Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
     SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of August 21,
2008, by and among GreenHunter Energy, Inc. (the “Company”) and the investor
listed on the Schedule of Buyers attached hereto (the “Buyer”).
WHEREAS:
A. The Company and Buyer are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of
Regulation D (“Regulation D”) as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the 1933 Act.
B. The Company has authorized a new series of convertible preferred stock of the
Company designated as Series B Preferred Stock, the terms of which are set forth
in the certificate of designations for such series of preferred stock (the
“Certificate of Designations”) in the form attached hereto as Exhibit A
(together with any convertible Preferred Stock issued in replacement thereof in
accordance with the terms thereof, the “Preferred Stock”), which Preferred Stock
shall be convertible into the Company’s common stock, par value $0.001 per share
(the “Common Stock”), in accordance with the terms of the Certificate of
Designations.
C. The Buyer (and other investors) and the Company entered into that certain
securities purchase agreement dated March 9, 2007, pursuant to which the Buyer
purchased an aggregate of (i)11,750 shares of the Company’s Series A 8%
Convertible Preferred Stock, (ii) warrants to purchase 1,410,000 shares of
Common Stock (the “2007 Warrants”), and (iii) 470,000 shares of Common Stock.
D. Buyer wishes to return the 2007 Warrants to the Company, and the Company
wishes to cancel the 2007 Warrants in connection with the transactions
contemplated hereunder.
E. Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares of
Preferred Stock set forth opposite Buyer’s name in column (3) on the Schedule of
Buyers (which shall be 10,575 shares of Preferred Stock and the shares of Common
Stock into which such Preferred Stock is convertible being referred to herein as
the “Conversion Shares”), and (ii) Warrants in substantially the form attached
hereto as Exhibit B (the “Warrants”), to acquire that number of shares of Common
Stock (as exercised, collectively, the “Warrant Shares”) set forth opposite
Buyer’s name in column (4) on the Schedule of Buyers.
F. The Preferred Stock, the Conversion Shares, the Warrants and the Warrant
Shares are collectively referred to herein as the “Securities”.
NOW, THEREFORE, the Company and Buyer hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.
     (a) Preferred Stock and Warrants. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6 and 7 below, the Company shall issue
and sell to Buyer, and

 

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Buyer agrees to purchase from the Company on the Closing Date (as defined
below), the number of shares of Preferred Stock, as is set forth opposite
Buyer’s name in column (3) on the Schedule of Buyers, along with Warrants to
acquire that number of Warrant Shares as is set forth opposite Buyer’s name in
column (4) on the Schedule of Buyers.
     (b) Closing. The closing (the “Closing”) of the purchase of the Preferred
Stock and Warrants by the Buyer shall occur at the offices of McDermott Will &
Emery LLP, 340 Madison Avenue, New York, New York 10173. The date and time of
the Closing (the “Closing Date”) shall be 10:00 a.m., New York City Time, on the
date hereof, subject to the notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and Buyer). As used herein
“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
     (c) Purchase Price. The purchase price for the Preferred Stock and the
Warrants to be purchased by Buyer shall be (i) $10,575,000 (the “Cash Purchase
Price”), and (ii) the cancellation of 1,410,000 2007 Warrants (together with the
Cash Purchase Price, the “Purchase Price”).
     (d) Form of Payment. On the Closing Date, (A) Buyer shall pay the Purchase
Price to the Company for the Preferred Stock and the Warrants to be issued and
sold to Buyer at the Closing, (i) by wire transfer of immediately available
funds equal to the Cash Purchase Price in accordance with the Company’s written
wire instructions, and (ii) the return of the 2007 Warrants to the Company, and
(B) the Company shall deliver to Buyer the Preferred Stock (in such
denominations as is set forth opposite Buyer’s name in column (3) on the
Schedule of Buyers), along with the Warrants (exercisable for the number of
shares of Common Stock as are set forth opposite Buyer’s name in column (4) on
the Schedule of Buyers), each duly executed on behalf of the Company and
registered in the name of Buyer or its designee.
2. REPRESENTATIONS AND WARRANTIES.
Buyer represents and warrants that:
     (a) Organization; Authority. Buyer is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
     (b) No Public Sale or Distribution. Buyer is (i) acquiring the Preferred
Stock, and the Warrants, (ii) upon conversion of the Preferred Stock will
acquire the Conversion Shares, and (iii) upon exercise of the Warrants will
acquire the Warrant Shares, in each case, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, Buyer does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption

