates representing such
                shares
                of Series A Preferred Stock are to be issued in a name other than
                the name
                on the face of the certificates representing such shares of Series
                A
                Preferred Stock, such certificates shall be accompanied by such evidence
                of assignment and such evidence of the signatory’s authority with respect
                thereto. Conversions shall be deemed to have been effected with respect
                to
                conversions pursuant to (i) Section 8(a) hereof on the date when
                the
                notice of an election to convert pursuant to Section 8(a) hereof
                and the
                certificates representing the shares being converted are actually
                received
                by the Corporation or any transfer agent of the Corporation and (ii)
                Section 8(b) on the 90th
                day referred to therein. Such date that the conversion shall be deemed
                to
                be effective shall be referred to herein as the “Conversion Date.”
                

            

    

     

    
      	 	
              (d)

            	
              As
                promptly as possible after the Conversion Date, upon surrender by
                the
                holder thereof of the certificate(s) formerly representing the shares
                of
                Series A Preferred Stock, the Corporation shall issue and deliver
                to or
                upon the written order of such holder a certificate or certificates
                for
                the number of shares of Common Stock to which such holder is entitled
                upon
                such conversion. The person in whose name the certificate(s) for
                shares of
                Common Stock to be issued shall be deemed to have become a holder
                of
                record of such shares of Common Stock on the applicable Conversion
                Date.

            

    

     

    
      	 	
              (e)

            	
              Upon
                conversion of only a portion of the shares covered by a certificate
                representing shares of Series A Preferred Stock surrendered for conversion
                pursuant to Section 8(a) hereof, the Corporation shall issue and
                deliver
                to or upon the written order to the holder of the certificate so
                surrendered for conversion, at the expense of the Corporation, a
                new
                certificate representing the number of shares of Series A Preferred
                Stock
                representing the unconverted portion of the certificate so surrendered.
                

            

    

     

    
      	 	
              (f)

            	
              The
                Corporation covenants and agrees
                that:

            

    

     

    
      	 	
              (i)

            	
              The
                shares of Common Stock issuable upon any conversion of any shares
                of
                Series A Preferred Stock will be deemed to have been issued to the
                Person
                exercising such conversion rights set forth herein on the Conversion
                Date,
                and the Person exercising such conversion rights will be deemed for
                all
                purposes to have become the record holder of such shares of Common
                Stock
                on the Conversion Date. “Person” means an individual or entity of any
                kind;

            

    

     

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    

     

    (ii)  All
      shares of Common Stock which may be issued upon any conversion of any Series
      A
      Preferred Stock will, upon issuance, be fully paid and non-assessable and free
      from all taxes, liens and charges with respect to the issue
      thereof;

     

    (iii)  The
      Corporation will take all such action as may be necessary to assure that all
      shares of Common Stock issuable upon conversion of shares of Series A Preferred
      Stock may be issued without violation of any applicable law or regulation or
      any
      requirements of any domestic securities exchange, if any, upon which the
      outstanding Common Stock is listed at the time of such delivery;

     

    (iv)  The
      Corporation will at all times reserve and keep available, out of its authorized
      but unissued shares of Common Stock or out of shares of Common Stock held in
      its
      treasury, the full number of shares of Common Stock into which all shares of
      the
      Series A Preferred Stock having conversion privileges from time to time
      outstanding are convertible; and

     

    (v)  The
      Corporation will at no time close its transfer books against the transfer of
      the
      Series A Preferred Stock or of any shares of Common Stock issued or issuable
      upon the conversion of the Series A Preferred Stock in any manner which
      interferes with the timely conversion of the Series A Preferred
      Stock.

     

    9. Anti-Dilution
      Provisions. 

     

    
      	 	
              (a)

            	
              In
                the event that the Corporation issues additional securities the conversion
                price shall be adjusted in accordance with the following
                formula:

            

    

     

    
      	
              CP2

            	
              =

            	
              CP1
                *
                (A+B) / (A+C)

            

    

    
      	
              CP2 

            	
              =

            	
              New
                Series A Conversion Price

            
	
              CP1

            	
              =

            	
              Series
                A Conversion Price in effect immediately prior to new
                issue

            

    

    

      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

    

     

    
      
        	
                A

              	
                =

              	
                Number
                  of shares of Common Stock deemed to be outstanding immediately
                  prior to
                  new issue (includes all shares of outstanding common stock, all
                  shares of
                  outstanding preferred stock on an as-converted basis, and all outstanding
                  options on an as-exercised basis; and does not include any convertible
                  securities converting into this round of financing) 

              
	
                B

              	
                =

              	
                Aggregate
                  consideration received by the Corporation with respect to the new
                  issue
                  divided by CP1

              
	
                C

              	
                =

              	
                Number
                  of shares of stock issued in the subject
                  transaction.

              

      

       

    

    
      	 	
              (b)

            	
              The
                following issuances shall not trigger anti-dilution
                adjustment:

            

    

     

    
      	 	
              (i)

            	
              securities
                issuable upon conversion of any of the Series A Preferred Stock,
                or as a
                dividend or distribution on the Series A Preferred
                Stock;

            

    

     

    
      	 	
              (ii)

            	
              securities
                issued upon the conversion of any currently outstanding debenture,
                warrant, option, or other convertible
                security;

            

    

     

    
      	 	
              (iii)

            	
              Common
                Stock issuable upon a stock split, stock dividend, or any subdivision
                of
                shares of Common Stock;

            

    

     

    
      	 	
              (iv)

            	
              shares
                of Common Stock (or options to purchase such shares of Common Stock)
                issued or issuable to employees or directors of, or consultants to,
                the
                Corporation pursuant to any plan approved by the Corporation’s Board,
                including the Series A Director, but in no event exceeding 1,000,000
                shares; 

            

    

     

    
      	 	
              (v)

            	
              shares
                of Common Stock issued or issuable to banks, equipment lessors pursuant
                to
                a debt financing, equipment leasing or real property leasing transaction
                approved by the Board of the
                Corporation;

            

    

     

    
      	 	
              (vi)

            	
              shares
                of Common Stock issued or issuable pursuant to an acquisition of
                another
                corporation or other business entity by the Corporation, or formation
                of a
                joint venture, in each instance expressly approved by the Board of
                the
                Corporation; and

            

    

     

    
      	 	
              (vii)

            	
              shares
                of Common Stock issued to suppliers of goods or services pursuant
                to
                transactions approved by the Board of the
                Corporation.

