Document:

EXHIBIT
      10.4

    

    PLACEMENT
      AGENCY AGREEMENT

    

    January
      16, 2007

    

    Pace
      Health Management Systems, Inc.

    666
      Walnut Street, Suite 2116

    Des
      Moines, IA 50309

    

    Ladies
      and Gentlemen:

    

    This
      Placement Agency Agreement (the “Agreement”)
      confirms the retention by PACE
      Health Management Systems, Inc.,
      an Iowa
      corporation (“Pace”
or
      the
“Company”),
      of
      Maxim Group LLC (the
      “Placement
      Agent”),
      to
      act as the placement agent on a “best efforts” basis in connection with the
      private placement (the “Placement”)
      of
      Units (as defined below) on the terms set forth below. As a condition to the
      closing of the Placement, the Stock Purchase Agreement and amendment thereto
      entered into among Pace, Conmed, Inc. (“Conmed”)
      and
      the other parties named therein (the “Stock
      Purchase Agreement”)
      pursuant to which Pace shall acquire all of the outstanding capital stock of
      Conmed (the “Acquisition”)
      shall
      have been, simultaneously with the closing of the Placement, consummated
      pursuant to the terms of the Stock Purchase Agreement and as described in the
      Offering Documents (as defined below).

    

    1.    PLACEMENT

    

    (a)    The
      securities of the Company which are the subject of the Placement shall consist
      of no less than Ten Million Dollars ($10,000,000) (the “Minimum
      Amount”)
      and no
      more than Fifteen Million Dollars ($15,000,000) (the “Maximum
      Amount”)
      of
      Units (the “Units”),
      each
      Unit consisting of: (1) 100 shares (the “Shares”)
      of
      Series B Convertible Preferred Stock, no par value, of Pace (the “Preferred
      Stock”),
      (2) a
      common stock purchase warrant entitling the holder to purchase up to 10,000
      shares of Common Stock at an exercise price of $0.30 per share and (3) a common
      stock purchase warrant entitling the holder to purchase up to 3,320 shares
      of
      Common Stock at an exercise price equal to $2.50 per share (collectively the
      “Warrants”)
      at a
      purchase price of $100,000 per Unit, or $1,000 per share of Series B Preferred
      Stock (the “Purchase
      Price”).
      The
      Preferred Stock shall be convertible by the holder thereof, at any time
      following approval by the shareholders of the Company of the Plan of
      Recapitalization described in the Memorandum, into four hundred (400) shares
      of
      common stock, no par value per share, of Pace (the “Common
      Stock”).
      The
      conversion rate of 400 for 1 assumes the prior effectiveness of the 1 for 20
      reverse stock split which the Company covenants to effect as soon as practical
      after consummation of the Acquisition described in the Confidential Private
      Placement Memorandum dated January 16, 2007 (the “Memorandum”)
      pursuant to which the Units are being offered by the Company. The Units, the
      Shares, the Warrants, the Placement Agent Warrants (defined below) and the
      shares of Common Stock issuable upon conversion of the Preferred Stock and
      the
      exercise of the Warrants (the “Warrant
      Shares”)
      and
      the Placement Agent Warrants (the “Placement
      Agent Shares”),
      are

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

      
        		
                Pace
                  Health Management Systems, Inc.

                January
                  16, 2007

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    referred
      to herein as the “Securities,”
which
      Securities shall be issued to the investor(s) in the Placement (an “Investor”
or
      the
“Investors”)
      or the
      Placement Agent, respectively. Subscriptions for the Units shall be accepted
      in
      minimum increments of $100,000; provided that the Company and the Placement
      Agent may agree, in their discretion, to allow subscriptions in smaller
      increments. The terms of the Securities shall be as set forth in the Offering
      Documents (as defined below). 

    

    (b)    The
      Placement will be made by the Company solely pursuant to the Offering Documents
      (as defined below). The Securities will not be registered under the Securities
      Act of 1933, as amended, or any applicable successor statute (the “Act”),
      but
      will be issued in reliance on the private offering exemption available under
      Section 4(2) of the Act and the rules and regulations promulgated thereunder,
      including Regulation D (“Regulation
      D”).
      The
      Placement Agent understands that all subscriptions for Units are subject to
      acceptance by the Company. The Company and the Placement Agent reserve the
      right
      in their reasonable discretion to accept or reject any or all subscriptions
      for
      Units in whole or in part, regardless whether any funds have been deposited
      into
      an escrow account. Any subscription monies received by the Placement Agent
      from
      Investors will be handled in accordance with Rule 15c2-4 under the Securities
      Exchange Act of 1934, as amended (the “Exchange
      Act”),
      whether or not the Placement Agent is subject to the Exchange Act, and as
      otherwise may be prescribed by the terms of the Offering Documents (as defined
      in Section 2 below).

    

    (c)    Until
      the
      Closing (as defined below) is held, all subscription funds received shall be
      held by Continental Stock Transfer & Trust Company (the “Escrow
      Agent”).
      The
      Placement Agent shall not have any independent obligation to verify the accuracy
      or completeness of any information contained in any Subscription Documents
      (as
      defined in Section 2 below) or the authenticity, sufficiency or validity of
      any
      check delivered by any prospective Investor in payment for the Units, nor shall
      the Placement Agent incur any liability with respect to any such verification
      or
      failure to verify. All subscription checks and funds shall be promptly and
      directly delivered without offset or deduction to the Escrow Agent.

    

    2.    OFFERING
      MEMORANDUM AND RELATED MATTERS

    

    (a)    The
      Company has prepared offering documents, including a Confidential Private
      Placement Memorandum and the Subscription Documents (defined below), relating
      to
      the Company and the Placement (such documents, together with the exhibits and
      attachments thereto or available thereunder or delivered to potential investors
      in connection with the Placement and any amendments or supplements thereto
      prepared and furnished by the Company, including Pace’s reports and other
      filings with the Securities and Exchange Commission (the “SEC”)
      attached as exhibits to the Confidential Private Placement Memorandum (the
      “SEC
      Documents”),
      being
      referred to herein as the “Offering
      Documents”),
      which, among other things, describes the Placement, the Acquisition and certain
      investment risks relating thereto. 

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

                January
                  16, 2007

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    (b)    The
      Company has been and will continue to be responsible for preparing and filing
      required documentation, if any, with the authorities in the United States or
      any
      state located therein (and subsequent to, if required by the laws of any such
      jurisdiction) in connection with the distribution of the Offering Documents
      to
      prospective Investors (the parties acknowledging, however, that the Placement
      of
      the Units is intended and expected to be wholly or partially exempt from filing
      requirements in the United States by reason of an “accredited investor”
exemption).

    

    (c)    The
      Placement Agent and its counsel and the Company and its counsel have or will
      jointly prepare forms of subscription agreement and securities purchase
      agreements (“SPAs”,
      and
      collectively with the subscription agreements, the “Subscription
      Agreement”)
      and a
      form of purchaser questionnaire (collectively with the Subscription Agreement,
      and any other stock purchase or other documents required in connection with
      the
      Placement, including the Escrow Agreement to be entered into with the Escrow
      Agent, the “Subscription
      Documents”),
      which
      Subscription Documents shall contain such representations, warranties,
      conditions and covenants as are customary in private placements of corporate
      debt and equity securities with United States accredited investors. The
      Placement Agent and its counsel have had or will have an opportunity to review
      the final form of the Offering Documents prior to the distribution thereof
      to
      prospective Investors, and the Offering Documents will be the only offering
      documents (other than cover letters which may be used by the Placement Agent,
      and any documents made available to Investors in accordance with the terms
      of
      the Offering Documents) shown to prospective Investors. The Company and its
      counsel will advise the Placement Agent and its counsel in writing of those
      jurisdictions in which the Shares may lawfully be offered and sold, and the
      manner in which the Shares may lawfully be offered and sold in each such
      jurisdiction in connection with the Placement, and
      the
      Placement Agent agrees that the Shares will be offered or sold only in such
      jurisdictions and in the manner specified by the Company; provided,
      however,
      that
the
      Placement Agent shall not be responsible for independently verifying such
      written advice with respect to the jurisdictions in which the Shares
      may be
      offered and sold and with respect to the manner in which the Shares
      may be
      offered and sold in such jurisdictions.
      Notwithstanding the foregoing, the Placement Agent shall determine whether
      it is
      licensed to offer and sell the Shares in each jurisdiction in which it intends
      to do so.

    

    (d)    The
      Placement will be made in accordance with the requirements of Section 4(2)
      under
      the Act and/or Regulation D only to investors that qualify as accredited
      investors, as defined in Rule 501(a) under the Act (“Accredited
      Investors”),
      purchasing for their own account for investment purposes only and not for
      distribution in violation of securities laws. Furthermore, prospective Investors
      will have been provided the Offering Documents and access to the management
      of
      the Company and afforded the opportunity to ask questions.

    

    (e)    The
      Company recognizes, agrees and confirms that the Placement Agent (or any selling
      agent permitted to be utilized by the Placement Agreement under Section 3(a)
      hereof): (i) will use and rely primarily on the information contained in the
      Offering Documents in performing the services contemplated by this Agreement
      without having independently verified the same; (ii) is authorized, as the
      Company’s exclusive financial advisor and placement agent in connection
      with

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

                January
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    the
      Placement, to transmit to any prospective Investor a copy or copies of the
      Offering Documents and any other documentation supplied to the Placement Agent
      for transmission to any prospective Investor by or on behalf of the Company
      or
      by any of the Company’s officers, representatives or agents, in connection with
      the performance of the Placement Agent’s services hereunder or any transaction
      contemplated hereby; (iii) does not assume responsibility for the accuracy
      or
      completeness of any information contained in the Offering Documents or any
      such
      other information; (iv) will not make an appraisal of the Company or any assets
      of the Company or the securities being offered by the Company in the Placement;
      and (v) retains the right to continue to perform due diligence of the Company
      during the course of the Company’s engagement of the Placement
      Agent.

    

    3.    PLACEMENT
      AGENT

    

    (a)    The
      Company hereby employs the Placement Agent during the Offered Period (as defined
      below) as its exclusive placement agent in the United States for the purpose
      of
      placing the Units for the account and risk of the Company. This appointment
      shall be exclusive with respect to the Placement and otherwise as provided
      herein, and the Company shall not have the right to appoint additional sales
      agents in the United States without the Placement Agent’s express prior written
      consent. The Company hereby agrees that the Placement Agent shall have the
      right
      to utilize other selling broker-dealers in connection with the Placement of
      the
      Units on terms approved by the Placement Agent. Subject to the provisions of
      Section 5 hereof and to the performance by the Company of all of its obligations
      to be performed hereunder, the Placement Agent agrees to use its best efforts
      to
      assist in arranging for sales of Units. The Company recognizes that “best
      efforts” does not assure that the Placement will be consummated. It is
      understood and agreed that this Agreement does not create any partnership,
      joint
      venture or other similar relationship between or among the Placement Agent
      and
      the Company, and that the Placement Agent is acting only as a sales
      agent.

    

    (b)    For
      the
      services of the Placement Agent hereunder, the Company will pay or caused to
      be
      paid to the Placement Agent at any Closing the following fees:

    

    (i)    a
      cash
      payment equal to 10% of the gross proceeds received by the Company from the
      sale
      of the Units, payable at each Closing in lawful money of the United States
      by
      check or wire transfer of immediately available funds; and

     

    (ii)    $55,000
      for all out-of-pocket expenses, including the reasonable fees and expenses
      of
      counsel to the Placement Agent, whether or not the Placement is consummated,
      as
      well as any fees in connection with any Blue Sky filings; such expenses to
      be
      paid at the Initial Closing, payable in lawful money of the United States by
      check or wire transfer of immediately available funds (with blue sky filing
      fees
      paid as incurred); and

     

    (iii)    a
      warrant
(the
      “Placement
      Agent Warrants”)
      to
      purchase a number of shares of Common Stock, equal to five percent (5%) of
      the
      number of shares issuable upon

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

                January
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    conversion
      of the Shares sold in the Placement. Such Placement Agent Warrants will be
      issued at each Closing and shall provide, among other things:

     

    
      	
            	(A)	
              that
                the Placement Agent Warrants shall:

            

    

     

    (1)    be
      exercisable at an initial exercise price of $2.75;

     

    (2)    expire
      five (5) years from the date of issuance; and

     

    (3)    be
      non-redeemable,

     

    
      	 	
              (B)

            	
              for
                registration rights on the same terms granted to the Investors (other
                than
                provisions for liquidated damages),

            

    

     

    
      	 	
              (C)

            	
              for
                the ability of a cashless exercise of the warrants included in the
                Placement Agent Warrants, and 

            

    

     

    
      	 	
              (D)

            	
              for
                such other terms as are normal and customary for warrants issued
                to
                placement agents, including, without limitation, standard anti-dilution
                protections.

            

    

     

    (c)    Notwithstanding
      any termination of this Agreement pursuant to the terms hereof or otherwise,
      if
      on or before the twelve (12) month anniversary of the final Closing, the Company
      or any successor or subsidiary of the Company, enters into a commitment or
      letter of intent relating to any offering of debt or equity securities of the
      Company or any other financing: with any financing source to whom the Company
      was introduced by the Placement Agent or who was contacted by Placement Agent
      in
      connection with its services for the Company hereunder, the Company shall pay
      to
      the Placement Agent, at the closing of any such offering or financing, the
      fees
      described in, and in accordance with the terms and provisions of, Section
      3(b)(i) and (iii) above.

    

    (d)    The
      Engagement Letter dated May 25, 2006 between the Company and the Placement
      Agent
      (the “Engagement
      Letter”),
      and
      the obligations and liabilities thereunder shall be superseded by this
      Agreement. 

    

    (e)    Upon
      receipt by the Company from a proposed Investor of completed Subscription
      Documents, and such other documents as the Company requests, the Company and
      the
      Placement Agent will determine in their reasonable joint discretion whether
      they
      wish to accept or reject the subscription, in whole or in part.