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under the 1933 Act. Buyer is not a broker-dealer registered, or required to be
registered, with the SEC under the 1934 Act. Buyer is acquiring the Securities
hereunder in the ordinary course of its business. Buyer does not presently have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.
     (c) Accredited Investor Status. Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D.
     (d) Reliance on Exemptions. Buyer understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying in part upon the truth and accuracy of, and Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of Buyer to acquire the
Securities.
     (e) Information. Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities which have been
requested by Buyer. Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by Buyer or its advisors, if any,
or its representatives shall modify, amend or affect Buyer’s right to rely on
the Company’s representations and warranties contained herein. Buyer understands
that its investment in the Securities involves a high degree of risk. Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.
     (f) No Governmental Review. Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities or the fairness or
suitability of the investment in the Securities nor have such authorities passed
upon or endorsed the merits of the offering of the Securities.
     (g) Transfer or Resale. Buyer understands that: (i) the Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless
(A) subsequently registered thereunder, (B) Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws

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or to comply with the terms and conditions of any exemption thereunder. The
Securities may be pledged in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities and such pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Buyer effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document (as defined in Section 3(b)), including, without limitation, this
Section 2(g).
     (h) Legends. Buyer understands that the certificates or other instruments
representing the Preferred Stock and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have either been
registered under the 1933 Act or are exempt from registration under the 1933
Act, the stock certificates representing the Conversion Shares and the Warrant
Shares, except as set forth below, shall bear any legend as required by the
“blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
[NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]]
HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act, or (iii) such holder provides
the Company with reasonable assurance that the Securities can be sold, assigned
or transferred pursuant to Rule 144 or Rule 144A. The Company shall bear all
fees and expenses related to the removal of the legend and issuance of any new
unlegended Securities.
     (i) Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of Buyer and shall constitute the
legal, valid and binding obligations of Buyer enforceable against Buyer in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,

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insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.
     (j) No Conflicts. The execution, delivery and performance by Buyer of this
Agreement and the consummation by Buyer of the transactions contemplated hereby
will not (i) result in a violation of the organizational documents of Buyer or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which Buyer is a party), (iii) result in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws) applicable to Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of Buyer to perform its obligations
hereunder.
     (k) Residency. Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.
     (l) General Solicitation. Buyer 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.
     (m) Independent Investment Decision. Buyer has independently evaluated the
merits of its decision to purchase the Securities pursuant to this Agreement,
and Buyer confirms that it has not relied on the advice of the Company in making
such decision.
     (n) Certain Fees. Buyer has not entered into an agreement whereby brokerage
or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other person with respect to the transactions contemplated by
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Buyer that, except as disclosed in the
SEC Documents and except as otherwise set forth on the schedule of exceptions
delivered to the Buyer in connection with the execution of this Agreement (the
“Schedules”):
     (a) Organization and Qualification. The Company and its “Subsidiaries”
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns capital stock or holds an equity or similar
interest) are entities duly organized and validly existing and in good standing
under the laws of the jurisdiction in which they are formed, and have the
requisite power and authorization to own their properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition

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(financial or otherwise) or current prospects of the Company and its
Subsidiaries, both taken as a whole and individually as to any Subsidiary that
is a Significant Subsidiary (as defined in Regulation S-X), or on the
transactions contemplated hereby or in the other Transaction Documents or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents (as defined below). The Subsidiaries
and their respective ownership interests are set forth on Schedule 3(a). The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any liens, and all the issued and
outstanding shares of capital stock of each Subsidiary are validly issued and
are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
     (b) Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Certificate of Designations, the Warrants and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and
thereof. The execution and delivery of this Agreement and the other Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Preferred Stock, the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Preferred Stock, the issuance
of the Warrants and the reservation for issuance and issuance of the Warrant
Shares issuable upon exercise of the Warrants have been duly authorized by the
Company’s Board of Directors and (other than any other filings as may be
required by the SEC or any state securities agencies) no further filing,
consent, or authorization is required by the Company, its Board of Directors or
its stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. The Certificate of
Designations in the form attached hereto as Exhibit A shall be filed with the
Secretary of State of the State of Delaware on or prior to Closing.
     (c) Issuance of Securities. The issuance of the Preferred Stock and the
Warrants are duly authorized and upon issuance in accordance with the terms of
the Transaction Documents shall be free from all taxes, liens and charges with
respect to the issue thereof, and the Preferred Stock shall be entitled to the
rights and preferences set forth in the Certificate of Designations. As of the
Closing, the Company shall have reserved from its duly authorized capital stock
not less than the sum of 120% of (i) the maximum number of shares of Common
Stock issuable upon conversion of the Preferred Stock (without taking into
account any limitations on the conversion of the Preferred Stock set forth in
the Certificate of Designations), and (ii) the maximum number of shares of
Common Stock issuable upon exercise of the Warrants (without taking into account
any limitations on the exercise of the Warrants set forth in the Warrants). Upon
issuance or conversion in accordance with the Certificate of Designations or
exercise in