            

    

     

    
      	 	
              10.

            	
              No
                Redemption.
                Except as expressly set forth herein, the shares of the Series A
                Preferred
                Stock shall not be subject to redemption by the
                Corporation.

            

    

     

    
      	 	
              11.

            	
              Fractional
                Shares.
                The Series A Preferred Stock may not be issued in fractions of a
                share.

            

    

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

     

    

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the undersigned has executed this Statement of Resolution
      on
      behalf of the Corporation as of this 12th day of October, 2007.

    

    INTERNET
      AMERICA, INC.

    

    By:
      /s/
      William E. Ladin, Jr. 

    Name: William
      E. Ladin, Jr.

    Title:Chairman
      and Chief Executive  Officer

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
      B

     

    Form
      Of Registration Rights Agreement

    

    

    This
      Registration Rights Agreement (the “Agreement”)
      is
      made and entered into as of October 17, 2007 (the “Effective
      Date”)
      among
      Internet America, Inc., a Texas corporation (the “Company”),
      the
      parties set forth on Exhibit
      A
      attached
      hereto (each, an “Investor”
and
      collectively, the “Investors”).

    

    Recitals:

    

    A. The
      Investors have purchased the Shares pursuant to that certain Purchase Agreement
      (the “Purchase
      Agreement”)
      dated
      October 17, 2007 by and between the Company and each of the
      Investors.

    

    B. The
      Company and the Investors desire to set forth the registration rights to be
      granted by the Company to the Investors. The execution of this Agreement is
      a
      condition to the closing under the Purchase Agreement.

    

    Now,
      Therefore,
      in
      consideration of the mutual promises, representations, warranties, covenants,
      and conditions set forth herein, in the Stock Purchase Agreements, or otherwise,
      the parties mutually agree as follows: 

    

    Agreement:

    

    1. Certain
      Definitions.
      As used
      in this Agreement, the following terms shall have the following respective
      meanings:

    

    “Blackout
      Period”
means,
      with respect to a registration, a period in each case commencing on the day
      immediately after the Company notifies the Investors that they are required,
      pursuant to Section 4(f), to suspend offers and sales of Registrable Securities
      during which the Company, in the good faith judgment of its Board of Directors,
      determines (because of the existence of, or in anticipation of, any acquisition,
      financing activity, or other transaction involving the Company, or the
      unavailability for reasons beyond the Company’s control of any required
      financial statements, disclosure of information which is in its best interest
      not to publicly disclose, or any other event or condition of similar
      significance to the Company) that the registration and distribution of the
      Registrable Securities to be covered by such registration statement, if any,
      would be seriously detrimental to the Company and its shareholders and ending
      on
      the earlier of (1) the date upon which the material non-public information
      commencing the Blackout Period is disclosed to the public or ceases to be
      material and (2) such time as the Company notifies the selling Holders that
      the
      Company will no longer delay such filing of the Registration Statement and
      recommences taking steps to make such Registration Statement effective or allows
      sales pursuant to such Registration Statement to resume.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    

    “Business
      Day”
means
      any day of the year, other than a Saturday, Sunday, or other day on which the
      Commission is required or authorized to close.

    

    “Closing
      Date”
means
      such time as is mutually agreed between the Company and the Investors for the
      closing of the sale referred to in Recital A above.

    

    “Commission”
means
      the Securities and Exchange Commission or any other federal agency at the time
      administering the Securities Act.

    

    “Common
      Stock”
means
      the common stock, $0.01 par value, of the Company and any and all shares of
      capital stock or other equity securities of: (i) the Company which are added
      to
      or exchanged or substituted for the Common Stock by reason of the declaration
      of
      any stock dividend or stock split, the issuance of any distribution or the
      reclassification, readjustment, recapitalization or other such modification
      of
      the capital structure of the Company; and (ii) any other corporation, now or
      hereafter organized under the laws of any state or other governmental authority,
      with which the Company is merged, which results from any consolidation or
      reorganization to which the Company is a party, or to which is sold all or
      substantially all of the shares or assets of the Company, if immediately after
      such merger, consolidation, reorganization or sale, the Company or the
      stockholders of the Company own equity securities having in the aggregate more
      than 50% of the total voting power of such other corporation.

    

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

    

    “Family
      Member”
means
      (a) with respect to any individual, such individual’s spouse, any descendants
      (whether natural or adopted), any trust all of the beneficial interests of
      which
      are owned by any of such individuals or by any of such individuals together
      with
      any organization described in Section 501(c)(3) of the Internal Revenue Code
      of
      1986, as amended, the estate of any such individual, and any corporation,
      association, partnership or limited liability company all of the equity
      interests of which are owned by those above described individuals, trusts or
      organizations and (b) with respect to any trust, the owners of the beneficial
      interests of such trust.

    

    “Form
      S-1”
means
      such form under the Securities Act as in effect on the date hereof.

     

    “Holder”
means
      each Investor or any successor or Permitted Assignee of a Investor, who acquires
      rights in accordance with this Agreement with respect to the Registrable
      Securities directly or indirectly from an Investor, including from any Permitted
      Assignee.

    

    “Inspector”
means
      any attorney, accountant, or other agent retained by a Investor for the purposes
      provided in Section 4(j).

    

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    “Permitted
      Assignee”
means
      (a) with respect to a partnership, its partners or former partners in
      accordance with their partnership interests, (b) with respect to a
      corporation, its shareholders in accordance with their interest in the
      corporation, (c) with respect to a limited liability company, its members
      or former members in accordance with their interest in the limited liability
      company, (d) with respect to an individual party, any Family Member of such
      party, (e) an entity that is controlled by, controls, or is under common control
      with a transferor, or (f) a party to this Agreement.