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

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      4.    PAYMENT
        BY COMPANY OF EXPENSES

    

    

    The
      Company will pay for, whether or not any Units are sold in connection with
      the
      Placement, all
      expenses relating to the Placement, including, without limitation: (i)
      the
      preparation, printing, reproduction, filing, distribution and mailing of the
      Offering Documents and all other documents relating to the Placement, and any
      supplements or amendments thereto, including the fees and expenses of counsel
      to
      the Company, and the cost of all copies thereof; (ii) the issuance, sale,
      transfer and delivery of the Units, and the Securities contained therein,
      including any transfer or other taxes payable thereon and the fees of any
      transfer agent or registrar; (iii) the public registration and listing of,
      or
      registration and qualification of the Securities or the securing of an exemption
      therefrom under state of foreign “blue sky” or securities laws, including,
      without limitation, filing fees payable in the jurisdictions in which such
      registration or qualification or exemption therefrom is sought, the costs of
      preparing preliminary, supplemental and final “blue sky surveys” relating to the
      offer and sale of the Securities and the fees and disbursements of counsel
      to
      the Placement Agent in connection with such “blue sky” matters, (iv) the filing
      fees in connection with filings required by the applicable securities regulatory
      authorities, including filings with the National Association of the Securities
      Dealers; Inc. in connection with the Placement and the registration for resale
      of the Securities with the SEC on behalf of the Investors; (v) all Escrow Agent
      fees; and (vi) all
      road
      show expenses, travel, legal, and other related expenses of the Company.
Notwithstanding
      the limitation set forth in Section 3(b)(ii), the Company shall be responsible
      for the payment of the fees and expenses, including legal fees and expenses,
      described under clauses (iii), (iv) and (v) of this Section. In addition, the
      Company will be responsible for the expenses of the Placement Agent subject
      to
      the limitations of Section 3(b)(ii). 

    

    5.    TERMINATION
      OF PLACEMENT

    

    Notwithstanding
      the Offering Period set forth in Section 6 of this Agreement, the Placement
      may
      be terminated immediately by the Placement Agent upon giving written notice
      to
      the Company, but only in the event that:

    

    (a)    in
      the
      opinion of the Placement Agent, the Offering Documents contain an untrue
      statement of a material fact or omits to state a material fact required to
      be
      stated therein or necessary in order to make the statements appearing therein
      not misleading in the light of the circumstances in which they were made, and
      the Company shall not have corrected such untrue statement or omission to the
      reasonable satisfaction of the Placement Agent and its counsel within ten (10)
      days after the Company receives notice of such untrue statement or omission,
      provided that notwithstanding such ten (10) day period, the Closing (as defined
      in Section 6 below) shall not occur hereunder until the Placement Agent shall
      notify the Company that it is satisfied, in its reasonable determination, that
      the Company has taken such steps (including circulating amended offering
      materials and afforded prospective Investors a reasonable opportunity to review
      such amendments) to allow the Closing to occur; or

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

                January
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    (b)    the
      Company shall be in material breach of any representation, warranty or covenant
      made by it in this Agreement, any Offering Document or any other document
      relating to the Placement; or

    

    (c)(i)    any
      calamitous domestic or international event or act or occurrence has taken place
      and, in the Placement Agent’s opinion, has or will materially disrupt general
      securities markets in the United States in the immediate future; or (ii) if
      trading on the New York Stock Exchange, the American Stock Exchange, or in
      the
      over-the-counter market shall have been suspended or minimum or maximum prices
      for trading shall have been fixed, or maximum ranges for prices for securities
      shall have been required on the over-the-counter market by the National
      Association of Securities Dealers, Inc. (“NASD”)
      or by
      order of the SEC or any other government authority having jurisdiction; or
      (iii)
      if the United States shall have become involved in a war, major hostilities,
      acts of terrorism or the like; or (iv) if a banking moratorium has been declared
      by a New York State or federal authority; or (v) if the Company shall have
      sustained a material loss, whether or not insured, by reason of fire, flood,
      accident or other calamity; or (vii) if there shall have been such material
      adverse change in the conditions or prospects of the Company, involving a change
      not contemplated by the Offering Documents; or (viii) if there shall have been
      such material adverse general market conditions as in the Placement Agent’s
      reasonable judgment would make it inadvisable to proceed with the Placement
      or
      the sale or delivery of the Units. 

    

    In
      the
      event of any such termination pursuant to this Section 5, the Placement Agent
      shall be entitled to receive, in addition to other rights and remedies it may
      have hereunder, at law or otherwise, an amount equal to the sum of (A) all
      Placement Agent’s fees in accordance with Section 3 and (B) the fees and
      expenses incurred by the Placement Agent in connection with the Placement in
      accordance with Section 4 subject to the limitations in Section
      3(b)(ii).

    

    6.    OFFERING
      PERIOD; CLOSINGS

    

    (a)    Subject
      to the terms and conditions set forth in Sections 5 and 10 hereof, the Shares
      will be offered for a period beginning from the date hereof and ending on the
      earliest to occur of (i) January 31, 2007 (which date may be extended to
      February 15, 2007 by the parties), (ii) such time as the Company and the
      Placement Agent shall agree; (iii) the Placement is terminated by the Company
      and/or the Placement Agent in accordance with the terms hereof; and (iv) the
      date on which full subscription for an acceptance by the Company of the Maximum
      Amount (such period, the “Offering
      Period”).
      If
      any Shares have been subscribed for and accepted by the Company at any time
      during the Offering Period representing the Minimum Amount, the Company will
      promptly conduct a closing on such Shares. Thereafter, additional closings
      (together with any initial closing, each, a “Closing”)
      will
      occur until the first to occur of: (i) the full subscription for an acceptance
      by the Company of the Maximum Amount, (ii) the conclusion of the Offering
      Period, or (iii) the termination of the Placement or this Agreement. Any Closing
      shall be undertaken in a manner agreed to by the Company and the Placement
      Agent. The date upon which a Closing is held shall hereinafter be referred
      to as
      the “Closing
      Date.”
      Notwithstanding the foregoing, the Company

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

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      and
        the
        Placement understand and agree that the initial Closing shall be for not
        less
        than the Minimum Amount. 

    

    

    (b)    At
      any
      Closing, the Company shall deliver to the Investors certificates representing
      the Shares, duly executed by the Company, together with Warrants and such other
      closing documentation as may be required in order to affect the
      Closing.

    

    7.    REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY

    

    The
      Company represents and warrants to the Placement Agent that all representations
      and warranties (i) of Conmed and Pace in the Stock Purchase Agreement and (ii)
      of Conmed and Pace in any SPA or Subscription Agreement with any investor in
      the
      Placement, including but not limited to a SPA with LB I Group, Inc. dated
      January 26, 2007, are accurate and complete and the Placement Agent and the
      Investors, as intended third party beneficiaries, may rely on such
      representations and warranties as if made directly to them. Conmed and Pace
      have
      substantially complied with all covenants and other obligations to which they
      are bound under the Stock Purchase Agreement. The transactions contemplated
      by
      the Stock Purchase Agreement are being consummated as described in the Offering
      Documents, simultaneously with the closing of any SPA or Subscription Agreement
      with Investors.

    

    8.    REPRESENTATIONS,
      WARRANTIES AND COVENANTS OF THE PLACEMENT
      AGENT

    

    The
      Placement Agent hereby represents and warrants to, and covenants with, the
      Company that:

    

    (a)    This
      Agreement has been duly authorized, executed and delivered by the Placement
      Agent and constitutes the legal, valid and binding obligation of the Placement
      Agent, enforceable against it in accordance with its terms, except insofar
      as
      enforcement of the indemnification or contribution provisions hereof may be
      limited by applicable laws or principles of public policy and subject, as to
      enforcement, to the availability of equitable remedies and limitations imposed
      by bankruptcy, insolvency, reorganization and other similar laws and related
      court decisions relating to or affecting creditors’ rights
      generally.

    

    (b)(i)    Sales
      of
      Units by the Placement Agent will be made only in such jurisdictions in which:
      (i) the Placement Agent is a registered broker-dealer; and (ii) the Placement
      Agent has been advised by counsel that the offering and sale of the Units is
      registered under, or is exempt from registration under, applicable
      laws.

     

    (ii)Offers
      and sales of Units by the Placement Agent will be made in compliance with the
      provisions of Regulation D under the Act and/or Section 4(2) of the Act, and
      the
      Placement Agent shall furnish to each investor a copy of the Offering Documents
      (including all Schedules and Exhibits thereto) prior to accepting any payments
      for Units.

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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                  Health Management Systems, Inc.

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    (c)    The
      Placement Agent is: (i) a registered broker-dealer under the Exchange Act;
      (ii)
      a member in good standing of the NASD; and (iii) registered as a broker-dealer
      in each jurisdiction in which it is required to be registered as such in order
      to offer and sell the Units in such jurisdiction.

     

    (d)    The
      Placement Agent will periodically notify the Company of the jurisdiction in
      which it intends the Securities to be offered by it or will be offered by it
      pursuant to this Agreement, and will periodically notify the Company of the
      status of the offering conducted pursuant to this Agreement.

    

    9.    COVENANTS

    

    The
      Company covenants to the Placement Agent that it shall:

    

    (a)    Notify
      the Placement Agent as soon as practicable, and confirm such notice promptly
      in
      writing: (i) when any event shall have occurred during the period commencing
      on
      the date hereof and ending on the final Closing Date as a result of which the
      Offering Documents would include any 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, and (ii) of the receipt of any
      notification with respect to the modification, rescission, withdrawal or
      suspension of the qualification or registration of the Securities or of an
      exemption from such registration or qualification in any jurisdiction. The
      Company will use its reasonable best efforts to prevent the issuance of any
      such
      modification, rescission, withdrawal or suspension and, if any such
      modification, rescission, withdrawal or suspension is issued, to obtain the
      lifting thereof as promptly as possible.

    

    (b)    Not
      supplement or amend the Offering Documents unless the Placement Agent and its
      counsel shall have approved of such supplement or amendment in writing, such
      approval not to be unreasonably withheld, delayed or conditioned. If, at any
      time during the period commencing on the date hereof and ending on the final
      Closing Date, any event shall have occurred as a result of which the Offering
      Documents contain any 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, or if, in the opinion of counsel to the Company or
      counsel to the Placement Agent, it is necessary at any time to supplement or
      amend the Offering Documents to comply with the Act, Regulation D or any
      applicable securities or “blue sky” laws, the Company will promptly prepare an
      appropriate supplement or amendment (in form and substance reasonably
      satisfactory to the Placement Agent and its counsel) which will correct such
      statement or omission or which will effect such compliance.

    

    (c)    Deliver
      without charge to the Placement Agent such number of copies of the Offering
      Documents and any supplement or amendment thereto as may reasonably be requested
      by the Placement Agent.

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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    (d)    Not,
      directly or indirectly, in connection with the Placement or as otherwise agreed
      to in this Agreement, solicit any offer to buy from, or offer to sell to, any
      person or entity any Securities or other securities of the Company except
      through the Placement Agent. 

    

    (e)    Not
      solicit any offer to buy or offer to sell Securities by any form of general
      solicitation or advertising, including, without limitation, any advertisement,
      article, notice or other communication published in any newspaper, magazine
      or
      similar medium or broadcast over the Internet, television or radio or at any
      seminar or meeting whose attendees have been invited by any general solicitation
      or advertising.

    

    (f)    At
      all
      times during the period commencing on the date hereof and ending on the date
      of
      the final Closing, provide to each prospective Investor or his purchaser
      representative, if any, on reasonable request, such information (in addition
      to
      that contained in the Offering Documents) concerning the Placement, the Company,
      the Securities and any other relevant matters as it possesses or can acquire
      without unreasonable effort or expense and extend to each prospective investor
      or his purchaser representative, if any, the opportunity to ask questions of,
      and receive answers from the Company concerning the terms and conditions of
      the
      Placement and the business of the Company and to obtain any other additional
      information, to the extent it possesses the same or can acquire it without
      unreasonable effort or expense, as such prospective Investor or purchaser
      representative may consider necessary in making an informed investment decision
      or in order to verify the accuracy of the information furnished to such
      prospective Investor or purchaser representative, as the case may
      be.

    

    (g)    Notify
      the Placement Agent promptly of the acceptance or rejection of any subscription.
      

    

    (h)    File
      five
      (5) copies of a Notice of Sales of Securities on Form D with the SEC no later
      than 15 days after the first sale of the Units, if required by law. The Company
      shall file promptly such amendments to such Notices on Form D as shall become
      necessary and shall also comply with any filing requirement imposed by the
      laws
      of any province or jurisdiction in which offers and sales are made. The Company
      shall furnish the Placement Agent with copies of all such filings.

    

    (i)    Place
      the
      following or similar legend on all certificates representing the
      Securities:

    

    “THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
      NOR
      ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
      DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
      ACT OR SUCH LAWS OR AN EXEMPTION FROM

    
      
        
        

      

      
        
        

        
          

        

      

      		
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    REGISTRATION
      UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THIS
      CORPORATION, IS AVAILABLE.”

    

    (j)    Not,
      directly or indirectly, engage in any act or activity which may jeopardize
      the
      status of the offering and sale of the Units as exempt transactions under the
      Act or under the securities or “blue sky” laws of any jurisdiction in which the
      Placement may be made. 

    

    (k)    Apply
      the
      net proceeds from the sale of the Units for the purposes set forth under the
      caption “Use of Proceeds” in the Offering Documents in the manner indicated
      thereunder. 

    

    (l)    Except
      as
      required by law, not, during the period commencing on the date hereof and ending
      on the Closing Date, issue any press release or other communication or hold
      any
      press conference with respect to the Company, its financial condition, results
      of operations, business properties, assets, liabilities or future prospects
      of
      the Placement, without the prior written consent of the Placement Agent, which
      consent will not be unreasonably withheld.

    

    (m)    Not,
      prior
      to the completion of the Placement, bid for, purchase, attempt to induce others
      to purchase, or sell, directly or indirectly, any shares of Common Stock or
      any
      other securities in violation of the provisions of Regulation M under the
      Exchange Act.

    

    (n)    The
      Company will include all the shares of Common Stock underlying the Preferred
      Shares, the Warrants and the Placement Agent Warrants in a registration
      statement of its securities under the Act to be filed with the SEC pursuant
      to
      the terms of the Subscription Agreements.

