NOTE AND WARRANT PURCHASE

 

AGREEMENT

 

 

Dated as of August 18, 2005

 

 

by and among

 

 

EDEN ENERGY CORP.

 

 

and

 

 

THE PURCHASERS LISTED ON EXHIBIT A

 

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

Page

 

 

 

ARTICLE I

Purchase and Sale of Notes and Warrants

1

 

Section 1.1

Purchase and Sale of Notes and Warrants

1

 

Section 1.2

Purchase Price and Closing

1

 

Section 1.3

Conversion Shares / Warrant Shares

2

 

Section 1.4

Additional Investment Right

2

 

ARTICLE II

Representations and Warranties

3

 

Section 2.1

Representations and Warranties of the Company

3

 

Section 2.2

Representations and Warranties of the Purchasers

13

 

ARTICLE III

Covenants

16

 

Section 3.1

Securities Compliance

16

 

Section 3.2

Registration and Listing

16

 

Section 3.3

Inspection Rights

17

 

Section 3.4

Compliance with Laws

17

 

Section 3.5

Keeping of Records and Books of Account

17

 

Section 3.6

Reporting Requirements

17

 

Section 3.7

Other Agreements

17

 

Section 3.8

Use of Proceeds

17

 

Section 3.9

Reporting Status

18

 

Section 3.10

Disclosure of Transaction

18

 

Section 3.11

Disclosure of Material Information

18

 

Section 3.12

Pledge of Securities

18

 

Section 3.13

Amendments

18

 

Section 3.14

Distributions

19

 

Section 3.15

Reservation of Shares

19

 

Section 3.16

Transfer Agent Instructions

19

 

Section 3.17

Disposition of Assets

19

 

Section 3.18

Form SB-2 Eligibility

20

 

Section 3.19

Subsequent Financings

20

 

ARTICLE IV

Conditions

21

 

Section 4.1

Conditions Precedent to the Obligation of the Company

 

 

to Close and to Sell the Securities

21

 

Section 4.2

Conditions Precedent to the Obligation of the Purchasers

 

 

to Close and to Sell the Securities

22

 

Section 4.3

Conditions Precedent to the Obligation of the Purchasers

 

 

to Close and to Purchase the Option Notes

23

 

ARTICLE V

Certificate Legend

25

 

Section 5.1

Legend

25

 

 

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

Page

 

 

 

ARTICLE VI

Indemnification

26

 

Section 6.1

General Indemnity

26

 

Section 6.2

Indemnification Procedure

26

 

ARTICLE VII

Miscellaneous

27

 

Section 7.1

Fees and Expenses

27

 

Section 7.2

Specific Performance; Consent to Jurisdictions; Venue

28

 

Section 7.3

Entire Agreement; Amendment

28

 

Section 7.4

Notices

28

 

Section 7.5

Waivers

29

 

Section 7.6

Headings

29

 

Section 7.7

Successors and Assigns

30

 

Section 7.8

No Third Party Beneficiaries

30

 

Section 7.9

Governing Law

30

 

Section 7.10

Survival

30

 

Section 7.11

Counterparts

30

 

Section 7.12

Publicity

30

 

Section 7.13

Severability

30

 

Section 7.14

Further Assurances

31

 

 

--------------------------------------------------------------------------------

 

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

This NOTE AND WARRANT PURCHASE AGREEMENT dated as of August 18, 2005 this
“Agreement”) by and among Eden Energy Corp., a Nevada corporation (the
"Company"), and each of the purchasers of the convertible promissory notes of
the Company whose names are set forth on Exhibit A attached hereto (each a
"Purchaser" and collectively, the "Purchasers").

 

The parties hereto agree as follows:

                ARTICLE I

 

PURCHASE AND SALE OF NOTES AND WARRANTS

Section 1.1

Purchase and Sale of Notes and Warrants

(a)        Upon the following terms and conditions, the Company shall issue and
sell to the Purchasers, and the Purchasers shall purchase from the Company,
convertible promissory notes in the aggregate principal amount of up to Thirty
Million Dollars ($30,000,000), convertible into shares of the Company's common
stock, par value $0.001 per share (the “Common Stock”), in substantially the
form attached hereto as Exhibit B (the "Notes"). The Company and the Purchasers
are executing and delivering this Agreement in accordance with and in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
U.S. Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), including Regulation D
("Regulation D"), and/or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or
all of the investments to be made hereunder.