    
      
         

      

      
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    The
      terms
“register,”
      “registered,”
and
      “registration”
refers
      to a registration effected by preparing and filing a registration statement
      in
      compliance with the Securities Act, and the declaration or ordering of the
      effectiveness of such registration statement.

    

    “Registrable
      Securities”
means
      the Underlying Shares as defined in the Purchase Agreement. 

    

    “Registration
      Statement”
means
      the registration statement required to be filed by the Company pursuant to
      Section 3(a).

    

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, or any similar federal statute
      promulgated in replacement thereof, and the rules and regulations of the
      Commission thereunder, all as the same shall be in effect at the
      time.

    

    “Shares”
means
      all shares of Series A Preferred Stock of the Company, par value $0.01 per
      share, that are issued and sold pursuant to the Purchase Agreement.

    (a) 

     

    “SEC
      Effective Date”
means
      the date the Registration Statement is declared effective by the
      Commission.

    

    “Underlying
      Shares”
means
      all Underlying Shares (as defined in the Purchase Agreement) issuable upon
      conversion of the Shares.

    

    2. Term.
      This
      Agreement shall continue in full force and effect for a period of two (2) years
      from the Effective Date, unless terminated sooner hereunder.

    

    3. Registration.

    

    
      
         

      

      
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    (a) Piggyback
      Registration.
      If the
      Company shall determine to register for sale for cash any of its Common Stock,
      for its own account or for the account of others (other than the Holders),
      other
      than (i) a registration relating solely to employee benefit plans or securities
      issued or issuable to employees, consultants (to the extent the securities
      owned
      or to be owned by such consultants could be registered on Form S-8) or any
      of
      their Family Members (including a registration on Form S-8), (ii) a registration
      relating solely to a Commission Rule 145 transaction, a registration on Form
      S-4
      in connection with a merger, acquisition, divestiture, reorganization, or
      similar event, or (iii) a registration in which the only Common Stock being
      registered is Common Stock issuable upon conversion of debt securities that
      are
      also being registered, the Company shall promptly give to the Holders written
      notice thereof (and in no event shall such notice be given less than 20 calendar
      days prior to the filing of such registration statement), and shall, subject
      to
      Section 3(b), include in such registration (and any related qualification under
      blue sky laws or other compliance) (a “Piggyback
      Registration”),
      all
      of the Registrable Securities specified in a written request or requests, made
      within 10 calendar days after receipt of such written notice from the Company,
      by any Holder or Holders. However, the Company may, without the consent of
      the
      Holders, withdraw such registration statement prior to its becoming effective
      if
      the Company or such other shareholders have elected to abandon the proposal
      to
      register the securities proposed to be registered thereby. 

     

    
      
         

      

      
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    (b) Underwriting.
      If a
      Piggyback Registration is for a registered public offering involving an
      underwriting, the Company shall so advise the Holders in writing or as a part
      of
      the written notice given pursuant to Section 3(a). In such event the right
      of
      any Holder to registration pursuant to Section 3(a) shall be conditioned upon
      such Holder’s participation in such underwriting and the inclusion of such
      Holder’s Registrable Securities in the underwriting to the extent provided
      herein. All Holders proposing to distribute their securities through such
      underwriting shall (together with the Company and any other shareholders of
      the
      Company distributing their securities through such underwriting) enter into
      an
      underwriting agreement in customary form with the underwriter or underwriters
      selected for such underwriting by the Company or selling shareholders, as
      applicable. Notwithstanding any other provision of this Section 3(b), if the
      underwriter or the Company determines that marketing factors require a
      limitation of the number of shares to be underwritten, the underwriter may
      exclude some or all Registrable Securities from such registration and
      underwriting. The Company shall so advise all Holders (except those Holders
      who
      failed to timely elect to distribute their Registrable Securities through such
      underwriting or have indicated to the Company their decision not to do so),
      and
      the number of shares of Registrable Securities that may be included in the
      registration and underwriting, if any, shall be allocated among such Holders
      as
      follows: 

    

    (i) In
      the
      event of a Piggyback Registration that is initiated by the Company, the number
      of shares that may be included in the registration and underwriting shall be
      allocated (i) first, to the Company, (ii) second, subject to obligations and
      commitments existing as of the date hereof, to the Holders, who have requested
      to sell in the registration, on a pro rata basis according to the number of
      shares requested to be included, and (iii) third, to all other selling
      shareholders on a pro rata basis according to the number of shares requested
      to
      be included; and

    

    (ii) In
      the
      event of a Piggyback Registration that is initiated by the exercise of demand
      registration rights by a shareholder or shareholders of the Company (other
      than
      the Holders), then the number of shares that may be included in the registration
      and underwriting shall be allocated (i) first, to such selling shareholders
      who
      exercised such demand, (ii) second, subject to obligations and commitments
      existing as of the date hereof, to the Holders, who have requested to sell
      in
      the registration, on a pro rata basis according to the number of shares
      requested to be included, and (iii) third, to all other selling shareholders
      on
      a pro rata basis according to the number of shares requested to be
      included.

    

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    No
      Registrable Securities excluded from the underwriting by reason of the
      underwriter’s marketing limitation shall be included in such registration. If
      any Holder disapproves of the terms of any such underwriting, such Holder may
      elect to withdraw therefrom by written notice to the Company and the
      underwriter. The Registrable Securities and/or other securities so withdrawn
      from such underwriting shall also be withdrawn from such registration;
provided,
      however,
      that,
      if by the withdrawal of such Registrable Securities a greater number of
      Registrable Securities held by other Holders may be included in such
      registration (up to the maximum of any limitation imposed by the underwriters),
      then the Company shall offer to all Holders who have included Registrable
      Securities in the registration the right to include additional Registrable
      Securities pursuant to the terms and limitations set forth herein in the same
      proportion used above in determining the underwriter
      limitation.

    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    

    

    (c) Right
      to Terminate Registration. The
      Company shall have the right to terminate or withdraw any registration initiated
      by it under this Section 3 prior to the effectiveness of such registration
      whether or not any Holder has elected to include securities in such
      registration. The registration expenses of such withdrawn registration shall
      be
      borne by the Company in accordance with Section 6 hereof.