    

    (o)    So
      long
      as the Securities are “restricted securities” within the meaning of Rule
      144(a)(3) under the Act, the Company, during any period in which it is not
      subject to and in compliance with Section 13 or 15(d) of the Exchange Act,
      or is
      not exempt from such reporting requirements pursuant to and in compliance with
      Rule 12g3-2b under the Exchange Act, provide to each holder of Securities and
      to
      each prospective purchaser (as designated by such holder) of Securities, upon
      the request of such holder or prospective holder, any information required
      to be
      provided by Rule 144A(d)(4) under the Act.

    

    (p)    The
      Company will initially invest the proceeds of the Placement and all other funds
      of the Company in such a manner so as to cause the Company not to be subject
      to
      the United States Investment Company Act of 1940, as amended (the “1940
      Act”),
      and
      will thereafter use its best efforts to avoid the Company’s becoming subject to
      the 1940 Act.

    

    (q)    In
      addition to the foregoing, to the extent not set forth herein, the Placement
      Agent may rely on the covenants made by the Company in the SPAs and the other
      Subscription Documents used in connection with the Placement.

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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      10.    CONDITIONS
        OF THE PLACEMENT AGENT’S OBLIGATIONS

    

    

    The
      obligations of the Placement Agent pursuant to this Agreement shall be subject,
      in its discretion, to the continuing accuracy of the representations and
      warranties of the Company contained herein and in each certificate and document
      contemplated under this Agreement to be delivered to the Placement Agent or
      otherwise at any Closing (including, without limitation, all Subscription
      Documents), as of the date hereof and as of the Closing Date or the date of
      any
      Closing subsequent to the Closing Date, to the performance by the Company of
      its
      obligations hereunder, and to the following conditions:

    

    (a)    At
      the
      Closing, the Placement Agent shall have received the favorable opinion of
Ellenoff
      Grossman & Schole LLP,
      counsel
      for the Company, in the form and substance reasonably satisfactory to the
      Placement Agent and addressed to the Placement Agent and the Investors with
      respect to the Placement and the Acquisition. 

    

    (b)    If
      there
      is more than one Closing, then at each such Closing there shall be delivered
      to
      the Placement Agent updated opinions, certificates or other information
      described in this Section 10. 

    

    (c)    On
      or
      prior to or following the Closing Date, as the case may be, the Placement Agent
      shall have been furnished such information, documents and certificates as it
      may
      reasonably require for the purpose of enabling it to review the matters referred
      to in this Section 10 and in order to evidence the accuracy, completeness or
      satisfaction of any of the representations, warranties, covenants, agreements
      or
      conditions herein contained, or as it may otherwise reasonably request.

    

    (d)    The
      Company shall have delivered to the Placement Agent (i) a Good Standing
      Certificate from the Secretary of State of its jurisdiction of incorporation
      and
      each jurisdiction in which the Company and the Subsidiary are qualified to
      do
      business as a foreign corporation, and (ii) certified resolutions of the
      Company’s Board of Directors approving this Agreement and any other Offering
      Agreements and the transactions and agreements contemplated by this Agreement
      and any other Offering Agreements.

    

    (e)    At
      each
      Closing, the Placement Agent shall have received a certificate of all officers
      of the Company and the Subsidiary, dated, as applicable, as of the Closing
      Date
      or the date of such Closing, to the effect that, as of the date of this
      Agreement and as of the applicable date, the representations and warranties
      of
      the Company contained or incorporated herein were and are accurate, and that,
      as
      of the applicable date, the obligations to be performed by the Company hereunder
      on or prior thereto have been fully performed.

    

    (f)    All
      proceedings taken in connection with the issuance, sale and delivery of the
      Units, the Shares, the Warrants and the Placement Agent Warrants shall be
      reasonably satisfactory in form and substance to the Placement Agent and its
      counsel.

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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    (g)    Lock-up
      agreements from each of the following shareholders of the Company. John
      Pappajohn, Edgewater Private Equity Fund, L.P., Gainesborough LLC and Ann
      Vassilou.

    

    (h)    Any
      certificate or other document signed by any officer of the Company and delivered
      to the Placement Agent and its counsel as required hereunder shall be deemed
      a
      representation and warranty by the Company hereunder as to the statements made
      therein. If any condition to the Placement Agent’s obligations hereunder have
      not been fulfilled as and when required to be so fulfilled, the Placement Agent
      may terminate this Agreement or, if the Placement Agent so elects, in writing
      waive any such conditions which have not been fulfilled or extended the time
      for
      their fulfillment. In the event that Placement Agent elects to terminate this
      Agreement, Placement Agent shall notify the Company of such election in writing.
      Upon such termination, neither party shall have any further liability nor
      obligation to the other except as provided in Section 11 hereof.

    

    11.    INDEMNIFICATION

    

    (a)    The
      Company agrees to indemnify and hold harmless the Placement Agent, any person
      who controls the Placement Agent within the meaning of the Act, Section 20(a)
      of
      the Exchange Act or any applicable statute, and each partner, director, officer,
      employee, agent and representative of the Placement Agent and its
      representatives from and against any loss, damage, expense, liability or claim,
      or actions or proceedings in respect thereof (including, without limitation,
      reasonable attorneys’ fees and expenses incurred in investigating, preparing or
      defending against any litigation commenced) which any such person may incur
      or
      which may be made or brought against any such person arising out of or based
      upon: (i) any breach of any of the agreements, representations or warranties
      of
      the Company contained in or contemplated by this Agreement or the Offering
      Documents, including, without limitation, those arising out of or based on
      any
      alleged untrue statement of a material fact contained in the Offering Documents
      or omission to state a material fact required to be stated in the Offering
      Documents or necessary in order to make the statements appearing therein not
      misleading in the light of the circumstances in which they were made, (ii)
      any
      violation of any federal or state securities laws attributable to the Placement,
      (iii) any violation of law by the Company or any affiliate thereof, or any
      director, officer, employee, agent or representative of any of them, related
      to
      or arising out of the Placement or (iv) the Placement Agent’s entering into
      or performing services under this Agreement, or arising out of any other matter
      referred to in this Agreement. This indemnity agreement by, and the agreements,
      warranties and representations of, the Company shall survive the offer, sale
      and
      delivery of the Units and the termination of this Agreement and shall remain
      in
      full force and effect regardless of any investigation made by or on behalf
      of
      any person indemnified hereunder, and termination of this Agreement and
      acceptance of any payment for the Units hereunder.

    

    (b)    The
      Placement Agent agrees to indemnify and hold harmless the Company and its
      affiliates, any person who controls any of them within the meaning of the Act,
      Section 20(a) of the Exchange Act or any applicable statute, and each officer,
      director, employee, agent and representative of the Company or any of its
      affiliates from and against any loss, damage, expense,

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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    liability
      or claim or actions or proceedings in respect thereof (including, without
      limitation, reasonable attorneys’ fees and expenses incurred in investigating,
      preparing or defending against any litigation commenced) which any such person
      may incur or which may be made or brought against any such person, but only
      to
      the extent the same arises out of or is based upon: (i) any breach of any of
      the
      agreements, representations or warranties of the Placement Agent contained
      in
      this Agreement, or (ii) any untrue statement of a material fact in any
      information provided to the Company in writing by the Placement Agent, expressly
      for use in and used in the Offering Documents. This indemnity agreement by,
      and
      the agreements, warranties and representations of, the Placement Agent shall
      survive the offer, sale and delivery of the Units and shall remain in full
      force
      and effect regardless of any investigation made by or on behalf of any person
      indemnified hereunder, and termination of this Agreement and acceptance of
      any
      payment for the Units hereunder.

    

    (c)    If
      any
      action is brought against a party (the “Indemnified
      Party”)
      in
      respect of which indemnity may be sought against one or more other parties
      (the
“Indemnifying
      Party”
or
      “Indemnifying
      Parties”),
      the
      Indemnified Party shall promptly notify the Indemnifying Party or Parties in
      writing of the institution of such action; provided,
      however,
      the
      failure to give such notice shall not release the Indemnifying Party or Parties
      from its or their obligation to indemnify the Indemnified Party hereunder except
      to the extent the Indemnifying Party actually incurs substantial damage by
      reason of such failure and shall not release the Indemnifying Party or Parties
      from any other obligations or liabilities to the Indemnified Party in any event.
      The Indemnifying Party or Parties may at its or their own expense elect to
      assume the defense of such action, including the employment of counsel
      reasonably acceptable to the Indemnified Party; provided,
      however,
      that no
      Indemnifying or Indemnified Party shall consent to the entry of any judgment
      or
      enter into any settlement by which the other party is to be bound without the
      prior written consent of such other party, which consent shall not be
      unreasonably withheld. In the event the Indemnifying Party or Parties assume
      a
      defense hereunder, the Indemnified Party shall be entitled to retain its own
      counsel in connection therewith and, except as provided below, shall bear the
      fees and expenses of any such counsel, and counsel to the Indemnified Party
      or
      Parties shall cooperate with such counsel to the Indemnifying Party in
      connection with such proceeding. If an Indemnified Party reasonably determines
      that there are or may be differing or additional defenses available to the
      Indemnified Party which are not available to the Indemnifying Party, or that
      there is or may be a conflict between the respective positions of the
      Indemnifying Party and of the Indemnified Party in conducting the defense of
      any
      action, then the Indemnifying Party shall bear the reasonable fees and expenses
      of any counsel retained by the Indemnified Party in connection with such
      proceeding. All references to the Indemnified Party contained in this Section
      11(c) include, and extend to and protect with equal effect, any persons who
      may
      control the Indemnified Party within the meaning of the Act, Section 20(a)
      of
      the Exchange Act or any applicable statute, any successor to the Indemnified
      Party and each of its partners, officers, directors, employees, agents and
      representatives. The indemnity agreements set forth in this Section 11 shall
      be
      in addition to any other obligations or liabilities of the Indemnifying Party
      or
      Parties hereunder or at common law or otherwise. Notwithstanding anything herein
      to the contrary, in no event shall the Placement Agent be obligated to indemnify
      any

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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      person
        or
        entity in an amount in excess of the gross consideration received by the
        Placement Agent for services rendered hereunder.

    

    

    (d)    If
      recovery is not available under the foregoing indemnification provisions of
      this
      Section 11, for any reason other than as specified therein, the party entitled
      to indemnification by the terms thereof shall be entitled to contribution to
      losses, damages, liabilities and expenses of the nature contemplated by such
      indemnification provisions. In determining the amount of such contribution,
      there shall be considered the relative benefits received by the Company on
      the
      one hand, and the Placement Agent on the other hand from the Placement (which
      shall be deemed to be the portion of the proceeds of the Placement realized
      by
      each party), the parties’ relative knowledge and access to information
      concerning the matter with respect to which the claim was asserted, the
      opportunity to correct and prevent any statement or omission, the relative
      culpability of the parties, the relative benefits received by the parties and
      any other equitable considerations appropriate under the circumstances. No
      party
      shall be liable for contribution with respect to any action or claim settled
      without its consent. Any party entitled to contribution will, promptly after
      receipt of notice of commencement of any action, suit or proceeding against
      such
      party in respect of which a claim for contribution may be made against another
      party or parties under this Section 11, notify such party or parties from whom
      contribution may be sought, but the omission to so notify such party or parties
      shall not relieve the party or parties from whom contribution may be sought
      from
      any obligation it or they may have under this Section 11 or otherwise. For
      purposes of this Section 11, each person, if any, who controls a party to this
      Agreement within the meaning of Section 15 of the Act or Section 20(a) of the
      Exchange Act shall have the same rights to contribution as that party to this
      Placement Agreement. Notwithstanding the foregoing, in no event will the
      aggregate contribution by the Placement Agent hereunder exceed the amount of
      fees actually received by the Placement Agent pursuant to this Agreement. The
      reimbursement, indemnity and contribution obligations of the Company hereinabove
      set forth shall be in addition to any liability which the Company may otherwise
      have and these obligations and the other provisions hereinabove set forth shall
      be binding upon and inure to the benefit of any successors, assigns, heirs
      and
      personal representatives of the Company, the Placement Agent and any other
      Indemnified Person.

    

    (e)    In
      any
      claim for indemnification for United States Federal or state securities law
      violations, the party seeking indemnification shall place before the court
      the
      position of: (i) the SEC and (ii) if applicable, any state securities
      commissioner or agency having jurisdiction with respect to the issue of
      indemnification for securities law violations.

    

    12.    MISCELLANEOUS

    

    (a)    The
      agreements set forth in this Agreement have been made and are made solely for
      the benefit of the Company, the Placement Agent, and the respective affiliates,
      heirs, personal representatives and permitted successors and assigns thereof,
      and except as expressly provided herein nothing expressed or mentioned herein
      is
      intended or shall be construed to give any other person, firm or corporation
      any
      legal or equitable right, remedy or claim under or in respect of this Agreement
      or any representation, warranty or agreement herein contained. The term
“successors and assigns” as used herein shall not include any purchaser of any
      Units merely because of such purchase.

    
      
        
          
          

        

        
          
          

          
            

          

        

        
          		
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    (b)    Neither
      party will be liable to the other by reason of any failure in performances
      of
      this Agreement if the failure arises out of the unavailability of third party
      communication facilities or energy sources or acts of God, acts of governmental
      authority, fires, strikes, delays in transportation, riots or war, or any cause
      beyond the reasonable control of such party.

     

    Any
      notice or other communication required or appropriate under the provisions
      of
      this Agreement shall be given in writing addressed as follows: (i) if to the
      Company, at the address set forth above, Attention: Dr. Richard Turner, with
      a
      copy to Ellenoff
      Grossman & Schole LLP, 370 Lexington Avenue, New York, New York
      10017;
      Attention: Barry I. Grossman, Esq. and (ii) if to the Placement Agent, Maxim
      Group Inc., 405 Lexington Avenue, New York, NY 10174, Attention: Mr. Andrew
      Scott; with a copy to Lowenstein Sandler PC, 65 Livingston Avenue, Roseland,
      New
      Jersey 07068, Attention: Steven M. Skolnick, Esq., or at such other address
      as
      any party may designate to the others in accordance with this Section
      12(c).

    

    (c)    This
      Agreement shall be governed and construed in accordance with the laws of the
      State of New York, without giving effect to conflicts of law provisions thereof.
      Each of the parties hereto hereby (i) irrevocably consents to the jurisdiction
      of the United States District Court for the Southern District of New York and
      any state court in the State of New York (and of the appropriate appellate
      courts from any of the foregoing) in connection with any suit, action or other
      proceeding (each a “Proceeding”) directly or indirectly arising out of or
      relating to this Agreement and (ii) irrevocably waives, to the fullest
      extent permitted by law, any objection that it may now or hereafter have to
      the
      laying of the venue of any such Proceeding in any such court or that any such
      Proceeding which is brought in any such court has been brought in an
      inconvenient forum. 