(b)        Upon the following terms and conditions, the Purchasers shall be
issued Series A Warrants, in substantially the form attached hereto as Exhibit C
(the "Warrants"), to purchase a number of shares of Common Stock equal to fifty
percent (50%) of the number of Conversion Shares (as defined in Section 1.3
hereof) issuable upon conversion of such Purchaser’s Notes purchased pursuant to
this Agreement as set forth opposite such Purchaser’s name on Exhibit A attached
hereto. The Warrants shall expire three (3) years following the Closing Date and
shall have an exercise price per share equal to $6.00.

Section 1.2       Purchase Price and Closing. Subject to the terms and
conditions hereof, the Company agrees to issue and sell to the Purchasers and,
in consideration of and in express reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase the Notes and Warrants for an
aggregate purchase price of up to Thirty Million Dollars ($30,000,000) (the
“Purchase Price”). The closing of the purchase and sale of the Notes and
Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Kramer Levin Naftalis & Frankel LLP, 1177
Avenue of the Americas, New York, New York 10036 (the “Closing”) at 10:00 a.m.,
New York time (i) on or before August 22, 2005; provided, that all of the
conditions set forth in Article IV hereof and applicable to the Closing shall
have been

 

1

 

--------------------------------------------------------------------------------

 

fulfilled or waived in accordance herewith, or (ii) at such other time and place
or on such date as the Purchasers and the Company may agree upon (the "Closing
Date"). Subject to the terms and conditions of this Agreement, at the Closing
the Company shall deliver or cause to be delivered to each Purchaser (x) its
Note for the principal amount set forth opposite the name of such Purchaser on
Exhibit A hereto, (y) a Warrant to purchase such number of shares of Common
Stock as is set forth opposite the name of such Purchaser on Exhibit A attached
hereto and (z) any other deliveries as required by Article IV. At the Closing,
each Purchaser shall deliver its Purchase Price by wire transfer to an account
designated by the Company.

Section 1.3       Conversion Shares / Warrant Shares. The Company has authorized
and has reserved and covenants to continue to reserve, free of preemptive rights
and other similar contractual rights of stockholders, a number of its authorized
but unissued shares of Common Stock equal to one hundred twenty percent (120%)
of (a) the aggregate number of shares of Common Stock to effect the conversion
of the Notes and any interest accrued and outstanding thereon and exercise of
the Warrants and (b) upon exercise of the Purchaser Option (as defined in
Section 1.4 hereof), the aggregate number of shares of Common Stock to effect
the conversion of the Option Notes (as defined in Section 1.4 hereof) and any
interest accrued and outstanding thereon and exercise of the Additional Warrants
(as defined in Section 1.4 hereof). Any shares of Common Stock issuable upon
conversion of the Notes and the Option Notes and any interest accrued and
outstanding on the Notes and the Option Notes are herein referred to as the
“Conversion Shares”. Any shares of Common Stock issuable upon exercise of the
Warrants (and such shares when issued) are herein referred to as the "Warrant
Shares". The Notes, the Option Notes, the Warrants, the Additional Warrants (as
defined in Section 1.4 hereof), the Conversion Shares and the Warrant Shares are
sometimes collectively referred to herein as the "Securities".

Section 1.4       Additional Investment Right. Commencing on the Closing Date
and for a period of one hundred eighty (180) days following the Closing Date,
each Purchaser shall have the option to purchase from the Company, and the
Company shall issue and sell to each such Purchaser who exercises such option, a
Note for the principal amount of up to thirty percent (30%) of such Purchaser’s
portion of the Purchase Price pursuant to the terms hereof (the “Purchaser
Option”). If any Purchaser elects not to exercise its Purchase Option, each
other Purchaser may exercise its Purchaser Option on a pro-rata basis so long as
such participation in the aggregate does not exceed thirty percent (30%) of the
aggregate Purchase Price hereunder. For purposes of this Section 1.4, all
references to “pro rata” means, for any Purchaser electing to exercise its
Purchaser Option, the percentage obtained by dividing (x) the principal amount
of the Notes purchased by such Purchaser at the Closing by (y) the total
principal amount of all of the Notes purchased by each Purchaser exercising its
Purchaser Option. Upon the Purchaser Option being exercised, each Purchaser
exercising its Purchaser Option shall receive a Warrant (the “Additional
Warrants”) to purchase a number of shares of Common Stock equal to fifty percent
(50%) of the number of Conversion Shares issuable upon conversion of the Note
acquired by such Purchaser pursuant to this Section 1.4. Each such Additional
Warrant shall be in the form of Exhibit C attached hereto. The Purchaser Option
shall expire one hundred eighty (180) days following the Closing Date. Each
Purchaser exercising the Purchaser Option shall deliver to the Company an
Exercise Form in the form attached hereto as Exhibit D. Within five (5) days of
receipt of such Exercise Form, the Company shall deliver to the Purchaser
exercising such