    

    4. Registration
      Procedures.
      In the
      case of each registration, qualification, or compliance effected by the Company
      pursuant to Section 3 hereof, the Company will keep each Holder including
      securities therein reasonably advised in writing (which may include e-mail)
      as
      to the initiation of each registration, qualification, and compliance and as
      to
      the completion thereof. With respect to any registration statement filed
      pursuant to Section 3, the Company will use its commercially reasonable best
      efforts to:

     

    

    (a) prepare
      and file with the Commission with respect to such Registrable Securities, a
      registration statement on Form S-1, or any other form for which the Company
      then
      qualifies or which counsel for the Company shall deem appropriate, and which
      form shall be available for the sale of the Registrable Securities in accordance
      with the intended method(s) of distribution thereof, and use its commercially
      reasonable efforts to cause such registration statement to become and remain
      effective at least for a period ending with the first to occur of (i) the sale
      of all Registrable Securities covered by the registration statement, (ii) the
      availability under Rule 144 for the Holder to immediately, freely resell without
      restriction all Registrable Securities covered by the registration statement,
      (iii) 90 days after a Piggyback Registration is declared effective by the
      Commission (in each case, the“Effectiveness
      Period”);
      provided
      that no
      later than two business days before filing with the Commission a registration
      statement or prospectus or any amendments or supplements thereto, the Company
      shall (i) furnish to one special counsel (“Holders
      Counsel”)
      selected by the Company for the benefit of the Holders (which Holders Counsel
      initially shall be Charles D. Powell of Fulbright &
Jaworski L.L.P., Houston, Texas), copies of all such documents proposed to
      be filed (excluding any exhibits other than applicable underwriting documents),
      in substantially the form proposed to be filed, which documents shall be subject
      to the review of such Holders Counsel, and (ii) notify each Holder of
      Registrable Securities covered by such registration statement of any stop order
      issued or threatened by the Commission and take all reasonable actions required
      to prevent the entry of such stop order or to remove it if
      entered;

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    

    (b) if
      a
      registration statement is subject to review by the Commission, promptly respond
      to all comments and diligently pursue resolution of any comments to the
      satisfaction of the Commission;

    

    (c) prepare
      and file with the Commission such amendments and supplements to such
      registration statement and the prospectus used in connection therewith as may
      be
      necessary to keep such registration statement effective during the Effectiveness
      Period (but in any event at least until expiration of the 90-day period referred
      to in Section 4(3) of the Securities Act and Rule 174, or any successor thereto,
      thereunder, if applicable), and comply with the provisions of the Securities
      Act
      with respect to the disposition of all securities covered by such registration
      statement during such period in accordance with the intended method(s) of
      disposition by the sellers thereof set forth in such registration
      statement;

    

    (d) furnish,
      without charge, to each Holder of Registrable Securities covered by such
      registration statement (i) a reasonable number of copies of such registration
      statement (including any exhibits thereto other than exhibits incorporated
      by
      reference), each amendment and supplement thereto as such Holder may request,
      (ii) such number of copies of the prospectus included in such registration
      statement (including each preliminary prospectus and any other prospectus filed
      under Rule 424 under the Securities Act) as such Holders may request, in
      conformity with the requirements of the Securities Act, and (iii) such other
      documents as such Holder may reasonably request in order to facilitate the
      disposition of the Registrable Securities owned by such Holder, but only during
      the Effectiveness Period;

    

    (e) use
      its
      commercially reasonable best efforts to register or qualify such Registrable
      Securities under such other applicable securities or blue sky laws of such
      jurisdictions as any Holder of Registrable Securities covered by such
      registration statement reasonably requests as may be necessary for the
      marketability of the Registrable Securities (such request to be made by the
      time
      the applicable registration statement is deemed effective by the Commission)
      and
      do any and all other acts and things which may be reasonably necessary or
      advisable to enable such Holder to consummate the disposition in such
      jurisdictions of the Registrable Securities owned by such Holder; provided
      that the
      Company shall not be required to (i) qualify generally to do business in any
      jurisdiction where it would not otherwise be required to qualify but for this
      paragraph (e), (ii) subject itself to taxation in any such jurisdiction, or
      (iii) consent to general service of process in any such
      jurisdiction;

    

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    (f) as
      promptly as practicable after becoming aware of such event, notify each Holder
      of such Registrable Securities at any time when a prospectus relating thereto
      is
      required to be delivered under the Securities Act of the happening of any event
      which comes to the Company’s attention if as a result of such event the
      prospectus included in such registration statement contains an untrue statement
      of a material fact or omits to state any material fact required to be stated
      therein or necessary to make the statements therein not misleading and the
      Company shall promptly prepare and furnish to such Holder a supplement or
      amendment to such prospectus (or prepare and file appropriate reports under
      the
      Exchange Act) so that, as thereafter delivered to the purchasers of such
      Registrable Securities, such prospectus shall not contain an untrue statement
      of
      a material fact or omit to state any material fact required to be stated therein
      or necessary to make the statements therein not misleading, unless suspension
      of
      the use of such prospectus otherwise is authorized herein or in the event of
      a
      Blackout Period, in which case no supplement or amendment need be furnished
      (or
      Exchange Act filing made) until the termination of such suspension or Blackout
      Period; 

    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    

    

    (g) comply,
      and continue to comply during the period that such registration statement is
      effective under the Securities Act, in all material respects with the Securities
      Act and the Exchange Act and with all applicable rules and regulations of the
      Commission with respect to the disposition of all securities covered by such
      registration statement, and make available to its security holders, as soon
      as
      reasonably practicable, an earnings statement covering the period of at least
      12
      months, but not more than 18 months, beginning with the first full calendar
      month after the SEC Effective Date, which earnings statement shall satisfy
      the
      provisions of Section 11(a) of the Securities Act.