     

    (d)    This
      Agreement constitutes the entire agreement between the parties hereto with
      respect to the Placement and supersedes any and all prior agreements (including
      the Engagement Letter), and may be amended or modified only by a duly authorized
      writing signed by such parties. This Agreement may be executed in any number
      of
      counterparts and by facsimile, each of which shall be deemed an original and
      all
      of which shall constitute a single instrument.

    

    [signature
      page follows]

    
      
        
        

      

      
        
        

        
          

        

      

      
        		
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    This
      Placement Agency Agreement is executed and shall be effective as of January
      16,
      2007.

    

    Very
      truly yours,

     

    MAXIM
      GROUP LLC

     

     

    By: 
      /s/ Paul
      LaRosa                         

    Name:
      Paul LaRosa

    Title: 
      Managing Director

    

    ACCEPTED
      AND AGREED TO:

    

    PACE
      HEALTH MANAGEMENT SYSTEMS, INC.

    

    

    By: 
      /s/ John
      Pappajohn                   

    Name:
      John Pappajohn

    Title:
      President and CEOSECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      dated as of January 26, 2007, among Pace Health Management Systems, Inc., an
      Iowa corporation (the “Company”),
      and
      each purchaser identified on the signature pages hereto (each, including its
      successors and assigns, a “Purchaser”
and
      collectively the “Purchasers”)
      and
      listed on Annex
      A
      attached
      hereto along with each such Purchaser’s allocation hereunder.

     

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

     

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

     

    ARTICLE
      I

    DEFINITIONS

     

    1.1 Definitions.
      In
      addition to the terms defined elsewhere in this Agreement: (a) capitalized
      terms
      that are not otherwise defined herein have the meanings given to such terms
      in
      the Certificate of Designation (as defined herein), and (b) the following terms
      have the meanings set forth in this Section 1.1:

     

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

     

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

     

    “Business
      Day”
means
      any day except Saturday, Sunday, any day which shall be a federal legal holiday
      in the United States or any day on which banking institutions in the State
      of
      New York are authorized or required by law or other governmental action to
      close.

     

    “Certificate
      of Designation”
means
      the Certificate of Designation to be filed prior to the Closing by the Company
      with the Secretary of State of Iowa, in the form of Exhibit
      A
      attached
      hereto.

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock of the Company, no par value per share, and any other class
      of
      securities into which such securities may hereafter be reclassified or changed
      into.

     

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

     

    “Company
      Counsel”
means
      Ellenoff Grossman & Schole LLP, with offices located at 370 Lexington
      Avenue, New York, New York 10017. 

     

    “Conversion
      Price”
shall
      have the meaning ascribed to such term in the Certificate of
      Designation.

     

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

     

    “CONMED”
shall
      have the meaning ascribed to such term in Section 2.3(b)(iii).

     

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

     

    “Escrow
      Agent”
means
      Continental Stock Transfer & Trust Company, having an office at 17 Battery
      Place, New York, New York 10004.

     

    “Escrow
      Agreement”
means
      the escrow agreement entered into prior to the date hereof, by and among the
      Company, Maxim and the Escrow Agent pursuant to which the Purchasers, shall
      deposit Subscription Amounts with the Escrow Agent to be applied to the
      transactions contemplated hereunder.

     

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

    

    “Exempt
      Issuance”
means
      the issuance of (a) shares of Common Stock or options to employees, officers
      or
      directors of the Company pursuant to the hiring of any new employee or any
      bonus
      stock or option plan duly adopted for such purpose by a majority of the
      non-employee members of the Board of Directors of the Company or a majority
      of
      the members of a committee of non-employee directors established, (b) securities
      upon the exercise or exchange of or conversion of any Securities issued
      hereunder and/or other securities exercisable or exchangeable for or convertible
      into shares of Common Stock issued and outstanding on the date of this Agreement
      or as otherwise disclosed and set forth on Schedule
      3.1(g)
      attached
      hereto (including shares issuable pursuant to the Reverse Acquisition and as
      a
      result of the reorganization contemplated by the Shareholder Approval), provided
      that such securities have not been amended since the date of this Agreement
      to
      increase the number of such securities or to decrease the exercise, exchange
      or
      conversion price of such securities except pursuant to existing terms of such
      derivative securities as disclosed in the Disclosure Schedules to the Purchasers
      and (c) securities issued pursuant to acquisitions or strategic transactions
      approved by a majority of the disinterested directors of the Company, provided
      that any such issuance shall only be to a Person which is, itself or through
      its
      subsidiaries, an operating company and in which the Company receives benefits
      in
      addition to the investment of funds, but shall not include a transaction in
      which the Company is issuing securities primarily for the purpose of raising
      capital or to an entity whose primary business is investing in
      securities.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “FWS”
means
      Feldman Weinstein & Smith LLP with offices located at 420 Lexington Avenue,
      Suite 2620, New York, New York 10170-0002.

    

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

    

    “Indebtedness”
shall
      have the meaning ascribed to such term in Section 3.1(aa).

    

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

    

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

    

    “Lehman”
means
      LB I Group Inc.

    

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

     

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

    

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

    

    “Maxim”
shall
      mean Maxim Group, LLC.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Participation
      Maximum”
shall
      have the meaning ascribed to such term in Section 4.13. 

    

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

    

    “Preferred
      Stock”
means
      the up to 15,000 shares of the Company’s Series B Convertible Preferred Stock
      issued hereunder having the rights, preferences and privileges set forth in
      the
      Certificate of Designation, in the form of Exhibit
      A
      hereto.

    

    “Pre-Notice”
shall
      have the meaning ascribed to such term in Section 4.13. 

    

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

    

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

    

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

    

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

    

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

     

    “Required
      Minimum”
means,
      as of any date, the maximum aggregate number of shares of Common Stock then
      issued or potentially issuable in the future pursuant to the Transaction
      Documents, including any Underlying Shares issuable upon exercise or conversion
      in full of all shares of Preferred Stock and Warrants, ignoring any conversion
      or exercise limits set forth therein.

     

    “Reverse
      Acquisition”
shall
      have the meaning ascribed to such term in Section 2.3(b)(iii).

     

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

    

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

    

    “Securities”
means
      the Preferred Stock, the Warrants and the Underlying Shares.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

    

    “Shareholder
      Approval”
means
      the approval by the Company’s stockholders of: (i) a merger transaction with a
      wholly-owned Subsidiary of the Company for purposes of reincorporating the
      Company in the State of Delaware, (ii) a 1:20 reverse stock split or exchange
      ratio of the Common Stock, (iii) a name change to CONMED Healthcare Solutions,
      Inc., (iv) the adoption of a stock option plan in the form attached hereto
      as
Schedule
      1.1
      and (v)
      an increase in the number of authorized shares of Common Stock from 20,000,000
      to 40,000,000.

     

    “Short
      Sales”
means
      all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
      Act (but shall not be deemed to include the location and/or reservation of
      borrowable shares of Common Stock).

    

    “Stated
      Value”
means
      $1,000 per share of Preferred Stock.

    

    “Subscription
      Amount”
shall
      mean, as to each Purchaser, the aggregate amount to be paid for the Preferred
      Stock purchased hereunder as specified below such Purchaser’s name on the
      signature page of this Agreement and next to the heading “Subscription Amount”,
      in United States dollars and in immediately available funds.

    

    “Subsequent
      Financing”
shall
      have the meaning ascribed to such term in Section 4.13.

    

    “Subsequent
      Financing Notice”
shall
      have the meaning ascribed to such term in Section 4.13.

    

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

    

    “Super
      8-K”
shall
      have the meaning ascribed to such term in Section 3.1(y).

    

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

    

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

    

    “Transaction
      Documents”
means
      this Agreement, the Certificate of Designation, the Escrow Agreement, the
      Warrants, the Registration Rights Agreement and any other documents or
      agreements executed in connection with the transactions contemplated
      hereunder.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Transfer
      Agent”
means
      Wells Fargo Shareowner Services, with a mailing address of P.O. Box 64875,
      St.
      Paul, MN 55164-0875, and a facsimile number of (651) 450-4033, and any successor
      transfer agent of the Company.

    

    “Underlying
      Shares”
means
      the shares of Common Stock issued and issuable upon conversion of the Preferred
      Stock and exercise of the Warrants.

    

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

     

    “Warrants”
means
      collectively the common stock purchase warrants delivered to the Purchasers
      at
      the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
      be
      exercisable immediately following Shareholder Approval and have a term of
      exercise equal to 5 years, in the form of Exhibit
      E
      attached
      hereto.

     

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

     

    ARTICLE
      II

    PURCHASE
      AND SALE

     

    2.1
      Closing.
      On the
      Closing Date, upon the terms and subject to the conditions set forth herein,
      substantially concurrent with the execution and delivery of this Agreement
      by
      the parties hereto, the Company agrees to sell, and the Purchasers agree,
      severally and not jointly, to purchase up to an aggregate of, $15,000,000 of
      shares of Preferred Stock with an aggregate Stated Value equal to such
      Purchaser’s Subscription Amount and Warrants as determined pursuant to Section
      2.2(a). The aggregate number of shares of Preferred Stock sold hereunder shall
      be up to 15,000. Each Purchaser shall deliver to the Company via wire transfer
      or a certified check of immediately available funds equal to their Subscription
      Amount and the Company shall deliver to each Purchaser their respective shares
      of Preferred Stock, Warrants and the other items set forth in Section 2.2
      issuable at the Closing. Upon satisfaction of the conditions set forth in
      Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS, or such
      other location as the parties shall mutually agree and the Company shall deliver
      to the Escrow Agent the Form of Escrow Release Notice (as defined in the Escrow
      Agreement), duly executed.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    2.2 Deliveries.

     

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

     

    (i)      
       this
      Agreement duly executed by the Company;

     

    (ii)  a
      legal
      opinion of Company Counsel, in the form of Exhibit
      C
      attached
      hereto;

     

    (iii)  a
      certificate evidencing a number of shares of Preferred Stock equal to such
      Purchaser’s Subscription Amount divided by the Stated Value, registered in the
      name of such Purchaser;

     

    (iv)  the
      written agreement, in the form of Exhibit
      D
      attached
      hereto, of all of the officers, directors and shareholders holding more than
      10%
      of the issued and outstanding shares of Common Stock and other voting securities
      of the Company on the date hereof to vote all Common Stock and other voting
      securities of the Company over which such Persons have voting control as of
      the
      record date for the meeting of shareholders of the Company in favor of
      Shareholder Approval, amounting to, in the aggregate, at least 50% in interest
      of the issued and outstanding Common Stock and other issued and outstanding
      voting securities of the Company;

     

    (v)  a
      letter
      from the Company’s accountants who will be preparing the Company’s periodic
      reports for the foreseeable future representing the status of the Company’s (on
      a consolidated basis with CONMED) compliance with the accounting and financial
      provisions of the Sarbanes-Oxley Act of 2002 and a timetable for post closing
      action to be taken by the Company to the completion of compliance;

     

    (vi)  a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 25% of such Purchaser’s Subscription Amount divided by the
      Conversion Price, with an exercise price equal to $0.30,
      subject
      to adjustment therein;

     

    (vii)  a
      Warrant
      registered in the name of such Purchaser to purchase up to a number of shares
      of
      Common Stock equal to 8.3% of such Purchaser’s Subscription Amount divided by
      the Conversion Price, with an exercise price equal to $2.50,
      subject
      to adjustment therein; 

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (viii)  the
      Company shall have delivered to each Purchaser an officer’s certificate to the
      effect that each of the conditions specified in Sections 2.3(b)(i)-(v) and
      2.3(b)(vii)-(viii) is satisfied in all respects; and

     

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

     

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

     

    (i)      
       this
      Agreement duly executed by such Purchaser;

     

    (ii)  such
      Purchaser’s Subscription Amount by wire transfer to the Escrow Agent;
      and

     

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

     

    2.3 Closing
      Conditions.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    (iii)  the
      acquisition transaction by and among the Company and CONMED Healthcare
      Solutions, Inc. (“CONMED”)
      (the
“Reverse
      Acquisition”)
      shall
      be consummated on terms and conditions agreed to prior to the date hereof
      simultaneously with the Closing, and the closing conditions set forth in that
      certain Stock Purchase Agreement, dated as of August 2, 2006, by and among
      the
      Company, CONMED and the stockholders of CONMED, shall have been satisfied in
      their entirety;

     

    (iv)  the
      Company shall have obtained directors and officers insurance with a reputable
      U.S. based insurer acceptable to Lehman with coverage at least equal to $5
      million;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (v)  the
      Company shall have been named as an additional insured on the medical
      malpractice liability insurance held by CONMED immediately prior to the
      closing of the Reverse Acquisition, as set forth on Schedule
      3.1(p);

     

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

     

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

     

    (viii)  from
      the
      date hereof to the Closing Date, trading in the Common Stock shall not have
      been
      suspended by the Commission or the Company’s principal Trading Market (except
      for any suspension of trading of limited duration agreed to by the Company,
      which suspension shall be terminated prior to the Closing), and, at any time
      prior to the Closing Date, trading in securities generally as reported by
      Bloomberg L.P. shall not have been suspended or limited, or minimum prices
      shall
      not have been established on securities whose trades are reported by such
      service, or on any Trading Market, nor shall a banking moratorium have been
      declared either by the United States or New York State authorities nor shall
      there have occurred any material outbreak or escalation of hostilities or other
      national or international calamity of such magnitude in its effect on, or any
      material adverse change in, any financial market which, in each case, in the
      reasonable judgment of each Purchaser, makes it impracticable or inadvisable
      to
      purchase the Preferred Stock at the Closing.

     

    ARTICLE
      III

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1
      Representations
      and Warranties of the Company and CONMED.
      Except
      as set forth under the corresponding section of the disclosure schedules which
      Disclosure Schedules shall be deemed a part hereof and to qualify any
      representation or warranty otherwise made herein to the extent of such
      disclosure, the Company hereby makes the following representations and
      warranties to each Purchaser. All
      representations and warranties made hereunder by the Company assume that the
      Reverse Acquisition has been completed and such assets and any liabilities
      of
      CONMED resulting therefrom are consolidated with the
      Company.