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accordance with the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Subject to the representations
and warranties of the Buyer in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.
     (d) No Conflicts. The execution, delivery and performance of this Agreement
and the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Stock and the Warrants, and the
reservation for issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation (as defined in
Section 3(r)) of the Company or Bylaws (as defined in Section 3(r)) or the
Certificate of Designations of the Company or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, except to the extent such
conflict, default or termination right would not reasonably be expected to have
a Material Adverse Effect, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected except, in the case of clause (ii) or (iii) above, to the extent
such violations would not reasonably be expected to have a Material Adverse
Effect.
     (e) Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement and the other Transaction Documents, in
each case in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the Closing Date, and the Company is unaware of any facts or
circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence.
     (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company
acknowledges and agrees that Buyer is acting solely in the capacity of an arm’s
length purchaser with respect to this Agreement and the other Transaction
Documents and the transactions contemplated hereby and thereby and that Buyer is
not an officer or director of the Company. The Company further acknowledges that
Buyer is not acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by Buyer or any of its representatives or agents in connection with this
Agreement and the other Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to Buyer’s purchase of the Securities.
The Company further represents to Buyer that the Company’s decision to enter
into this Agreement and the other Transaction Documents has been based solely on
the independent evaluation by the Company and its representatives.

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     (g) No General Solicitation; Placement Agent’s Fees. Neither the Company,
nor any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney’s fees and out-of-pocket expenses) arising in connection
with any such claim. The Company has not engaged any placement agent or other
agent in connection with the sale of the Securities.
     (h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their affiliates, or 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 require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates or any Person acting on its or their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.
     (i) Dilutive Effect. The Company understands and acknowledges that the
Warrant Shares issuable upon exercise of the Warrants, will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Preferred Stock in accordance with this
Agreement and the Certificate of Designations and its obligation to issue the
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
     (j) Application of Takeover Protections; Rights Agreement. 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 Certificate of Incorporation or the laws of
the jurisdiction of its incorporation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and Buyer’s
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.
     (k) SEC Documents; Financial Statements. Except as disclosed in the SEC
Documents or on Schedule 3(k), the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents

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incorporated by reference therein being hereinafter referred to as the “SEC
Documents”). The Company has delivered to the Buyer or its representatives true,
correct and complete copies of each of the SEC Documents not available on the
EDGAR system. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents, (the “Financial Statements”) complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the time of
filing. Such Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such Financial
Statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(e) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein not misleading, in the light of the circumstance under
which they are or were made.
     (l) Absence of Certain Changes. Except as disclosed in the Company’s
quarterly report on Form 10-Q for the period ended June 30, 2008, since June 30,
2008, there has been no material adverse change and no material adverse
development in the business, assets, liabilities, properties, operations,
condition (financial or otherwise), results of operations or prospects of the
Company or its Subsidiaries, other than changes or developments in the ordinary
course of business of the Company or its Subsidiaries. Since the date of the
Company’s most recent audited financial statements, neither the Company nor any
of its Subsidiaries has (i) declared or paid any dividends, (ii) sold any
assets, individually or in the aggregate, outside of the ordinary course of
business or (iii) had capital expenditures, in the aggregate, in excess of
$500,000. Neither the Company nor any of its Subsidiaries has taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below). For purposes of this
Section 3(l), “Insolvent” means, with respect to the Company, on a consolidated
basis with its Subsidiaries, (i) the present fair saleable value of the
Company’s and its Subsidiaries’ assets is less than the amount required to pay
the Company’s and its Subsidiaries’ total Indebtedness (as defined in
Section 3(s)), (ii) the Company and its Subsidiaries are unable to pay their
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company and its
Subsidiaries intend to incur or believe that they will incur debts that would be
beyond their ability to pay as such debts mature. The Company has not engaged in
business or in any

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transaction, and is not about to engage in business or in any transaction, for
which the Company’s remaining assets constitute unreasonably small capital.
     (m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 or any other applicable
form filed with the SEC relating to an issuance and sale by the Company of its
Common Stock and which has not been publicly announced.
     (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, the Certificate of Designations, any other
certificate of designation, preferences or rights of any other outstanding
series of preferred stock of the Company or Bylaws or their organizational
charter or Articles of Incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any law, statute, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except in all cases for possible violations which would not, individually or in
the aggregate, have a Material Adverse Effect. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
     (o) Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
     (p) Sarbanes-Oxley Act.  The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof, except where the
failure to be in compliance would not have a Material Adverse Effect
     (q) Transactions With Affiliates. None of the officers, directors or
employees of the Company or any of its Subsidiaries is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing

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of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of the Company or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
     (r) Equity Capitalization. As of the date hereof, not taking into account
the issuance of the Preferred Stock or Warrants, the authorized capital stock of
the Company consists of (i) 40,000,000 shares of Common Stock, of which as of
the date hereof, 19,897,600 are issued and outstanding and (ii) 10,000,000
shares of preferred stock, of which as of the date hereof, 2,500,000 shares are
issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. As of the
date of this Agreement and except for the transactions contemplated hereby,
(i) none of the Company’s capital stock is subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
capital stock of the Company or any of its Subsidiaries; (iii) there are no
outstanding debt securities, notes, credit agreements, loan or credit facilities
or other agreements, documents or instruments evidencing Indebtedness (as
defined in Section 3(s)) of the Company or any of its Subsidiaries or by which
the Company or any of its Subsidiaries is or may become bound; (iv) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of their securities under the 1933 Act;
(v) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to purchase,
repurchase, retire or redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (vii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and
(viii) the Company and its Subsidiaries have no liabilities or obligations other
than those incurred in the ordinary course of the Company’s or its Subsidiaries’
respective businesses and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect. The Company has furnished to the Buyer
true, correct and complete copies of the Company’s Certificate of Incorporation,
as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in effect on the
date hereof (the “Bylaws”), and the terms of all securities convertible into, or
exercisable or exchangeable for, shares of Common Stock and the material rights
of the holders thereof in respect thereto.
     (s) Indebtedness and Other Contracts. Neither the Company nor any of its
Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a
party to any contract, agreement or instrument, the violation of which, or
default under which, by the other

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party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business),
(C) all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
     (t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries,
the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or
its Subsidiaries’ officers or directors which is outside of the ordinary course
of business or individually or in the aggregate material to the Company.
     (u) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which

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the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.
     (v) Employee Relations.
          (i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The Company
and its Subsidiaries believe that their relations with their employees are good.
No executive officer of the Company (as defined in Rule 501(f) of the 1933 Act)
or any of its Subsidiaries has notified the Company or any such Subsidiary that
such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer’s employment with the Company or any such Subsidiary. No
executive officer of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
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.
          (ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
          (iii) To the knowledge of the Company, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
     (w) Title. The Company and its Subsidiaries do not own any real property.
The Company and its Subsidiaries have good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
facilities by the Company and its Subsidiaries.
     (x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now conducted. None of the
Company’s or its Subsidiaries’ Intellectual Property Rights have expired,
terminated or been

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abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or any of its Subsidiaries of Intellectual
Property Rights of others. There is no claim, action or proceeding being made or
brought, or to the knowledge of the Company, being threatened, against the
Company or any of its existing Subsidiaries regarding its Intellectual Property
Rights. The Company is unaware of any facts or circumstances which might give
rise to any of the foregoing infringements or claims, actions or proceedings.
The Company and its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of all of their Intellectual
Property Rights.
     (y) Environmental Laws. To its knowledge, the Company and its Subsidiaries
(i) are in compliance with any and all Environmental Laws (as hereinafter
defined), (ii) have received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such
permit, license or approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. The term
“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
     (z) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
     (aa) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
     (bb) Internal Accounting and Disclosure Controls.  The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset and liability
accountability, (iii)

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access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.  The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  Except as otherwise disclosed in the SEC Documents, during the
twelve months prior to the date hereof, neither the Company nor any of its
Subsidiaries have received any notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of
internal accounting controls of the Company or any of its Subsidiaries
     (cc) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.
     (dd) Investment Company Status. The Company is not, and upon consummation
of the sale of the Securities will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended.
     (ee) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to Buyer hereunder will
be, or will have been, fully paid or provided for by the Company, and all laws
imposing such taxes will be or will have been complied with.
     (ff) Acknowledgement Regarding Buyer’s Trading Activity. It is understood
and acknowledged by the Company (i) that following the public disclosure of the
transactions contemplated by the Transaction Documents, in accordance with the
terms thereof, the Buyer has not been asked by the Company or its Subsidiaries
to agree, nor has Buyer agreed with the Company or its Subsidiaries, 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 Buyer, and counter parties in
“derivative” transactions to which any Buyer is a party, directly or indirectly,
presently may have a “short” position in the Common Stock which were established
prior to Buyer’s knowledge of the transactions contemplated by the Transaction
Documents, and (iii) that Buyer 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 following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, Buyer may engage in hedging and/or trading
activities at various times during