    

    (h) as
      promptly as practicable after becoming aware of such event, notify each Holder
      of Registrable Securities being offered or sold pursuant to the Registration
      Statement of the issuance by the Commission of any stop order or other
      suspension of effectiveness of the Registration Statement at the earliest
      possible time;

    

    (i) permit
      the Holders of Registrable Securities being included in the Registration
      Statement and their legal counsel, at such Holders’ sole cost and expense
      (except as otherwise specifically provided in Section 6) to review and have
      a
      reasonable opportunity to comment on the Registration Statement and all
      amendments and supplements thereto at least two Business Days prior to their
      filing with the Commission;

    

    
      
         

      

      
        -11-

        
          

        

      

      
         

      

    

    (j)
       make
      available for inspection by any Holder and any Inspector retained by such
      Holder, at such Holder’s sole expense, all Records as shall be reasonably
      necessary to enable such Holder to exercise its due diligence responsibility,
      and cause the Company’s officers, directors, and employees to supply all
      information which such Holder or any Inspector may reasonably request for
      purposes of such due diligence; provided,
      however, that
      such
      Holder shall hold in confidence and shall not make any disclosure of any record
      or other information which the Company determines in good faith to be
      confidential, and of which determination such Holder is so notified at the
      time
      such Holder receives such information, unless (i) the disclosure of such record
      is necessary to avoid or correct a misstatement or omission in the Registration
      Statement and a reasonable time prior to such disclosure the Holder shall have
      informed the Company of the need to so correct such misstatement or omission
      and
      the Company shall have failed to correct such misstatement of omission, (ii)
      the
      release of such record is ordered pursuant to a subpoena or other order from
      a
      court or governmental body of competent jurisdiction or (iii) the information
      in
      such record has been made generally available to the public other than by
      disclosure in violation of this or any other agreement. The Company shall not
      be
      required to disclose any confidential information in such records to any
      Inspector until and unless such Inspector shall have entered into a
      confidentiality agreement with the Company with respect thereto, substantially
      in the form of this Section 4(j), which agreement shall permit such Inspector
      to
      disclose records to the Holder who has retained such Inspector. Each Holder
      agrees that it shall, upon learning that disclosure of such Records is sought
      in
      or by a court or governmental body of competent jurisdiction or through other
      means, give prompt notice to the Company and allow the Company, at the Company’s
      expense, to undertake appropriate action to prevent disclosure of, or to obtain
      a protective order for, the records deemed confidential. The Company shall
      hold
      in confidence and shall not make any disclosure of information concerning a
      Holder provided to the Company pursuant to this Agreement unless (i) disclosure
      of such information is necessary to comply with federal or state securities
      laws, (ii) disclosure of such information to the Staff of the Division of
      Corporation Finance is necessary to respond to comments raised by the Staff
      in
      its review of the Registration Statement, (iii) disclosure of such information
      is necessary to avoid or correct a misstatement or omission in the Registration
      Statement, (iv) release of such information is ordered pursuant to a subpoena
      or
      other order from a court or governmental body of competent jurisdiction, or
      (v)
      such information has been made generally available to the public other than
      by
      disclosure in violation of this or any other agreement. The Company agrees
      that
      it shall, upon learning that disclosure of such information concerning a Holder
      is sought in or by a court or governmental body of competent jurisdiction or
      through other means, give prompt notice to such Holder and allow such Holder,
      at
      such Holder’s expense, to undertake appropriate action to prevent disclosure of,
      or to obtain a protective order for, such information;

    
      
         

      

      
        -12-

        
          

        

      

      
         

      

    

    

    

    (k) use
      its
      best efforts to cause all the Registrable Securities covered by the Registration
      Statement to be listed or quoted on the principal securities market on which
      securities of the same class or series issued by the Company are then listed
      or
      traded;

    

    (l) provide
      a
      transfer agent and registrar, which may be a single entity, for the Registrable
      Securities at all times;

    

    (m) cooperate
      with the Holders of Registrable Securities being offered pursuant to the
      Registration Statement to facilitate the timely preparation and delivery of
      certificates (not bearing any restrictive legends) representing Registrable
      Securities to be offered pursuant to the Registration Statement and enable
      such
      certificates to be in such denominations or amounts as the Holders may
      reasonably request and registered in such names as the Holders may request;
      and

    

    (n) take
      all
      other reasonable actions necessary to expedite and facilitate disposition by
      the
      Holders of the Registrable Securities pursuant to the Registration
      Statement.

    

    5. Suspension
      of Offers and Sales.
      Each
      Holder of Registrable Securities agrees that, upon receipt of any notice from
      the Company of the happening of any event of the kind described in Section
      4(f)
      hereof or of the commencement of an Blackout Period, such Holder shall
      discontinue disposition of Registrable Securities pursuant to the registration
      statement covering such Registrable Securities until such Holder’s receipt of
      the copies of the supplemented or amended prospectus contemplated by Section
      4(f) hereof or notice of the end of the Blackout Period, and, if so directed
      by
      the Company, such Holder shall deliver to the Company (at the Company’s expense)
      all copies (including, without limitation, any and all drafts), other than
      permanent file copies, then in such Holder’s possession, of the prospectus
      covering such Registrable Securities current at the time of receipt of such
      notice.

     

    
      
         

      

      
        -13-

        
          

        

      

      
         

      

    

    

     

    

    6. Registration
      Expenses.
      The
      Company shall pay all expenses in connection with any registration, including,
      without limitation, all registration, filing, stock exchange and NASD fees,
      printing expenses, all fees and expenses of complying with securities or blue
      sky laws, the fees and disbursements of counsel for the Company and of its
      independent accountants, and the reasonable fees and disbursements of a Holders
      Counsel; provided that, in any underwritten registration, each party shall
      pay
      for its own underwriting discounts and commissions and transfer taxes. Except
      as
      provided above in this Section 6 and Section 9, the Company shall not be
      responsible for the expenses of any attorney or other advisor employed by a
      Holder of Registrable Securities.