     

    (a)  Subsidiaries.
      All of
      the direct and indirect subsidiaries of the Company, including CONMED, are
      set
      forth on Schedule
      3.1(a).
      The
      Company owns, directly or indirectly, all of the capital stock or other equity
      interests of each Subsidiary free and clear of any Liens, and all of the issued
      and outstanding shares of capital stock of each Subsidiary are validly issued
      and are fully paid, non-assessable and free of preemptive and similar rights
      to
      subscribe for or purchase securities.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (e)  Filings,
      Consents and Approvals.
      The
      Company is not required to obtain any consent, waiver, authorization or order
      of, give any notice to, or make any filing or registration with, any court
      or
      other federal, state, local or other governmental authority or other Person
      in
      connection with the execution, delivery and performance by the Company of the
      Transaction Documents, other than (i) filings required pursuant to Section
      4.6,
      (ii) the filing with the Commission of the Registration Statement, (iii) the
      notice and/or application(s) to each applicable Trading Market for the issuance
      and sale of the Securities and the listing of the Underlying Shares for trading
      thereon in the time and manner required thereby, (iv) the filing of Form D
      with
      the Commission and such filings as are required to be made under applicable
      state securities laws and (v) Shareholder Approval and all filings and consents
      required in connection therewith (collectively, the “Required
      Approvals”).

     

    (f)  Issuance
      of the Securities.
      The
      Securities are duly authorized and, when issued and paid for in accordance
      with
      the applicable Transaction Documents, will be duly and validly issued, fully
      paid and nonassessable, free and clear of all Liens imposed by the Company
      other
      than restrictions on transfer provided for in the Transaction Documents. The
      Underlying Shares, when issued in accordance with the terms of the Transaction
      Documents, will be validly issued, fully paid and nonassessable, free and clear
      of all Liens imposed by the Company.

     

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

     

    
      
        
        

      

      
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    (h)  SEC
      Reports; Financial Statements.
      The
      Company has filed all reports, schedules, forms, statements and other documents
      required to be filed by the Company under the Securities Act and the Exchange
      Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
      preceding the date hereof (or such shorter period as the Company was required
      by
      law or regulation to file such material) (the foregoing materials, including
      the
      exhibits thereto and documents incorporated by reference therein, being
      collectively referred to herein as the “SEC
      Reports”)
      on a
      timely basis or has received a valid extension of such time of filing and has
      filed any such SEC Reports prior to the expiration of any such extension. As
      of
      their respective dates, the SEC Reports complied in all material respects with
      the requirements of the Securities Act and the Exchange Act, as applicable,
      and
      none of the SEC Reports, when filed, contained any untrue statement of a
      material fact or omitted to state a material fact required to be stated therein
      or necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading. The audited financial
      statements of the Company and its Subsidiaries, as well as the separate
      financial statements for CONMED) for the past two fiscal years and unaudited
      financial statement for the most recent fiscal quarter are attached hereto
      as
Schedule
      3.1(h).
      Such
      financial statements have been prepared in accordance with United States
      generally accepted accounting principles applied on a consistent basis during
      the periods involved (“GAAP”),
      except as may be otherwise specified in such financial statements or the notes
      thereto and except that unaudited financial statements may not contain all
      footnotes required by GAAP, and fairly present in all material respects the
      financial position of the Company and its consolidated Subsidiaries, or CONMED,
      as applicable, as of and for the dates thereof and the results of operations
      and
      cash flows for the periods then ended, subject, in the case of unaudited
      statements, to normal, immaterial, year-end audit adjustments. 

     

    
      
        
        

      

      
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    (i)  Material
      Changes.
      Since
      the date of the latest audited financial statements included within the SEC
      Reports, except as specifically disclosed in a subsequent SEC Report filed
      prior
      to the date hereof, (i) there has been no event, occurrence or development
      that
      has had or that could reasonably be expected to result in a Material Adverse
      Effect, (ii) the Company has not incurred any liabilities (contingent or
      otherwise) other than (A) trade payables and accrued expenses incurred in the
      ordinary course of business consistent with past practice and in connection
      with
      this Agreement and the acquisition of CONMED and the Reverse Merger and the
      transactions related thereto, a reasonable estimate of such costs and expenses
      are set forth on Schedule
      3.1(i)
      attached
      hereto and (B) liabilities not required to be reflected in the Company’s
      financial statements pursuant to GAAP or disclosed in filings made with the
      Commission, (iii) the Company has not altered its method of accounting, (iv)
      the
      Company has not declared or made any dividend or distribution of cash or other
      property to its stockholders or purchased, redeemed or made any agreements
      to
      purchase or redeem any shares of its capital stock and (v) the Company has
      not
      issued any equity securities to any officer, director or Affiliate, except
      pursuant to existing Company stock option plans. The Company does not have
      pending before the Commission any request for confidential treatment of
      information. Except for the issuance of the Securities contemplated by this
      Agreement or as set forth on Schedule
      3.1(i),
      no
      event, liability or development has occurred or exists with respect to the
      Company or its Subsidiaries or their respective business, properties, operations
      or financial condition, that would be required to be disclosed by the Company
      under applicable securities laws at the time this representation is made that
      has not been publicly disclosed at least 1 Trading Day prior to the date that
      this representation is made. 

     

    (j)  Litigation.
      Other
      than as set forth on Schedule
      3.1(j),
      there
      is no action, suit, inquiry, notice of violation, proceeding or investigation
      pending or, to the knowledge of the Company, threatened against or affecting
      the
      Company, any Subsidiary or any of their respective properties before or by
      any
      court, arbitrator, governmental or administrative agency or regulatory authority
      (federal, state, county, local or foreign) (collectively, an “Action”)
      which
      (i) adversely affects or challenges the legality, validity or enforceability
      of
      any of the Transaction Documents or the Securities or (ii) could, if there
      were
      an unfavorable decision, have or reasonably be expected to result in a Material
      Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
      officer thereof, is or has been the subject of any Action involving a claim
      of
      violation of or liability under federal or state securities laws or a claim
      of
      breach of fiduciary duty. There has not been, and to the knowledge of the
      Company, there is not pending or contemplated, any investigation by the
      Commission involving the Company or any current or former director or officer
      of
      the Company. The Commission has not issued any stop order or other order
      suspending the effectiveness of any registration statement filed by the Company
      or any Subsidiary under the Exchange Act or the Securities Act.

     

    
      
        
        

      

      
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    (k)  Labor
      Relations.
      No
      material labor dispute exists or, to the knowledge of the Company or any
      Subsidiary, is imminent with respect to any of the employees of the Company
      which could reasonably be expected to result in a Material Adverse Effect.
      None
      of the Company’s or its Subsidiaries’ employees is a member of a union that
      relates to such employee’s relationship with the Company, and neither the
      Company or any of its Subsidiaries is a party to a collective bargaining
      agreement, and the Company and its Subsidiaries believe that their relationships
      with their employees are good. No executive officer, to the knowledge of the
      Company, is, or is now expected to be, in violation of any material term of
      any
      employment contract, confidentiality, disclosure or proprietary information
      agreement or non-competition agreement, or any other contract or agreement
      or
      any restrictive covenant, and the continued employment of each such executive
      officer does not subject the Company or any of its Subsidiaries to any liability
      with respect to any of the foregoing matters. The Company and its Subsidiaries
      are in compliance with all U.S. federal, state, local and foreign laws and
      regulations relating to employment and employment practices, terms and
      conditions of employment and wages and hours, except where the failure to be
      in
      compliance could not, individually or in the aggregate, reasonably be expected
      to have a Material Adverse Effect.

     

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

     

    (m)  Regulatory
      Permits.
      The
      Company and the Subsidiaries possess all certificates, authorizations and
      permits issued by the appropriate federal, state, local or foreign regulatory
      authorities necessary to conduct their respective businesses as described in
      the
      Super 8-K, except where the failure to possess such permits could not have
      or
      reasonably be expected to result in a Material Adverse Effect (“Material
      Permits”),
      and
      neither the Company nor any Subsidiary has received any notice of proceedings
      relating to the revocation or modification of any Material Permit.

     

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

     

    
      
        
        

      

      
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    (o)  Patents
      and Trademarks.
      The
      Company and the Subsidiaries have, or have rights to use, all patents, patent
      applications, trademarks, trademark applications, service marks, trade names,
      trade secrets, inventions, copyrights, licenses and other intellectual property
      rights and similar rights necessary or material for use in connection with
      their
      respective businesses as described in the SEC Reports and which the failure
      to
      so have could have a Material Adverse Effect (collectively, the “Intellectual
      Property Rights”).
      Neither the Company nor any Subsidiary has received a notice (written or
      otherwise) that the Intellectual Property Rights used by the Company or any
      Subsidiary violates or infringes upon the rights of any Person. To the knowledge
      of the Company, all such Intellectual Property Rights are enforceable and there
      is no existing infringement by another Person of any of the Intellectual
      Property Rights. The Company and its Subsidiaries have taken reasonable security
      measures to protect the secrecy, confidentiality and value of all of their
      intellectual properties, except where failure to do so could not, individually
      or in the aggregate, reasonably be expected to have a Material Adverse
      Effect.

     

    (p)  Insurance.
      The
      Company and the Subsidiaries are insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are prudent
      and customary in the businesses in which the Company and the Subsidiaries are
      engaged, including, but not limited to, directors and officers insurance
      coverage at least equal to the aggregate Subscription Amount and a medical
      malpractice insurance coverage as set forth on Schedule
      3.1(p).
      Neither
      the Company nor any Subsidiary has any reason to believe it will not be able
      to
      renew its existing insurance coverage as and when such coverage expires or
      to
      obtain similar coverage from similar insurers as may be necessary to continue
      its business.

     

    (q)  Transactions
      with Affiliates and Employees.
      Except
      as set forth in the SEC Reports, none of the officers or directors of the
      Company or any Subsidiary and, to the knowledge of the Company, none of the
      employees of the Company or any Subsidiary is presently a party to any
      transaction with the Company or any Subsidiary (other than for services as
      employees, officers and directors), including any contract, agreement or other
      arrangement providing for the furnishing of services to or by, providing for
      rental of real or personal property to or from, or otherwise requiring payments
      to or from any officer, director or such employee or, to the knowledge of the
      Company, any entity in which any officer, director, or any such employee has
      a
      substantial interest or is an officer, director, trustee or partner, in each
      case in excess of $10,000 other than (i) for payment of salary or consulting
      fees for services rendered, (ii) reimbursement for expenses incurred on behalf
      of the Company or Subsidiary and (iii) for other employee benefits, including
      stock option agreements under any stock option plan of the Company or any
      Subsidiaries.

     

    
      
        
        

      

      
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    (r)  Sarbanes-Oxley;
      Internal Accounting Controls.
      A
      summary of the Company’s compliance with the provisions of the Sarbanes-Oxley
      Act of 2002 as of the date hereof along with a timetable for estimated
      compliance in the next 9 months is set forth on Schedule
      3.1(r)
      attached
      hereto. The
      Company and the Subsidiaries maintain a system of internal accounting controls
      sufficient to provide reasonable assurance that (i) transactions are executed
      in
      accordance with management’s general or specific authorizations, (ii)
      transactions are recorded as necessary to permit preparation of financial
      statements in conformity with GAAP and to maintain asset accountability, (iii)
      access to assets is permitted only in accordance with management’s general or
      specific authorization, and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate action
      is taken with respect to any differences. The Company has established disclosure
      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
      15d-15(e)) for the Company and designed such disclosure controls and procedures
      to ensure that information required to be disclosed by the Company in the
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the Commission’s
      rules and forms.

     

    (s)  Certain
      Fees.
      All
      brokerage or finder’s fees or commissions that are or will be payable by the
      Company to any broker, financial advisor or consultant, finder, placement agent,
      investment banker, bank or other Person with respect to the transactions
      contemplated by the Transaction Documents are as set forth on Schedule 3.1(s).
      The Purchasers shall have no obligation with respect to any fees or with respect
      to any claims made by or on behalf of other Persons for fees of a type
      contemplated in this Section that may be due in connection with the transactions
      contemplated by the Transaction Documents.

     

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

     

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

     

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

     

    
      
        
        

      

      
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    (w)  Listing
      and Maintenance Requirements.
      The
      Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the
      Exchange Act, and the Company has taken no action designed to, or which to
      its
      knowledge is likely to have the effect of, terminating the registration of
      the
      Common Stock under the Exchange Act nor has the Company received any
      notification that the Commission is contemplating terminating such registration.
      The Company has not, in the 12 months preceding the date hereof, received notice
      from any Trading Market on which the Common Stock is or has been listed or
      quoted to the effect that the Company is not in compliance with the listing
      or
      maintenance requirements of such Trading Market. The Company is, and has no
      reason to believe that it will not in the foreseeable future continue to be,
      in
      compliance with all such listing and maintenance requirements.

     

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

     

    (y)  Disclosure.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, the Company confirms that neither
      it
      nor any other Person acting on its behalf has provided any of the Purchasers
      or
      their agents or counsel with any information that it believes constitutes or
      might constitute material, non-public information. The Company understands
      and
      confirms that the Purchasers will rely on the foregoing representation in
      effecting transactions in securities of the Company. Attached hereto as
Schedule
      3.1(y)
      is a
      draft copy of a Current Report on Form 8-K that the Company will file with
      the
      Commission in connection with the Reverse Merger on or prior 8:30 AM (EST)
      on
      the 4th
      Trading
      Day following the Closing Date (which Current Report contains, among other
      information, risk factors concerning the Company and financial statements
      required to be filed therewith) (“Super
      8-K”). All
      disclosure furnished by or on behalf of the Company to the Purchasers regarding
      the Company, its business and the transactions contemplated hereby, including
      the Disclosure Schedules to this Agreement, is true and correct and does not
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in light of the
      circumstances under which they were made, not misleading. The press releases
      disseminated by the Company during the twelve months preceding the date of
      this
      Agreement taken as a whole do not contain any untrue statement of a material
      fact or omit to state a material fact required to be stated therein or necessary
      in order to make the statements, in light of the circumstances under which
      they
      were made and when made, not misleading. The Company acknowledges and agrees
      that no Purchaser makes or has made any representations or warranties with
      respect to the transactions contemplated hereby other than those specifically
      set forth in Section 3.2 hereof.