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the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and the Warrant
Shares deliverable with respect to Securities are being determined and (b) such
hedging and/or trading activities, if any, can reduce the value of the existing
stockholders’ equity interest in the Company both at and after the time the
hedging and/or trading activities are being conducted. The Company acknowledges
that such aforementioned hedging and/or trading activities do not constitute a
breach of this Agreement, the Preferred Stock, the Warrants or any of the
documents executed in connection herewith.
     (gg) [Reserved].
     (hh) Manipulation of Price. The Company and its Subsidiaries have not, and
to the Company’s knowledge no one acting on their 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, or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
     (ii) U.S. Real Property Holding Corporation. The Company is not a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company shall so certify upon Buyer’s
request.
     (jj) Disclosure. The Company understands and confirms that Buyer will rely
on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided to the Buyer regarding the Company and its
Subsidiaries, their business and the transactions contemplated by this Agreement
and the other Transaction Documents, including the Schedules and Exhibits hereto
and thereto, furnished by or on behalf of the Company 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 herein or therein,
in the light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or information exists with respect to the
Company or any of its Subsidiaries or its or their business, assets,
liabilities, properties, prospects, operations or conditions (financial or
otherwise), which, under applicable law, rule or regulation, requires public
disclosure at or before the date hereof or announcement by the Company but which
has not been so publicly announced or disclosed.
4. COVENANTS.
     (a) Best Efforts. Each party shall use its reasonable best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
     (b) Form D and Blue Sky. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to Buyer promptly after such filing. The Company shall, on or before the Closing
Date, 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
Buyer at the Closing pursuant to this Agreement under applicable securities or
“Blue Sky” laws of the states of the United States (or to obtain an exemption
from

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such qualification), and shall provide evidence of any such action so taken to
the Buyer on or prior to the Closing Date. The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following the Closing Date.
     (c) Reporting Status. Until the date on which the Buyer shall have sold all
the Conversion Shares and Warrant Shares, and none of the Preferred Stock or
Warrants is outstanding (the “Reporting Period”), the Company shall timely file
all reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination.
     (d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for working capital purposes and for general corporate purposes.
     (e) Financial Information. The Company agrees to send the following to
Buyer during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within three (3) Business Days after the filing thereof with the SEC, a copy of
its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB,
any interim reports or any consolidated balance sheets, income statements,
stockholders’ equity statements and/or cash flow statements for any period other
than annual, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on
the same day as the release thereof, facsimile copies of all press releases
issued by the Company or any of its Subsidiaries, and (iii) copies of any
notices and other information made available or given to the stockholders of the
Company generally, contemporaneously with the making available or giving thereof
to the stockholders.
     (f) Listing. The Company shall promptly secure the listing of all of the
Conversion Shares and Warrant Shares upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is then listed
(subject to official notice of issuance) and shall maintain such listing of all
such Conversion Shares and Warrant Shares from time to time issuable under the
terms of the Transaction Documents on such exchange or automated quotation
system or an Eligible Market. The Company shall maintain the Common Stock’s
authorization for quotation on an Eligible Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on an Eligible Market.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).
     (g) Fees. The Company shall reimburse West Coast Opportunity Fund, LLC, or
its designee(s) (in addition to any other expense amounts paid to Buyer prior to
the date of this Agreement) for all reasonable costs and expenses, up to
$50,000, incurred in connection with the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amount
shall be non-accountable. The Company shall be responsible for the payment of
any placement agent’s fees, financial advisory fees, or broker’s commissions
(other than for Persons engaged by Buyer) relating to or arising out of the
transactions contemplated by the Transaction Documents. The Company shall pay,
and hold Buyer harmless against, any

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liability, loss or expense (including, without limitation, reasonable attorney’s
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment.
     (h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged Buyer (or its transferee) in connection with a bona
fide margin agreement or other loan or financing arrangement that is secured by
the Securities. The pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer (or its transferee)
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by Buyer (or its transferee).
     (i) Disclosure of Transactions and Other Material Information. On or before
8:30 a.m., New York time, on the fourth Business Day following the date of this
Agreement, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching (unless the Company shall elect to defer
the filing of exhibits as permitted by the 1934 Act) the material Transaction
Documents (including, without limitation, this Agreement, the Certificate of
Designations and the form of Warrants) (including all attachments, the “8-K
Filing”). The Company shall not, and shall cause each of its Subsidiaries and
its and each of their respective officers, directors, employees and agents, not
to, provide Buyer (or its transferee) with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express written consent of Buyer (or its
transferee). Subject to the foregoing, none of the Company, its Subsidiaries or
Buyer (or its transferee) shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of Buyer
(or its transferee), to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) Buyer (or its transferee)
shall be consulted (to the extent reasonably practicable) by the Company in
connection with any such press release or other public disclosure prior to its
release). Except as set forth above, without the prior written consent of any
applicable Buyer (or its transferee), neither the Company nor any of its
Subsidiaries shall disclose the name of Buyer (or its transferee) in any filing,
announcement, release or otherwise.
     (j) Corporate Existence. So long as Buyer beneficially owns any Preferred
Stock or Warrants, the Company shall not be party to any Fundamental Transaction
(as defined in the Certificate of Designations) unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Certificate of Designations and the Warrants.
     (k) Reservation of Shares. The Company shall take all action necessary to
at all times have authorized, and reserved for the purpose of issuance, no less
than 120% of (i) the maximum number of shares of Common Stock issuable upon
conversion of the Preferred Stock (assuming for purposes hereof, that the
Preferred Stock is convertible at the Conversion Price and without taking into
account any limitations on the conversion of the Preferred Stock set forth in
the