    

    7. Assignment
      of Rights.
      No
      Holder may assign its rights under this Agreement to any party without the
      prior
      written consent of the Company; provided,
      however,
      that a
      Holder may assign its rights under this Agreement without such restrictions
      to a
      Permitted Assignee as long as (a) such transfer or assignment is effected in
      accordance with applicable securities laws; (b) such transferee or assignee
      agrees in writing to become subject to the terms of this Agreement; and (c)
      the
      Company is given written notice by such Holder of such transfer or assignment,
      stating the name and address of the transferee or assignee and identifying
      the
      Registrable Securities with respect to which such rights are being transferred
      or assigned.

    

    8. Information
      by Holder.
      The
      Holder or Holders of Registrable Securities included in any registration shall
      furnish to the Company such information regarding such Holder or Holders and
      the
      distribution proposed by such Holder or Holders as the Company may request
      in
      writing.

    

    9. Indemnification.

    

    
      
         

      

      
        -14-

        
          

        

      

      
         

      

    

    (a) In
      the
      event of the offer and sale of Registrable Securities held by Holders under
      the
      Securities Act, the Company shall, and hereby does, indemnify and hold harmless,
      to the fullest extent permitted by law, each Holder, its directors, officers,
      partners, each other person who participates as an underwriter in the offering
      or sale of such securities, and each other person, if any, who controls or
      is
      under common control with such Holder or any such underwriter within the meaning
      of Section 15 of the Securities Act, against any losses, claims, damages or
      liabilities, joint or several, and expenses to which the Holder or any such
      director, officer, partner or underwriter or controlling person may become
      subject under the Securities Act or otherwise, insofar as such losses, claims,
      damages, liabilities or expenses (or actions or proceedings, whether commenced
      or threatened, in respect thereof) arise out of or are based upon any untrue
      statement or alleged untrue statement of any material fact contained in any
      registration statement under which such shares were registered under the
      Securities Act, any preliminary prospectus, final prospectus or summary
      prospectus contained therein, or any amendment or supplement thereto, or any
      omission or alleged omission to state therein a material fact required to be
      stated therein or necessary to make the statements therein in light of the
      circumstances in which they were made not misleading, and the Company shall
      reimburse the Holder, and each such director, officer, partner, underwriter
      and
      controlling person for any legal or any other expenses reasonably incurred
      by
      them in connection with investigating, defending or settling any such loss,
      claim, damage, liability, action or proceeding; provided that the foregoing
      shall not apply to, and the Company shall not be liable, in any such case (i)
      to
      the extent that any such loss, claim, damage, liability (or action or proceeding
      in respect thereof) or expense arises out of or is based upon an untrue
      statement or alleged untrue statement in or omission or alleged omission from
      such registration statement, any such preliminary prospectus, final prospectus,
      summary prospectus, amendment or supplement in reliance upon and in conformity
      with written information furnished to the Company through an instrument duly
      executed by or on behalf of such Holder specifically stating that it is for
      use
      in the preparation thereof, (ii) provided that the Company has complied with
      its
      obligations hereunder to furnish such Holder with copies of the applicable
      prospectus, if the person asserting any such loss, claim, damage, liability
      (or
      action or proceeding in respect thereof) who purchased the Registrable
      Securities that are the subject thereof did not receive a copy of an amended
      preliminary prospectus or the final prospectus (or the final prospectus as
      amended or supplemented) at or prior to the written confirmation of the sale
      of
      such Registrable Securities to such person because of the failure of such Holder
      or underwriter to so provide such amended preliminary or final prospectus and
      the untrue statement or alleged untrue statement or omission or alleged omission
      of a material fact made in such preliminary prospectus was corrected in the
      amended preliminary or final prospectus (or the final prospectus as amended
      or
      supplemented), or (iii) provided that the plan of distribution mechanics
      described in the applicable prospectus are, in form and substance, reasonable
      and customary for transactions of this type, to the extent that the Holders
      failed to comply with the terms of such plan of distribution mechanics. Such
      indemnity shall remain in full force and effect regardless of any investigation
      made by or on behalf of the Holders, or any such director, officer, partner,
      underwriter or controlling person and shall survive the transfer of such shares
      by the Holder.

    
      
         

      

      
        -15-

        
          

        

      

      
         

      

    

    

    

    (b) As
      a
      condition to including any Registrable Securities to be offered by a Holder
      in
      any registration statement filed pursuant to this Agreement, each such Holder
      agrees to be bound by the terms of this Section 9 and to indemnify and hold
      harmless, to the fullest extent permitted by law, the Company, its directors
      and
      officers, and each other person, if any, who controls the Company within the
      meaning of Section 15 of the Securities Act, legal counsel and accountants
      for
      the Company, any underwriter, any other Holder selling securities in such
      registration statement and any controlling person within the meaning of the
      Securities Act of any such underwriter or other Holder, against any losses,
      claims, damages or liabilities, joint or several, to which the Company or any
      such director or officer or controlling person may become subject under the
      Securities Act or otherwise, insofar as such losses, claims, damages or
      liabilities (or actions or proceedings, whether commenced or threatened, in
      respect thereof) arise out of or are based upon (i) an untrue statement or
      alleged untrue statement in or omission or alleged omission from such
      registration statement, any preliminary prospectus, final prospectus or summary
      prospectus contained therein, or any amendment or supplement thereto, if such
      statement or alleged statement or omission or alleged omission was made in
      reliance upon and in conformity with written information about such Holder
      as a
      Holder of the Company furnished to the Company, (ii) provided that the Company
      has complied with its obligations hereunder to furnish such Holder with copies
      of the applicable prospectus, if the person asserting any such loss, claim,
      damage, liability (or action or proceeding in respect thereof) who purchased
      the
      Registrable Securities that are the subject thereof did not receive a copy
      of an
      amended preliminary prospectus or the final prospectus (or the final prospectus
      as amended or supplemented) at or prior to the written confirmation of the
      sale
      of such Registrable Securities to such person because of the failure of such
      Holder or underwriter to so provide such amended preliminary or final prospectus
      and the untrue statement or alleged untrue statement or omission or alleged
      omission of a material fact made in such preliminary prospectus was corrected
      in
      the amended preliminary or final prospectus (or the final prospectus as amended
      or supplemented), or (iii) provided that the plan of distribution mechanics
      described in the applicable prospectus are, in form and substance, reasonable
      and customary for transactions of this type, to the extent that the Holders
      failed to comply with the terms of such plan of distribution mechanics. Such
      indemnity shall remain in full force and effect regardless of any investigation
      made by or on behalf of the Holders, or any such director, officer, partner,
      underwriter or controlling person and shall survive the transfer of such shares
      by the Holder, and such Holder shall reimburse the Company, and each such
      director, officer, legal counsel and accountants, underwriter, other Holder,
      and
      controlling person for any legal or other expenses reasonably incurred by them
      in connection with investigating, defending, or settling and such loss, claim,
      damage, liability, action, or proceeding; provided,
      however,
      that
      such indemnity agreement found in this Section 9(b) shall in no event exceed
      the
      gross proceeds from the offering received by such Holder. Such indemnity shall
      remain in full force and effect, regardless of any investigation made by or
      on
      behalf of the Company or any such director, officer or controlling person and
      shall survive the transfer by any Holder of such shares.