     

    
      
        
        

      

      
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    (z)  No
      Integrated Offering.
      Assuming
      the accuracy of the Purchasers’ representations and warranties set forth in
      Section 3.2, neither the Company, nor any of its Affiliates, nor any Person
      acting on its or their behalf has, directly or indirectly, made any offers
      or
      sales of any security or solicited any offers to buy any security, under
      circumstances that would cause this offering of the Securities to be integrated
      with prior offerings by the Company for purposes of the Securities Act or any
      applicable shareholder approval provisions of any Trading Market on which any
      of
      the securities of the Company are listed or designated. 

     

    (aa)  Solvency.
      Based
      on the financial condition of the Company as of the Closing Date after giving
      effect to the receipt by the Company of the proceeds from the sale of the
      Securities hereunder, (i) the fair saleable value of the Company’s assets
      exceeds the amount that will be required to be paid on or in respect of the
      Company’s existing debts and other liabilities (including known contingent
      liabilities) as they mature; (ii) the Company’s assets do not constitute
      unreasonably small capital to carry on its business as now conducted and as
      proposed to be conducted including its capital needs taking into account the
      particular capital requirements of the business conducted by the Company, and
      projected capital requirements and capital availability thereof; and (iii)
      the
      current cash flow of the Company, together with the proceeds the Company would
      receive, were it to liquidate all of its assets, after taking into account
      all
      anticipated uses of the cash, would be sufficient to pay all amounts on or
      in
      respect of its liabilities when such amounts are required to be paid. The
      Company does not intend to incur debts beyond its ability to pay such debts
      as
      they mature (taking into account the timing and amounts of cash to be payable
      on
      or in respect of its debt). The Company has no knowledge of any facts or
      circumstances which lead it to believe that it will file for reorganization
      or
      liquidation under the bankruptcy or reorganization laws of any jurisdiction
      within one year from the Closing Date. Schedule
      3.1(aa)
      sets
      forth as of the dates thereof all outstanding secured and unsecured Indebtedness
      of the Company or any Subsidiary, or for which the Company or any Subsidiary
      has
      commitments. For the purposes of this Agreement, “Indebtedness”
means
      (a) any liabilities for borrowed money or amounts owed in excess of $10,000
      (other than trade accounts payable incurred in the ordinary course of business),
      (b) all guaranties, endorsements and other contingent obligations in respect
      of
      Indebtedness of others, whether or not the same are or should be reflected
      in
      the Company’s balance sheet (or the notes thereto), except guaranties by
      endorsement of negotiable instruments for deposit or collection or similar
      transactions in the ordinary course of business; and (c) the present value
      of
      any lease payments
      in excess of $10,000 due under leases required to be capitalized in accordance
      with GAAP. Neither
      the Company nor any Subsidiary is in default with respect to any
      Indebtedness.

     

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

     

    
      
        
        

      

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

     

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

     

    (ee)  Accountants.
      The
      Company’s accounting firm is McGladrey & Pullen. To the knowledge and belief
      of the Company, such accounting firm (i) is a registered public accounting
      firm
      as required by the Exchange Act and (ii) shall express its opinion with respect
      to the financial statements to be included in the Company’s Annual Report on
      Form 10-KSB for the year ended December 31, 2006.

     

    (ff)  Seniority.
      As of
      the Closing Date, no Indebtedness or other claim against the Company is senior
      to the Preferred Stock in right of payment, whether with respect to interest
      or
      upon liquidation or dissolution, or otherwise, other than indebtedness secured
      by purchase money security interests (which is senior only as to underlying
      assets covered thereby) and capital lease obligations (which is senior only
      as
      to the property covered thereby).

     

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

     

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

     

    
      
        
        

      

      
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    (ii)  Acknowledgement
      Regarding Purchasers’ Trading Activity.
      Anything in this Agreement or elsewhere herein to the contrary notwithstanding
      (except for Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged
      by the Company (i) that none of the Purchasers have been asked to agree, nor
      has
      any Purchaser agreed, to desist from purchasing or selling, long and/or short,
      securities of the Company, or “derivative” securities based on securities issued
      by the Company or to hold the Securities for any specified term; (ii) that
      past
      or future open market or other transactions by any Purchaser, including Short
      Sales, and specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
      placement transactions, may negatively impact the market price of the Company’s
      publicly-traded securities; (iii) that any Purchaser, and counter-parties in
      “derivative” transactions to which any such Purchaser is a party, directly or
      indirectly, presently may have a “short” position in the Common Stock; and (iv)
      that each Purchaser shall not be deemed to have any affiliation with or control
      over any arm’s length counter-party in any “derivative” transaction.
The
      Company further understands and acknowledges that (a) one or more Purchasers
      may
      engage in hedging activities at various times during the period that the
      Securities are outstanding and (b) such hedging activities (if any) could reduce
      the value of the existing stockholders' equity interests in the Company at
      and
      after the time that the hedging activities are being conducted.  The
      Company acknowledges that such aforementioned hedging activities do not
      constitute a breach of any of the Transaction Documents.

     

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

     

    (kk)  FDA.
      Neither
      the Company nor its Subsidiaries manufacture, package, label, test, distribute,
      sell and/or market any products subject to the jurisdiction of the U.S. Food
      and
      Drug Administration under the Federal Food, Drug and Cosmetic Act, as amended,
      and the regulations thereunder.

     

    
      
        
        

      

      
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    (ll)  Manufacturing
      and Marketing Rights.
      The
      Company and its Subsidiaries provide medical services and neither the Company
      nor its Subsidiaries manufacture, produce, assemble, license, market or sell
      any
      products to any Person.

     

    (mm)  Obligations
      of Management.
      Other
      than as set forth on Schedule
      3.1(mm),
      each
      officer and key employee of the Company and its Subsidiaries is currently
      devoting substantially all of his or her business time to the conduct of
      business of the Company and its Subsidiaries. Other than as set forth on
Schedule
      3.1(mm),
      neither
      the Company nor any of its Subsidiaries is aware that any officer or key
      employee of the Company or any Subsidiary is planning to work less than full
      time at the Company or any Subsidiary, as applicable, in the future. No officer
      or key employee is the currently working or, to the Company’s knowledge, plans
      to work for a competitive enterprise, whether or not such officer of key
      employee is or will be compensated by such enterprise.

     

    (nn)  Minute
      Books.
      The
      minute books of the Company and its Subsidiaries made available to the
      Purchasers contain a complete summary of all meetings of directors and
      stockholders since the time of incorporation.

     

    (oo)  Elections.
      To the
      Company’s knowledge, all elections and notices permitted by Section 83(b) of the
      Internal Revenue Code and any analogous provisions of applicable state tax
      laws
      have been timely filed by all employees who have purchased shares of the Common
      Stock under agreements that provide for the vesting of such shares of Common
      Stock.

     

    (pp)  Accounts
      Receivable.
      All
      accounts receivable of the Company and its Subsidiaries that are reflected
      on
      the Company’s and its Subsidiaries’ balance sheets or interim balance sheets or
      on the accounting records of the Company and its Subsidiaries as of the Closing
      Date (collectively, the “Accounts
      Receivable”)
      represent or will represent valid obligations arising from sales actually made
      or services actually performed in the ordinary course of business. Unless paid
      prior to the Closing Date, the Accounts Receivable are or will be as of the
      Closing Date current and collectible net of the respective reserves shown on
      the
      balance sheet or interim balance sheet or on the accounting records of the
      Company and its Subsidiaries as of the Closing Date (which reserves are adequate
      and calculated consistent with past practice and, in the case of the reserve
      as
      of the Closing Date, will not represent a greater percentage of the Accounts
      Receivable as of the Closing Date than the reserve reflected in the interim
      balance sheet represented of the Accounts Receivable reflected therein and
      will
      not represent a material adverse change in the composition of such Accounts
      Receivable in terms of aging). Subject to such reserves, each of the Accounts
      Receivable either has been or will be collected in full without any set-off,
      within ninety days after the day on which it must become due and payable. There
      is no contest, claim, or right of set-off, other than returns in the ordinary
      course of business, under any agreement and/or contract with any obligor of
      an
      Accounts Receivable relating to the amount or validity of such Accounts
      Receivable. Schedule
      3.1(pp)
      contains
      a complete and accurate list of all Accounts Receivable as of the date of the
      interim balance sheet, which list sets forth the aging of such Accounts
      Receivable.

     

    
      
        
        

      

      
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    (qq)  Inventory.
      All
      inventory of the Company and the Subsidiaries, whether or not reflected in
      the
      balance sheet or interim balance sheet, consists of a quality and quantity
      usable and salable in the ordinary course of business, except for obsolete
      items
      and items of below standard quality, all of which have been written off or
      written down to net realizable value in the balance sheet or interim balance
      sheet or on the accounting records of the Company and the Subsidiaries as of
      the
      Closing Date, as the case may be. All inventories not written off have been
      priced at the lower of cost or market on the last in, first out basis. The
      quantities of each item of inventory (whether raw materials, work-in-process,
      or
      finished goods) are not excessive, but are reasonable in the present
      circumstances of the Company and the Subsidiaries.

     

    (rr)  Complaints.
      Neither
      the Company nor any Subsidiary has received any material client complaints
      concerning its services.

     

    (ss)  Employee
      Benefits.
      Except
      as set forth on Schedule
      3.1(ss),
      neither
      the Company nor any Subsidiary has (nor for the two years preceding the date
      hereof has had) any plans which are subject to ERISA. “ERISA”
means
      the Employee Retirement Income Security Act of 1974 or any successor law and
      the
      regulations and rules issued pursuant to that act or any successor
      law.

     

    3.2 Representations
      and Warranties of the Purchasers

     

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

     

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

     

    (b) Own
      Account.
      Such
      Purchaser understands that the Securities are “restricted securities” and have
      not been registered under the Securities Act or any applicable state securities
      law and is acquiring the Securities as principal for its own account and not
      with a view to or for distributing or reselling such Securities or any part
      thereof in violation of the Securities Act or any applicable state securities
      law, has no present intention of distributing any of such Securities in
      violation of the Securities Act or any applicable state securities law and
      has
      no direct or indirect arrangement or understandings with any other persons
      to
      distribute or regarding the distribution of such Securities (this representation
      and warranty not limiting such Purchaser’s right to sell the Securities pursuant
      to the Registration Statement or otherwise in compliance with applicable federal
      and state securities laws) in violation of the Securities Act or any applicable
      state securities law. Such Purchaser is acquiring the Securities hereunder
      in
      the ordinary course of its business.

     

    
      
        
        

      

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

     

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

     

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

     

    (f)  Short
      Sales and Confidentiality Prior To The Date Hereof.
      Other
      than the transaction contemplated hereunder, such Purchaser has not directly
      or
      indirectly, nor has any Person acting on behalf of or pursuant to any
      understanding with such Purchaser, executed any disposition, including Short
      Sales, in the securities of the Company during the period commencing
      from
      the time
      that such Purchaser first received a term sheet (written or oral) from the
      Company or any other Person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (“Discussion
      Time”).
      Notwithstanding the foregoing, in the case of a Purchaser that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Purchaser's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Purchaser's assets, the representation set
      forth
      above shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to purchase the Securities
      covered by this Agreement. Other than to other Persons party to this Agreement,
      such Purchaser has maintained the confidentiality of all disclosures made to
      it
      in connection with this transaction (including the existence and terms of this
      transaction); provided, further, with respect to LB I Group Inc., this Section
      3.2(f) shall only apply to the Global Trading Strategies group, as currently
      configured, of Lehman Brothers Holding Inc., and shall not apply to any other
      Person, Affiliate, subsidiary thereof, business unit, area group or division
      of
      Lehman Brothers Holding Inc.

     

    
      
        
        

      

      
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    ARTICLE
      IV.

    OTHER
      AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
      Restrictions.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

    

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

     

    
      
        
        

      

      
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    (e) In
      addition to such Purchaser’s other available remedies, if the Company fails to
      cause its transfer agent to transmit to such Purchaser a certificate or
      certificates representing the Shares in the form required under this Section
      4.1(c) on or before the second Trading Day after the applicable Legend Removal
      Date, and if after such date such Purchaser is required by its broker to
      purchase (in an open market transaction or otherwise) or the Purchaser’s
      brokerage firm otherwise purchases, shares of Common Stock to deliver in
      satisfaction of a sale by the Purchaser of the Shares which the Purchaser
      anticipated receiving pursuant to this Section 4.1(c) in the form required
      (a
“Buy-In”),
      then
      the Company shall pay in cash to such Purchaser the amount by which (x) such
      Purchaser’s total purchase price (including brokerage commissions, if any) for
      the shares of Common Stock so purchased exceeds (y) the amount obtained by
      multiplying (A) the number of Shares at issue times (B) the price at which
      the
      sell order giving rise to such purchase obligation was executed. For example,
      if
      the Purchaser purchases Common Stock having a total purchase price of $11,000
      to
      cover a Buy-In with respect to Shares with an aggregate sale price giving rise
      to such purchase obligation of $10,000, the Company shall be required to pay
      the
      Purchaser $1,000. The Purchaser shall provide the Company written notice
      indicating the amounts payable to the Purchaser in respect of the Buy-In and,
      upon request of the Company, evidence of the amount of such loss. Nothing herein
      shall limit a Purchaser’s right to pursue any other remedies available to it
      hereunder, at law or in equity including, without limitation, a decree of
      specific performance and/or injunctive relief with respect to the Company’s
      failure to timely deliver certificates representing Shares as required pursuant
      to the terms hereof.

    

    (f) 
      Each
      Purchaser, severally and not jointly with the other Purchasers, agrees that
      the
      removal of the restrictive legend from certificates representing Securities
      as
      set forth in this Section 4.1 is predicated upon the Company’s reliance that the
      Purchaser will sell any Securities pursuant to either the registration
      requirements of the Securities Act, including any applicable prospectus delivery
      requirements, or an exemption therefrom, and that if Securities are sold
      pursuant to a Registration Statement, they will be sold in compliance with
      the
      plan of distribution set forth therein.