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Certificate of Designations) and (ii) the maximum number of shares of Common
Stock issuable upon exercise of the Warrants (assuming for purposes hereof the
Exercise Price (as defined in the Warrants), subject to adjustment for stock
splits and stock dividends and without taking into account any limitations on
the exercise of the Warrants set forth in the Warrants).
     (l) Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
government, or any department or agency thereof or any governmental entity,
except where such violations would not result, either individually or in the
aggregate, in a Material Adverse Effect.
     (m) U.S. Real Property Holding Corporation. For as long as the Buyer holds
any Securities, and unless otherwise agreed to by the Buyer who own Securities
at the relevant time, the Company will take reasonable steps to not cause its
shares to be U.S. real property interests within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, as of the date hereof. This
covenant may not be assigned by Buyer to any other person, including any
transferee of the Securities.
     (n) Legend. Certificates evidencing the Warrant Shares and Conversion
Shares shall not contain any legend (including the legend set forth above),
(A) while a registration statement covering the resale of such security is
effective under the 1933 Act (provided, however, that the Buyer’s prospectus
delivery requirements under the 1933 Act will remain applicable), or (B)
following any sale of such Warrant Shares and/or Conversion Shares pursuant to
Rule 144, or (C) if such Warrant Shares and/or Conversion Shares are eligible
for sale under Rule 144(k), or (D) if such legend is not required under
applicable requirements of the 1933 Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC). Subject to the foregoing, upon
written request of the Buyer to have such legend removed, the Company shall
cause its counsel to issue a legal opinion to the Company’s transfer agent
promptly after the effective date of any registration statement (the “Effective
Date”) if required by the Company’s transfer agent to effect the removal of the
legend hereunder. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 5(n), it will,
no later than three (3) Trading Days (as defined in the Certificate of
Designations) following the delivery by the Buyer to the Company or the
Company’s transfer agent of a certificate representing Warrant Shares and/or
Conversion Shares issued with a restrictive legend, deliver or cause to be
delivered to Buyer a certificate representing such Warrant Shares and/or
Conversion 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(s) the restrictions on transfer set
forth herein.
     (o) Removal of Legend. In addition to the Buyer’s other available remedies
and provided that the conditions permitting the removal of legend specified in
Section 4(n) are met, the Company shall pay to the Buyer, in cash, as partial
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
and/or Conversion Shares (based on the Closing Sale Price (as defined in the
Certificate of Designations) of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company’s transfer agent), $5 per
trading day (increasing to $10 per Trading Day five (5) trading days after such
damages have begun to accrue) for each Trading Day after the seventh (7th)
trading day following delivery by the Buyer to the Company or the Company’s
transfer agent of a certificate representing Warrant Shares