    
      
         

      

      
        -16-

        
          

        

      

      
         

      

    

    

    

    (c) Promptly
      after receipt by an indemnified party of notice of the commencement of any
      action or proceeding involving a claim referred to in Section 9(a) or (b) hereof
      (including any governmental action), such indemnified party shall, if a claim
      in
      respect thereof is to be made against an indemnifying party, give written notice
      to the indemnifying party of the commencement of such action; provided that
      the
      failure of any indemnified party to give notice as provided herein shall not
      relieve the indemnifying party of its obligations under Section 9(a) or (b)
      hereof, except to the extent that the indemnifying party is actually prejudiced
      by such failure to give notice. In case any such action is brought against
      an
      indemnified party, unless in the reasonable judgment of counsel to such
      indemnified party a conflict of interest between such indemnified and
      indemnifying parties may exist or the indemnified party may have defenses not
      available to the indemnifying party in respect of such claim, the indemnifying
      party shall be entitled to participate in and to assume the defense thereof,
      with counsel reasonably satisfactory to such indemnified party and, after notice
      from the indemnifying party to such indemnified party of its election so to
      assume the defense thereof, the indemnifying party shall not be liable to such
      indemnified party for any legal or other expenses subsequently incurred by
      the
      latter in connection with the defense thereof, unless in such indemnified
      party’s reasonable judgment a conflict of interest between such indemnified and
      indemnifying parties arises in respect of such claim after the assumption of
      the
      defenses thereof or the indemnifying party fails to defend such claim in a
      diligent manner, other than reasonable costs of investigation. Neither an
      indemnified nor an indemnifying party shall be liable for any settlement of
      any
      action or proceeding effected without its consent. No indemnifying party shall,
      without the consent of the indemnified party, consent to entry of any judgment
      or enter into any settlement, which does not include as an unconditional term
      thereof the giving by the claimant or plaintiff to such indemnified party of
      a
      release from all liability in respect of such claim or litigation.
      Notwithstanding anything to the contrary set forth herein, and without limiting
      any of the rights set forth above, in any event any party shall have the right
      to retain, at its own expense, counsel with respect to the defense of a
      claim.

    
      
         

      

      
        -17-

        
          

        

      

      
         

      

    

    

    

    (d) In
      the
      event that an indemnifying party does or is not permitted to assume the defense
      of an action pursuant to Section 9(c) or in the case of the expense
      reimbursement obligation set forth in Section 9(a) and (b), the indemnification
      required by Section 9(a) and (b) hereof shall be made by periodic payments
      of
      the amount thereof during the course of the investigation or defense, as and
      when bills received or expenses, losses, damages, or liabilities are
      incurred.

    

    (e) If
      the
      indemnification provided for in this Section 9 is held by a court of competent
      jurisdiction to be unavailable to an indemnified party with respect to any
      loss,
      liability, claim, damage or expense referred to herein, the indemnifying party,
      in lieu of indemnifying such indemnified party hereunder, shall (i) contribute
      to the amount paid or payable by such indemnified party as a result of such
      loss, liability, claim, damage or expense as is appropriate to reflect the
      proportionate relative fault of the indemnifying party on the one hand and
      the
      indemnified party on the other (determined by reference to, among other things,
      whether the untrue or alleged untrue statement of a material fact or omission
      relates to information supplied by the indemnifying party or the indemnified
      party and the parties’ relative intent, knowledge, access to information and
      opportunity to correct or prevent such untrue statement or omission), or (ii)
      if
      the allocation provided by clause (i) above is not permitted by applicable
      law
      or provides a lesser sum to the indemnified party than the amount hereinafter
      calculated, not only the proportionate relative fault of the indemnifying party
      and the indemnified party, but also the relative benefits received by the
      indemnifying party on the one hand and the indemnified party on the other,
      as
      well as any other relevant equitable considerations. No indemnified party guilty
      of fraudulent misrepresentation (within the meaning of Section 11(f) of the
      Securities Act) shall be entitled to contribution from any indemnifying party
      who was not guilty of such fraudulent misrepresentation.

    

    (f) Other
      Indemnification.
      Indemnification similar to that specified in the preceding subsections of this
      Section 9 (with appropriate modifications) shall be given by the Company and
      each Holder of Registrable Securities with respect to any required registration
      or other qualification of securities under any federal or state law or
      regulation or governmental authority other than the Securities Act.

    

    10. Rule
      144 Reporting.
      With a
      view to making available to the Holders the benefits of certain rules and
      regulations of the Commission which may permit the sale of the Registrable
      Securities to the public without registration, the Company agrees to use its
      reasonable efforts to:

    
      
         

      

      
        -18-

        
          

        

      

      
         

      

    

    

    

    (a)
       Make
      and
      keep public information available, as those terms are understood and defined
      in
      Rule 144 or any similar or analogous rule promulgated under the Securities
      Act, at all times after the effective date of the first registration filed
      by
      the Company for an offering of its securities to the general
      public;

    

    (b) 
      File
      with the Commission, in a timely manner, all reports and other documents
      required of the Company under the Exchange Act; and

    

    (c) 
      So long
      as a Holder owns any Registrable Securities, furnish to such Holder forthwith
      upon request: a written statement by the Company as to its compliance with
      the
      reporting requirements of said Rule 144 of the Securities Act, and of the
      Exchange Act (at any time after it has become subject to such reporting
      requirements); a copy of the most recent annual or quarterly report of the
      Company; and such other reports and documents as a Holder may reasonably request
      in availing itself of any rule or regulation of the Commission allowing it
      to
      sell any such securities without registration.