    

    4.2
      Acknowledgment
      of Dilution.
      The
      Company acknowledges that the issuance of the Securities may result in dilution
      of the outstanding shares of Common Stock, which dilution may be substantial
      under certain market conditions. The Company further acknowledges that its
      obligation to issue the Underlying Shares pursuant to the Transaction Documents,
      are unconditional and absolute and not subject to any right of set off,
      counterclaim, delay or reduction, regardless of the effect of any such dilution
      or any claim the Company may have against any Purchaser and regardless of the
      dilutive effect that such issuance may have on the ownership of the other
      stockholders of the Company.

     

    
      
        
        

      

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

     

    4.4
      Integration.
      The
      Company shall not sell, offer for sale or solicit offers to buy or otherwise
      negotiate in respect of any security (as defined in Section 2 of the Securities
      Act) that would be integrated with the offer or sale of the Securities in a
      manner that would require the registration under the Securities Act of the
      sale
      of the Securities to the Purchasers or that would be integrated with the offer
      or sale of the Securities for purposes of the rules and regulations of any
      Trading Market such that it would require shareholder approval prior to the
      closing of such other transaction unless shareholder approval is obtained before
      the closing of such subsequent transaction.

     

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

     

    4.6
      Securities
      Laws Disclosure;
      Publicity.
      The
      Company shall, by 5:30 p.m. New York City time on the fourth (4th)
      Trading
      Day immediately following the date hereof, issue a Current Report on Form 8-K,
      disclosing the material terms of the transactions contemplated hereby and
      including the Transaction Documents as exhibits thereto. The Company and each
      Purchaser shall consult with each other in issuing any other press releases
      with
      respect to the transactions contemplated hereby, and neither the Company nor
      any
      Purchaser shall issue any such press release or otherwise make any such public
      statement without the prior consent of the Company, with respect to any press
      release of any Purchaser, or without the prior consent of each Purchaser, with
      respect to any press release of the Company, which consent shall not
      unreasonably be withheld or delayed, except if such disclosure is required
      by
      law, in which case the disclosing party shall promptly provide the other party
      with prior notice of such public statement or communication. Notwithstanding
      the
      foregoing, the Company shall not publicly disclose the name of any Purchaser,
      or
      include the name of any Purchaser in any filing with the Commission or any
      regulatory agency or Trading Market, without the prior written consent of such
      Purchaser, except (i) as required by federal securities law in connection with
      (A) any registration statement contemplated by the Registration Rights Agreement
      and (B) the filing of final Transaction Documents (including signature pages
      thereto) with the Commission and (ii) to the extent such disclosure is required
      by law or Trading Market regulations, in which case the Company shall provide
      the Purchasers with prior notice of such disclosure permitted under this
      subclause (ii).

     

    
      
        
        

      

      
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    4.7 Shareholder
      Rights Plan.
      No
      claim will be made or enforced by the Company or, with the consent of the
      Company, any other Person, that any Purchaser is an “Acquiring Person” under any
      control share acquisition, business combination, poison pill (including any
      distribution under a rights agreement) or similar anti-takeover plan or
      arrangement in effect or hereafter adopted by the Company, or that any Purchaser
      could be deemed to trigger the provisions of any such plan or arrangement,
      by
      virtue of receiving Securities under the Transaction Documents or under any
      other agreement between the Company and the Purchasers.

     

    4.8
       Non-Public
      Information.
      Except
      with respect to the material terms and conditions of the transactions
      contemplated by the Transaction Documents, at any time after the date of the
      filing of the Super 8-K, the Company covenants and agrees that neither it nor
      any other Person acting on its behalf will provide any Purchaser or its agents
      or counsel with any information that the Company believes constitutes material
      non-public information, unless prior thereto such Purchaser shall have executed
      a written agreement regarding the confidentiality and use of such information.
      The Company understands and confirms that each Purchaser shall be relying on
      the
      foregoing representations in effecting transactions in securities of the
      Company.

     

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

     

    4.10 Reimbursement.
      If any
      Purchaser becomes involved in any capacity in any Proceeding by or against
      any
      Person who is a stockholder of the Company (except as a result of sales,
      pledges, margin sales and similar transactions by such Purchaser to or with
      any
      other stockholder), solely as a result of such Purchaser’s acquisition of the
      Securities under this Agreement, the Company will reimburse such Purchaser
      for
      its legal and other expenses (including the cost of any investigation
      preparation and travel in connection therewith) incurred in connection
      therewith, as such expenses are incurred. The reimbursement obligations of
      the
      Company under this paragraph shall be in addition to any liability which the
      Company may otherwise have, shall extend upon the same terms and conditions
      to
      any Affiliates of the Purchasers who are actually named in such action,
      proceeding or investigation, and partners, directors, agents, employees and
      controlling persons (if any), as the case may be, of the Purchasers and any
      such
      Affiliate, and shall be binding upon and inure to the benefit of any successors,
      assigns, heirs and personal representatives of the Company, the Purchasers
      and
      any such Affiliate and any such Person. The Company also agrees that neither
      the
      Purchasers nor any such Affiliates, partners, directors, agents, employees
      or
      controlling persons shall have any liability to the Company or any Person
      asserting claims on behalf of or in right of the Company solely as a result
      of
      acquiring the Securities under this Agreement, except if such claim arises
      primarily from a breach of such Purchaser’s representations, warranties or
      covenants under the Transaction Documents or any agreements or understandings
      such Purchaser may have with any such stockholder or any violations by the
      Purchaser of state or federal securities laws or any conduct by such Purchaser
      which constitutes fraud, gross negligence, willful misconduct or
      malfeasance.

     

    
      
        
        

      

      
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    4.11 Indemnification
      of Purchasers.
      Subject
      to the provisions of this Section 4.11, the Company will indemnify and hold
      each
      Purchaser and its directors, officers, shareholders, members, partners,
      employees and agents (and any other Persons with a functionally equivalent
      role
      of a Person holding such titles notwithstanding a lack of such title or any
      other title), each Person who controls such Purchaser (within the meaning of
      Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
      directors, officers, shareholders, agents, members, partners or employees (and
      any other Persons with a functionally equivalent role of a Person holding such
      titles notwithstanding a lack of such title or any other title) of such
      controlling person (each, a “Purchaser
      Party”)
      harmless from any and all losses, liabilities, obligations, claims,
      contingencies, damages, costs and expenses, including all judgments, amounts
      paid in settlements, court costs and reasonable attorneys’ fees and costs of
      investigation that any such Purchaser Party may suffer or incur as a result
      of
      or relating to (a) any breach of any of the representations, warranties,
      covenants or agreements made by the Company in this Agreement or in the other
      Transaction Documents or (b) any action instituted against a Purchaser, or
      any
      of them or their respective Affiliates, by any stockholder of the Company who
      is
      not an Affiliate of such Purchaser, with respect to any of the transactions
      contemplated by the Transaction Documents (unless such action is based upon
      a
      breach of such Purchaser’s representations, warranties or covenants under the
      Transaction Documents or any agreements or understandings such Purchaser may
      have with any such stockholder or any violations by the Purchaser of state
      or
      federal securities laws or any conduct by such Purchaser which constitutes
      fraud, gross negligence, willful misconduct or malfeasance). If any action
      shall
      be brought against any Purchaser Party in respect of which indemnity may be
      sought pursuant to this Agreement, such Purchaser Party shall promptly notify
      the Company in writing, and the Company shall have the right to assume the
      defense thereof with counsel of its own choosing reasonably acceptable to the
      Purchaser Party. Any Purchaser Party shall have the right to employ separate
      counsel in any such action and participate in the defense thereof, but the
      fees
      and expenses of such counsel shall be at the expense of such Purchaser Party
      except to the extent that (i) the employment thereof has been specifically
      authorized by the Company in writing, (ii) the Company has failed after a
      reasonable period of time to assume such defense and to employ counsel or (iii)
      in such action there is, in the reasonable opinion of such separate counsel,
      a
      material conflict on any material issue between the position of the Company
      and
      the position of such Purchaser Party, in which case the Company shall be
      responsible for the reasonable fees and expenses of no more than one such
      separate counsel. The Company will not be liable to any Purchaser Party under
      this Agreement (i) for any settlement by a Purchaser Party effected without
      the
      Company’s prior written consent, which shall not be unreasonably withheld or
      delayed; or (ii) to the extent, but only to the extent that a loss, claim,
      damage or liability is attributable to any Purchaser Party’s breach of any of
      the representations, warranties, covenants or agreements made by such Purchaser
      Party in this Agreement or in the other Transaction Documents.

     

    4.12 Reservation
      and Listing of Securities.

     

    (a) The
      Company shall hold a special meeting of shareholders (which may also be at
      the
      annual meeting of shareholders) at the earliest practical date after the date
      hereof, but in any event on or prior to April 30, 2007, for the purpose of
      obtaining Shareholder Approval, with the recommendation of the Company’s Board
      of Directors that such proposal be approved, and the Company shall solicit
      proxies from its shareholders in connection therewith in the same manner as
      all
      other management proposals in such proxy statement and all management-appointed
      proxyholders shall vote their proxies in favor of such proposal. Each Purchaser
      hereby agrees to vote in favor of all matters which comprise the Shareholder
      Approval being sought. If the Company does not obtain Shareholder Approval
      at
      the first meeting, the Company shall call a meeting every four months thereafter
      to seek Shareholder Approval until the earlier of the date Shareholder Approval
      is obtained or the Preferred Stock is no longer outstanding. After Shareholder
      Approval, the Company shall maintain a reserve from its duly authorized shares
      of Common Stock for issuance pursuant to the Transaction Documents in such
      amount as may be required to fulfill its obligations in full under the
      Transaction Documents.

     

    (b) The
      Company shall, if applicable: (i) in the time and manner required by the
      principal Trading Market, prepare and file with such Trading Market an
      additional shares listing application covering a number of shares of Common
      Stock at least equal to the Required Minimum on the date of such application,
      (ii) take all steps necessary to cause such shares of Common Stock to be
      approved for listing on such Trading Market as soon as possible thereafter,
      (iii) provide to the Purchasers evidence of such listing, and (iv) maintain
      the
      listing of such Common Stock on any date at least equal to the Required Minimum
      on such date on such Trading Market or another Trading Market if such other
      Trading Market becomes the principal Trading Market hereafter.

     

    
      
        
        

      

      
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    4.13 Participation
      in Future Financing.
      

     

    (a)  From
      the
      date hereof until the date that is the 12 month anniversary of the Effective
      Date, upon any issuance by the Company or any of its Subsidiaries of Common
      Stock or Common Stock Equivalents for cash consideration (a “Subsequent
      Financing”),
      each
      Purchaser who originally purchased at least 30% of Preferred Stock issued
      hereunder shall have the right to participate in up to an amount of the
      Subsequent Financing equal to 100% of the Subsequent Financing (the
“Participation
      Maximum”)
      on the
      same terms, conditions and price provided for in the Subsequent
      Financing.

    

    (b)  At
      least
      5 Trading Days prior to the closing of the Subsequent Financing, the Company
      shall deliver to each Purchaser a written notice of its intention to effect
      a
      Subsequent Financing (“Pre-Notice”),
      which
      Pre-Notice shall ask such Purchaser if it wants to review the details of such
      financing (such additional notice, a “Subsequent
      Financing Notice”).
      Upon
      the request of a Purchaser, and only upon a request by such Purchaser, for
      a
      Subsequent Financing Notice, the Company shall promptly, but no later than
      1
      Trading Day after such request, deliver a Subsequent Financing Notice to such
      Purchaser. The Subsequent Financing Notice shall describe in reasonable detail
      the proposed terms of such Subsequent Financing, the amount of proceeds intended
      to be raised thereunder and the Person or Persons through or with whom such
      Subsequent Financing is proposed to be effected and shall include a term sheet
      or similar document relating thereto as an attachment. 

    

    (c)  Any
      Purchaser desiring to participate in such Subsequent Financing must provide
      written notice to the Company by not later than 5:30 p.m. (New York City time)
      on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice that the Purchaser
      is willing to participate in the Subsequent Financing, the amount of the
      Purchaser’s participation, and that the Purchaser has such funds ready, willing,
      and available for investment on the terms set forth in the Subsequent Financing
      Notice. If the Company receives no notice from a Purchaser as of such
      5th
      Trading
      Day, such Purchaser shall be deemed to have notified the Company that it does
      not elect to participate. 

    

    (d)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, notifications
      by
      the Purchasers of their willingness to participate in the Subsequent Financing
      (or to cause their designees to participate) is, in the aggregate, less than
      the
      total amount of the Subsequent Financing, then the Company may effect the
      remaining portion of such Subsequent Financing on the terms and with the Persons
      set forth in the Subsequent Financing Notice. 

    

    (e)  If
      by
      5:30 p.m. (New York City time) on the 5th
      Trading
      Day after all of the Purchasers have received the Pre-Notice, the Company
      receives responses to a Subsequent Financing Notice from Purchasers seeking
      to
      purchase more than the aggregate amount of the Participation Maximum, each
      such
      Purchaser shall have the right to purchase the greater of (a) their Pro Rata
      Portion (as defined below) of the Participation Maximum and (b) the difference
      between the Participation Maximum and the aggregate amount of participation
      by
      all other Purchasers. “Pro
      Rata Portion”
is
      the
      ratio of (x) the Subscription Amount of Securities purchased on the Closing
      Date
      by a Purchaser participating under this Section 4.13 and (y) the sum of the
      aggregate Subscription Amounts of Securities purchased on the Closing Date
      by
      all Purchasers participating under this Section 4.13.

    

    (f)  The
      Company must provide the Purchasers with a second Subsequent Financing Notice,
      and the Purchasers will again have the right of participation set forth above
      in
      this Section 4.13, if the Subsequent Financing subject to the initial Subsequent
      Financing Notice is not consummated for any reason on the terms set forth in
      such Subsequent Financing Notice within 30 Trading Days after the date of the
      initial Subsequent Financing Notice. 

     

    
      
        
        

      

      
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    (g)  Notwithstanding
      the foregoing, this Section 4.13 shall not apply in respect of (i) an Exempt
      Issuance or (ii) an underwritten public offering of Common Stock.