19

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and/or Conversion Shares issued with a restrictive legend, until such
certificate is delivered to the Buyer with such legend removed provided that
such payments shall be suspended for two (2) weeks if the Company has made a
good-faith determination that such failure to remove the legend is due to the
fault of its transfer agent and not the fault of the Company. Nothing herein
shall limit the Buyer’s right to pursue actual damages for the failure of the
Company and its transfer agent to deliver certificates representing any
securities as required hereby, and the Buyer 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.
     (p) Publicity. The Company and the Buyer shall have the right to approve,
before issuance any press release or any other public statement with respect to
the transactions contemplated hereby made by any party; provided, however, that
the Company shall be entitled, without the prior approval of the Buyer, to issue
any press release or other public disclosure with respect to such transactions
required under applicable securities or other laws or regulations provided, that
the Company shall use its commercially reasonable best efforts to consult the
Buyer in connection with any such press release or other public disclosure prior
to its release and Buyer shall be provided with a copy thereof upon release
thereof.
     (q) No Issuances of Preferred Stock. So long as Buyer beneficially owns any
Preferred Stock, the Company will not issue any Preferred Stock (other than to
the Buyer as contemplated hereby) and the Company shall not issue any other
securities that would cause a breach or default under the Preferred Stock.
5. REGISTER.
     (a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Preferred Stock and the Warrants
in which the Company shall record the name and address of the Person in whose
name the Preferred Stock and the Warrants have been issued (including the name
and address of each transferee), the number of Preferred Stock held by such
Person, the number of Conversion Shares issuable upon conversion of the
Preferred Stock, and the number of Warrant Shares issuable upon exercise of the
Warrants held by such Person. The Company shall keep the register open and
available at all times during business hours for inspection of Buyer or its
legal representatives.
     (b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”), registered in the name of Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by Buyer to the Company in the form of
Exhibit C attached hereto (the “Irrevocable Transfer Agent Instructions”). The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Sections 2(g) and 2(h) hereof, will be given by the Company to
its transfer agent with respect to the Conversion Shares and the Warrant Shares,
and that the Conversion Shares and the Warrant Shares shall otherwise be freely
transferable on the books and records of the Company, as applicable, and to the
extent provided in this Agreement and the other Transaction Documents. If a
Buyer effects a sale, assignment or

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transfer of Conversion Shares and the Warrant Shares in accordance with Sections
2(g) and 2(h), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by Buyer to effect such sale, transfer or assignment. In the event
that such sale, assignment or transfer involves Conversion Shares or Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to seek
an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.
     (a) The obligation of the Company hereunder to issue and sell the Preferred
Stock and the related Warrants to Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by providing
Buyer with prior written notice thereof:
          (i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
          (ii) Such Buyer and each other Buyer shall have delivered to the
Company (A) the Cash Purchase Price by wire transfer of immediately available
funds, pursuant to the written wire instructions provided by the Company two
(2) Business Days prior to Closing, and (B) its 2007 Warrants.
          (iii) The representations and warranties of Buyer that are not
qualified as to materiality shall be true and correct in all material respects,
and those that are so qualified shall be true and correct in all respects, as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date),
and Buyer shall have performed, satisfied and complied in all respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.
     (a) The obligation of Buyer hereunder to purchase the Preferred Stock and
the related Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for Buyer’s sole benefit and may be waived by Buyer at any time
in its sole discretion by providing the Company with prior written notice
thereof:

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          (i) The Company shall have duly executed and delivered to Buyer
(A) each of the Transaction Documents and (B) the Preferred Stock (in such
numbers as is set forth across from Buyer’s name in column (3) of the Schedule
of Buyers, and the related Warrants (in such numbers as is set forth across from
Buyer’s name in column (4) of the Schedule of Buyers) being purchased by Buyer
at the Closing pursuant to this Agreement.
          (ii) Buyer shall have received the opinion of Fulbright & Jaworski
L.L.P., the Company’s outside counsel, dated as of the Closing Date, in a form
reasonably acceptable to Buyer.
          (iii) The Company shall have delivered to Buyer a certificate
evidencing the formation and good standing of the Company issued by the
Secretary of State of Delaware as of a date within five (5) days of the Closing
Date.
          (iv) The Company shall have delivered to Buyer a certified copy of the
Certificate of Incorporation as certified by the Secretary of State of the State
of Delaware within five (5) days of the Closing Date.
          (v) The Company shall have delivered to Buyer a certificate, executed
by the Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s board of
directors in a form reasonably acceptable to Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing.
          (vi) The representations and warranties of the Company that are not
qualified as to materiality shall be true and correct in all material respects,
and those that are so qualified shall be true and correct in all respects, as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required by the Transaction Documents
to be performed, satisfied or complied with by the Company at or prior to the
Closing Date. At the Closing, Buyer shall have received a certificate, executed
by the Chief Executive Officer of the Company, dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by Buyer.
          (vii) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.
          (viii) The Certificate of Designations in the form attached hereto as
Exhibit A shall have been filed with the Secretary of State of the State of
Delaware and shall be in full force and effect, enforceable against the Company
in accordance with its terms and shall not have been amended.
          (ix) The Company shall have delivered to Buyer such other documents
relating to the transactions contemplated by this Agreement as Buyer or its
counsel may reasonably request.