    

    11. Miscellaneous

    

    (a) Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Texas and the United States of America, both substantive and remedial.
      Any
      judicial proceeding brought against either of the parties to this agreement
      or
      any dispute arising out of this Agreement or any matter related hereto shall
      be
      brought in the courts of the State of Texas, Harris County, or in the United
      States District Court for the Southern District of Texas and, by its execution
      and delivery of this agreement, each party to this Agreement accepts the
      jurisdiction of such courts. The foregoing consent to jurisdiction shall not
      be
      deemed to confer rights on any person other than the parties to this
      Agreement.

    

    (b) Successors
      and Assigns.
      Except
      as otherwise provided herein, the provisions hereof shall inure to the benefit
      of, and be binding upon, the successors, Permitted Assigns, executors and
      administrators of the parties hereto. In the event the Company merges with,
      or
      is otherwise acquired by, a direct or indirect subsidiary of a publicly traded
      company, the Company shall condition the merger or acquisition on the assumption
      by such parent company of the Company’s obligations under this Agreement.

    

    (c) Entire
      Agreement.
      This
      Agreement constitutes the full and entire understanding and agreement between
      the parties with regard to the subjects hereof.

    

    (d) Notices,
      etc.
      All
      notices or other communications which are required or permitted under this
      Agreement shall be in writing and sufficient if delivered by hand, by facsimile
      transmission, by registered or certified mail, postage pre-paid, by electronic
      mail, or by courier or overnight carrier, to the persons at the addresses set
      forth below (or at such other address as may be provided hereunder), and shall
      be deemed to have been delivered as of the date so delivered: 

    
      
         

      

      
        -19-

        
          

        

      

      
         

      

    

    

    
      	
            	If
              to the Company:	
              Internet
                America, Inc.

            

    

    10930
      W.
      Sam Houston Pkwy, North

    Suite
      200

    Houston,
      Texas 77064

     

    
      	
            	With
              a copy to:	
              Mayer
                Brown LLP

            

    

    700
      Louisiana, Suite 3600

    Houston,
      Texas 77002-2730

    Attn:
      Robert F. Gray, Jr.

    Facsimile:
      (713) 238-4600

    

    
      	
            	If
              to an Investor: 	
              To
                the address set forth immediately below such Investor’s name on the
                signature pages to the Subscription Agreement delivered by such Investor
                to the Company on or prior to the date
                hereof.

            

    

     

    
      	
            	With
              a copy to:	
              Fulbright &
                Jaworski L.L.P.

            

    

    1301
      McKinney St., Ste 5100

    Houston,
      Texas 77010

    Attention:
      Charles D. Powell

    Facsimile:
      (713) 651-5246

     

    or
      at
      such other address as any party shall have furnished to the other parties in
      writing.

    

    (e) Delays
      or Omissions.
      No
      delay or omission to exercise any right, power or remedy accruing to any Holder
      of any Registrable Securities, upon any breach or default of the Company under
      this Agreement, shall impair any such right, power or remedy of such Holder
      nor
      shall it be construed to be a waiver of any such breach or default, or an
      acquiescence therein, or of or in any similar breach or default thereunder
      occurring; nor shall any waiver of any single breach or default be deemed a
      waiver of any other breach or default theretofore or thereafter occurring.
      Any
      waiver, permit, consent or approval of any kind or character on the part of
      any
      Holder of any breach or default under this Agreement, or any waiver on the
      part
      of any Holder of any provisions or conditions of this Agreement, must be in
      writing and shall be effective only to the extent specifically set forth in
      such
      writing. All remedies, either under this Agreement, or by law or otherwise
      afforded to any holder, shall be cumulative and not alternative.

    

    (f) Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      enforceable against the parties actually executing such counterparts, and all
      of
      which together shall constitute one instrument.

    

    (g) Severability.
      In the
      case any provision of this Agreement shall be invalid, illegal or unenforceable,
      the validity, legality and enforceability of the remaining provisions shall
      not
      in any way be affected or impaired thereby.

    
      
         

      

      
        -20-

        
          

        

      

      
         

      

    

    

    

    (h) Amendments.
      The
      provisions of this Agreement may be amended at any time and from time to time,
      and particular provisions of this Agreement may be waived, with and only with
      an
      agreement or consent in writing signed by the Company and by the holders of
      a
      majority of the number of shares of Registrable Securities outstanding as of
      the
      date of such amendment or waiver. The Investors acknowledge that by the
      operation of this Section 10(h), the holders of a majority of the outstanding
      Registrable Securities may have the right and power to diminish or eliminate
      all
      rights of the Investors under this Agreement.

    

    [Signature
      Pages Follow]

    

    
      
         

      

      
        -21-

        
          

        

      

      
         

      

    

    This
      Registration Rights Agreement is hereby executed as of the date first above
      written.

    

    COMPANY:

    

    Internet
      America, Inc.

    

    

    /s/
      William E . Ladin   

    William
      E. Ladin

    Chairman
      and Chief Executive Officer

    

     

    [Investor
      Signature Pages Follow] 

    
      
         

      

      
        -22-

        
          

        

      

      
         

      

    

     

    INVESTOR:

     

    

    ____________________________________

    Name

    

    ____________________________________

    Signature

    
      
         

      

      
        -23-

        
          

        

      

      
         

      

    

    EXHIBIT
      A TO THE REGISTRATION RIGHTS AGREEMENT INTENTIONALLY
      OMITTED.

    

    

     

    
      
         

      

      
        -24-

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