    

    4.14 Subsequent
      Equity Sales.
      

    

    (a)  From
      the
      date hereof until 90 days after the Effective Date, neither the Company nor
      any
      Subsidiary shall issue shares of Common Stock or Common Stock Equivalents;
      provided, however, the 90 day period set forth in this Section 4.14 shall be
      extended for the number of Trading Days during such period in which (i) trading
      in the Common Stock is suspended by any Trading Market, or (ii) following the
      Effective Date, the Registration Statement is not effective or the prospectus
      included in the Registration Statement may not be used by the Purchasers for
      the
      resale of the Underlying Shares. 

    

    (b)  From
      the
      date hereof until such time as (i) less than 3,000 shares of Preferred Stock,
      in
      the aggregate, remains outstanding and (ii) no Purchaser holds more than 2,000
      shares of Preferred Stock, the Company shall be prohibited from effecting or
      entering into an agreement to effect any Subsequent Financing involving a
      Variable Rate Transaction. The term “Variable
      Rate Transaction”
means
      a
      transaction in which the Company issues or sells (i) any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (A) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (B)
      with a conversion, exercise or exchange price that is subject to being reset
      at
      some future date after the initial issuance of such debt or equity security
      or
      upon the occurrence of specified or contingent events directly or indirectly
      related to the business of the Company or the market for the Common Stock or
      (ii) enters into any agreement, including, but not limited to, an equity line
      of
      credit, whereby the Company may sell securities at a future determined price.
      Any Purchaser shall be entitled to obtain injunctive relief against the Company
      to preclude any such issuance, which remedy shall be in addition to any right
      to
      collect damages.

    

    (c)  Notwithstanding
      the foregoing, this Section 4.14 shall not apply in respect of an Exempt
      Issuance, except that no Variable Rate Transaction shall be an Exempt
      Issuance.

    

    4.15 Equal
      Treatment of Purchasers.
      No
      consideration shall be offered or paid to any Person to amend or consent to
      a
      waiver or modification of any provision of any of the Transaction Documents
      unless the same consideration is also offered to all of the parties to the
      Transaction Documents. For clarification purposes, this provision constitutes
      a
      separate right granted to each Purchaser by the Company and negotiated
      separately by each Purchaser, and is intended for the Company to treat the
      Purchasers as a class and shall not in any way be construed as the Purchasers
      acting in concert or as a group with respect to the purchase, disposition or
      voting of Securities or otherwise.

     

    
      
        
        

      

      
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    4.16 Short
      Sales and Confidentiality After The Date Hereof.
      Each
      Purchaser severally and not jointly with the other Purchasers covenants that
      neither it nor any Affiliate acting on its behalf or pursuant to any
      understanding with it will execute any Short Sales during the period commencing
      at the Discussion Time and ending at the time that the transactions contemplated
      by this Agreement are first publicly announced as described in Section
      4.6. Each
      Purchaser, severally and not jointly with the other Purchasers, covenants that
      until such time as the transactions contemplated by this Agreement are publicly
      disclosed by the Company as described in Section 4.6, such Purchaser will
      maintain the confidentiality of all disclosures made to it in connection with
      this transaction (including the existence and terms of this transaction). Each
      Purchaser understands and acknowledges, severally and not jointly with any
      other
      Purchaser, that the Commission currently takes the position that coverage of
      short sales of shares of the Common Stock “against the box” prior to the
      Effective Date of the Registration Statement with the Securities is a violation
      of Section 5 of the Securities Act, as set forth in Item 65, Section A, of
      the
      Manual of Publicly Available Telephone Interpretations, dated July 1997,
      compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding
      the foregoing, no Purchaser makes any representation, warranty or covenant
      hereby that it will not engage in Short Sales in the securities of the Company
      after the time that the transactions contemplated by this Agreement are first
      publicly announced as described in Section 4.6. Notwithstanding
      the foregoing, in the case of a Purchaser that is a multi-managed investment
      vehicle whereby separate portfolio managers manage separate portions of such
      Purchaser's assets and the portfolio managers have no direct knowledge of the
      investment decisions made by the portfolio managers managing other portions
      of
      such Purchaser's assets, the covenant set forth above shall only apply with
      respect to the portion of assets managed by the portfolio manager that made
      the
      investment decision to purchase the Securities covered by this Agreement;
      provided, further, with respect to LB I Group Inc., this Section 4.16 shall
      only
      apply to the Global Trading Strategies Group, as currently configured, of Lehman
      Brothers Holding Inc., and shall not apply to any other Person, Affiliate,
      subsidiary, business unit, area, group or division of Lehman Brothers Holding
      Inc.

     

    4.17 Form
      D; Blue Sky Filings.
      The
      Company agrees to timely file a Form D with respect to the Securities as
      required under Regulation D and to provide a copy thereof, promptly upon request
      of any Purchaser. The Company shall take such action as the Company shall
      reasonably determine is necessary in order to obtain an exemption for, or to
      qualify the Securities for, sale to the Purchasers at the Closing under
      applicable securities or “Blue Sky” laws of the states of the United States, and
      shall provide evidence of such actions promptly upon request of any
      Purchaser.

     

    4.18 Capital
      Change.
      Other
      than as contemplated by the Reverse Acquisition, until the one year anniversary
      of the Effective Date, the Company shall not undertake a reverse or forward
      stock split or reclassification of the Common Stock without the prior written
      consent of the Purchasers holding a majority in interest of the shares of
      Preferred Stock.

     

    4.19 Anti-Corrupt
      Practices.
      Neither
      the Company nor any Subsidiary, nor any agent or other person acting on behalf
      of the Company or a Subsidiary, shall (i) directly or indirectly, use any funds
      for unlawful contributions, gifts, entertainment or other unlawful expenses
      related to foreign or domestic political activity, (ii) make any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      fail to disclose fully any contribution made by the Company or Subsidiary (or
      made by any person acting on its behalf of which the Company or Subsidiary
      is
      aware) which is in violation of law, or (iv) violate in any material respect
      any
      provision of the Foreign Corrupt Practices Act of 1977, as amended, or any
      other
      applicable anti-bribery/kickback law, rule, regulation, order, judgment,
      injunction, decree or other restriction of any court or governmental authority
      to which the Company or a Subsidiary is or will be subject.

     

    
      
        
        

      

      
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    4.20 Insurance.
      The
      Company and the Subsidiaries shall maintain insurance by insurers of recognized
      financial responsibility against such losses and risks and in such amounts
      as
      are prudent and customary in the businesses in which the Company and the
      Subsidiaries are engaged, including, but not limited to, directors and officers
      insurance coverage for the Company at least equal to $5 million and a medical
      malpractice insurance coverage at least equal to the amounts set forth on
Schedule
      3.1(p)
      or such
      greater amounts as are prudent and customary in the businesses in which the
      Company and the Subsidiaries are engaged.

     

    4.21 Appointment
      of an Additional Director.
      Until
      such time as Lehman holds less than 50% of the Securities (whether Preferred
      Stock, Warrants or Underlying Shares) purchased hereunder (or via an exercise
      of
      the Warrants) (the “Appointment
      Period”),
      the
      Company shall appoint (or cause its board of directors to appoint) or nominate
      for shareholder approval one Person selected by Lehman, at Lehman’s sole
      discretion, as a member of the Company’s board of directors, which appointment
      shall be effective within 10 calendar days following the Closing Date. Such
      director shall be subject to shareholder approval at the Company’s first annual
      meeting after the date of this Agreement. The Company shall use best efforts
      to
      nominate, solicit proxies and recommend that shareholders vote in favor of
      such
      Persons, or replacement directors as selected by Lehman in Lehman’s sole
      discretion, for re-election as directors of the Company at each annual meeting
      or special meeting of the shareholders of the Company at which the election
      of
      directors is a matter to be acted upon. The Company shall take all further
      actions reasonably necessary to satisfy the covenants herein. During the
      Appointment Period, the Company shall not increase the number of directors
      to
      more than 5 members (which shall include the Lehman director) without the
      consent of Lehman.

     

    4.22 Sarbanes-Oxley
      Compliance.
      The
      Company shall be in material compliance with all provisions of the
      Sarbanes-Oxley Act of 2002 which are applicable to it at the 9 month anniversary
      of the date hereof.

     

    4.23 Management
      Incentives.
      On or
      before the reorganization contemplated by the Shareholder Approval, the Company
      and the Subsidiaries shall have issued all of the securities to be issued to
      management as set forth in Schedule
      3.1(g)
      attached
      hereto. 

     

     

    ARTICLE
      V

    MISCELLANEOUS

     

    5.1
      Termination. 
      This Agreement may be terminated by any Purchaser, as to such Purchaser’s
      obligations hereunder only and without any effect whatsoever on the obligations
      between the Company and the other Purchasers, by written notice to the other
      parties, if the Closing has not been consummated on or before January 31, 2007;
      provided,
      however,
      that
      such termination will not affect the right of any party to sue for any breach
      by
      the other party (or parties).

     

    
      
        
        

      

      
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    5.2
      Fees
      and Expenses.
      At the
      Closing, the Company has agreed to reimburse Lehman the non-accountable sum
      of
      $30,000, for its legal fees and expenses. Accordingly, in lieu of the foregoing
      payments, the aggregate amount that Lehman is to pay for the Securities at
      the
      Closing shall be reduced by $30,000 in lieu thereof. Except as expressly set
      forth in the Transaction Documents to the contrary, each party shall pay the
      fees and expenses of its advisers, counsel, accountants and other experts,
      if
      any, and all other expenses incurred by such party incident to the negotiation,
      preparation, execution, delivery and performance of this Agreement. The Company
      shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
      in connection with the delivery of any Securities to the
      Purchasers.

     

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

     

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

     

    5.5 Amendments;
      Waivers.
      No
      provision of this Agreement may be waived, modified, supplemented or amended
      except in a written instrument signed, in the case of an amendment, by the
      Company and Purchasers holding 67% of the Securities or, in the case of a
      waiver, by the party against whom enforcement of any such waived provision
      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 any party
      to
      exercise any right hereunder in any manner impair the exercise of any such
      right.

     

    5.6 Headings.
      The
      headings herein are for convenience only, do not constitute a part of this
      Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

     

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

     

    
      
        
        

      

      
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    5.8 No
      Third-Party Beneficiaries.
      This
      Agreement is intended for the benefit of the parties hereto and their respective
      successors and permitted assigns and is not for the benefit of, nor may any
      provision hereof be enforced by, any other Person, except as otherwise set
      forth
      in Section 4.11.

     

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

     

    5.10 Survival.
      The
      representations and warranties shall survive the Closing and the delivery of
      Securities for the applicable statue of limitations. 

     

    5.11 Execution.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, 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 “.pdf” signature page were an original thereof.

     

    
      
        
        

      

      
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    5.12 Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    5.18 Independent
      Nature of Purchasers’ Obligations and Rights.
      The
      obligations of each Purchaser under any Transaction Document are several and
      not
      joint with the obligations of any other Purchaser, and no Purchaser shall be
      responsible in any way for the performance or non-performance of the obligations
      of any other Purchaser under any Transaction Document. Nothing contained herein
      or in any other Transaction Document, and no action taken by any Purchaser
      pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
      an association, a joint venture or any other kind of entity, or create a
      presumption that the Purchasers are in any way acting in concert or as a group
      with respect to such obligations or the transactions contemplated by the
      Transaction Documents. Each Purchaser shall be entitled to independently protect
      and enforce its rights, including without limitation, the rights arising out
      of
      this Agreement or out of the other Transaction Documents, and it shall not
      be
      necessary for any other Purchaser to be joined as an additional party in any
      proceeding for such purpose. Each Purchaser has been represented by its own
      separate legal counsel in their review and negotiation of the Transaction
      Documents. For reasons of administrative convenience only, Purchasers and their
      respective counsel have chosen to communicate with the Company through FWS.
      FWS
      does not represent any of the Purchasers but Lehman. The Company has elected
      to
      provide all Purchasers with the same terms and Transaction Documents for the
      convenience of the Company and not because it was required or requested to
      do so
      by the Purchasers.

     

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

     

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

     

    5.21 Exculpation
      Among Purchasers.
      Each
      Purchaser acknowledges that it is not relying upon any Person (including without
      any limitation, any other Purchaser), other than the Company and its officers
      and directors (acting in their capacity as representatives of the Company),
      in
      deciding to invest and in making its investment in the Company. Each Purchaser
      agrees that no other Purchaser nor the respective controlling Persons, officers,
      directors, partners, agents or employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles notwithstanding
      a
      lack of such title or any other title) of any other Purchaser shall be liable
      to
      such Purchaser for any losses incurred by such Purchaser in connection with
      its
      investment in the Company.

     

    [Signature
      Page Follows]

    
      
        
        

      

      
        37

        
          

        

      

       

    

    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.

     

      	PACE
              HEALTH MANAGEMENT SYSTEMS, INC. 	 	Address/Facsimile
              Number/E-mail 
	 	 	 	 	 
	 	 	 	 	 
	By:	/s/ John
              Pappajohn	 	 	 
	 	
              
                

              

              Name: John Pappajohn

              
                Title:
                  President and Chief Executive Officer

              

            	 	 	
            

    

     

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

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
      PAGE FOR PURCHASER FOLLOWS]

    
      
        
        

      

      
        38

        
          

        

      

       

    

    [PURCHASER
      SIGNATURE PAGES TO PACE SECURITIES PURCHASE AGREEMENT]

    

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

     

    Name
      of
      Purchaser: ____________________________________________________

     

    Signature
      of Authorized Signatory of Purchaser:
      __________________________

     

    Name
      of
      Authorized Signatory: ____________________________________

     

    Title
      of
      Authorized Signatory: _____________________________________

     

    Email
      Address of Authorized Signatory:
      ___________________________________________

     

    Fax
      Number of Authorized Signatory:
      _________________________________________

    

    Address
      for Notice of Purchaser:

     

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

     

    Subscription
      Amount:____________

    Shares
      of
      Preferred Stock:____________

    Warrants
      @ $0.30: _____________

    Warrants
      @ $2.50: _____________

    EIN
      Number: [PROVIDE
      THIS UNDER SEPARATE COVER]

    
      	 

    

    [SIGNATURE
      PAGES CONTINUE]

    
      
        
        

      

      
        39

        
          

        

      

       

    

    Annex
      A

     

    
      	Purchaser	 	Subscription Amount	 	 Securities
	 	 	 	 	 
	
              LB
                I Group Inc.

            	 	 	 	 

    

         

    
      
        
        

      

      
        40

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