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8. TERMINATION.
In the event that the Closing shall not have occurred with respect to a Buyer on
or before five (5) Business Days from the date hereof due to the Company’s or
Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party’s failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyer for the expenses described in
Section 4(g) above.
9. MISCELLANEOUS.
     (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of Texas, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Texas or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Texas. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of Dallas, County of Dallas, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, 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 brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT
OR ANY TRANSACTION CONTEMPLATED HEREBY.
     (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
     (c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
     (d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or

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enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
     (e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyer, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least a majority of the Preferred Stock issued and issuable
hereunder, and any amendment to this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on Buyer and holders of
Securities, as applicable. No provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Preferred Stock then outstanding. 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 also is offered to all of the parties to the Transaction
Documents, holders of Preferred Stock or holders of the Warrants, as the case
may be. The Company has not, directly or indirectly, made any agreements with
Buyer relating to the terms or conditions of the transactions contemplated by
the Transaction Documents except as set forth in the Transaction Documents.
Without limiting the foregoing, the Company confirms that, except as set forth
in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
     (f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
an overnight courier service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
GreenHunter Energy, Inc.
1048 Texan Trail
Grapevine, Texas 76051
Telephone: (469) 293-4397
Attention: Chief Financial Officer
If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to Buyer’s representatives as set forth on the Schedule of
Buyers, or to such other address and/or facsimile number and/or to the attention
of such other Person as the recipient party has specified by written notice
given to each other party five (5) days prior to the effectiveness of

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such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
     (g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Preferred Stock or the Warrants. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the holders of at least a majority of the aggregate
number of Registrable Securities issued and issuable hereunder, including by way
of a Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the
Certificate of Designations and the Warrants). A Buyer may assign some or all of
its rights hereunder in connection with transfer of any of its Preferred Stock
or Warrants, subject to compliance with the securities laws and the provisions
of Section 2(g), without the consent of the Company, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.
     (h) No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
     (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyer contained in
Sections 2 and 3 shall survive the Closing for a period of eighteen (18) months
and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive
the Closing.
     (j) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
     (k) Indemnification. In consideration of Buyer’s execution and delivery of
the Transaction Documents and acquiring the Securities thereunder and in
addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless Buyer
and each affiliate of a Buyer that holds Preferred Stock or Warrants and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
“Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty

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made by the Company in the Transaction Documents, (b) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction
Documents or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
(ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents;
provided, that no Buyer shall be entitled to indemnification to the extent any
of the foregoing is caused by its gross negligence or willful misconduct. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.
     (l) No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
     (m) Remedies. Buyer and each affiliate of Buyer that holds Preferred Stock
or Warrants shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the Buyer. The
Company therefore agrees that the Buyer shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
     (n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever Buyer 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 Buyer 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
     (o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyer hereunder or pursuant to any of the other Transaction
Documents or the Buyer enforce or exercise their rights hereunder or 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

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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, foreign, 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.
     (p) Confidentiality. Buyer agrees to maintain the confidentiality of any
material nonpublic information provided by or on behalf of the Company until the
earlier of (i) the Company has disclosed such information in its filings under
the 1933 Act or the 1934 Act; (ii) such information has otherwise become part of
the public domain other than as a result of a breach of this Section 9(p) by
such Buyer; (iii) thirty days have passed from the date of this Agreement, or
(iv) such Buyer is required to disclose such information by applicable law or
legislative, judicial or administrative process.
[Signature Page Follows]

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     IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

            COMPANY:

GREENHUNTER ENERGY, INC.
      By:   /s/ Morgan F. Johnston       Name:   Morgan F. Johnston      
Title:   Senior Vice President, General Counsel and Secretary  

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     IN WITNESS WHEREOF, Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

            BUYERS:

WEST COAST OPPORTUNITY FUND, LLC
      By:   /s/ Atticus Lowe       Name:   Atticus Lowe        Title:   Chief
Investment Officer   

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SCHEDULE OF BUYERS

                                      (1)   (2)   (3)   (4)   (5)   (6)   (7)  
                          Aggregate             Aggregate Principal   Aggregate
          Number of   Legal Representative’s         Amount of Preferred  
Number of   Cash Purchase   Cancelled 2007   Address Buyer   Address and
Facsimile Number   Stock   Warrants   Price   Warrants   and Facsimile Number
West Coast
Opportunity Fund,
LLC
  2151 Alessandro Drive,
Suite 215
Ventura, CA 93001
Telephone: (805) 653-5333
Facsimile: (805) 648-6488
Attention: Atticus Lowe
Residence: Delaware   $10,575,000

(10,575 shares of
Preferred Stock)     1,410,000     $ 10,575,000       1,410,000     McDermott
Will & Emery LLP
340 Madison Avenue
New York, New York 10173
Telephone: (212) 547-5400
Facsimile: (212) 547-5444
Attention: Stephen E. Older, Esq.
Meir A. Lewittes, Esq.

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EXHIBITS

     
Exhibit A
  Form of Certificate of Designations
Exhibit B
  Form of Warrant
Exhibit C
  Form of Transfer Agent Instructions

31