 

2

 

--------------------------------------------------------------------------------

 

Purchaser Option a Note representing the principal amount purchased pursuant to
the Purchaser Option (the “Option Notes”) and the Purchaser’s Additional
Warrant.

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

Section 2.1       Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchasers, as of the date hereof and the
Closing Date (except as set forth on the Schedule of Exceptions attached hereto
with each numbered Schedule corresponding to the section number herein), as
follows:

(a)        Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada and has the requisite corporate power to own, lease and operate
its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own securities of any kind in any other entity except as set forth on
Schedule 2.1(g) hereto. The Company and each such Subsidiary (as defined in
Section 2.1(g)) is duly qualified as a foreign corporation to do business and is
in good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary except for
any jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, "Material Adverse Effect" means any material adverse effect on the
business, operations, properties, prospects, or financial condition of the
Company and its Subsidiaries and/or any condition, circumstance, or situation
that would prohibit or otherwise materially interfere with the ability of the
Company to perform any of its obligations under this Agreement in any material
respect.

(b)        Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Notes, the
Warrants, the Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the form of Exhibit E
attached hereto (the “Registration Rights Agreement”), and the Irrevocable
Transfer Agent Instructions (as defined in Section 3.16 hereof) (collectively,
the "Transaction Documents") and to issue and sell the Securities in accordance
with the terms hereof. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the Company, each of
the Transaction Documents shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
moratorium, liquidation, conservatorship, receivership or similar laws relating
to, or affecting generally the enforcement of, creditor's rights and remedies or
by other equitable principles of general application.

 

3

 

--------------------------------------------------------------------------------

 

 

(c)        Capitalization. The authorized capital stock and the issued and
outstanding shares of capital stock of the Company as of the Closing Date is set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Common
Stock and any other outstanding security of the Company have been duly and
validly authorized. Except as set forth in this Agreement, the Commission
Documents (as defined in Section 2.1(f)) or as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except for customary transfer
restrictions contained in agreements entered into by the Company in order to
sell restricted securities or as provided on Schedule 2.1(c) hereto, the Company
is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c), the Company
is not a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company.

(d)        Issuance of Securities. The Notes and the Warrants to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock. When the Option Notes are issued in accordance with the terms
of this Agreement, such Option Notes will be duly authorized by all necessary
corporate action and validly issued and outstanding, free and clear of all
liens, encumbrances and rights of refusal of any kind.

(e)        No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the performance by the Company of its
obligations under the Notes and the consummation by the Company of the
transactions contemplated hereby and thereby, and the issuance of the Securities
as contemplated hereby, do not and will not (i) violate or conflict with any
provision of the Company's Articles of Incorporation (the “Articles”) or Bylaws
(the “Bylaws”), each as amended to date, or any Subsidiary's comparable charter
documents, (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, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries'
respective properties or assets are bound, or (iii) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations)

 

4

 

--------------------------------------------------------------------------------

 

applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or affected, except,
in all cases, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect (other than violations pursuant to
clauses (i) or (iii) (with respect to federal and state securities laws)).
Neither the Company nor any of its Subsidiaries is required under federal,
state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or issue and sell the Securities in
accordance with the terms hereof (other than any filings, consents and approvals
which may be required to be made by the Company under applicable state and
federal securities laws, rules or regulations or any registration provisions
provided in the Registration Rights Agreement).

(f)         Commission Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "Commission
Documents"). At the times of their respective filings, the Form 10-QSB for the
fiscal quarters ended March 31, 2005, September 30, 2004 and June 30, 2004
(collectively, the "Form 10-QSB") and the Form 10-KSB for the fiscal year ended
December 31, 2004 (the “Form 10-KSB”) complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and the Form 10-QSB and Form 10-KSB
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
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 not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

(g)        Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of
the Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person's ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or

 

5

 

--------------------------------------------------------------------------------

 

any of its other Subsidiaries. All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued, and are fully paid
and nonassessable. Except as set forth on Schedule 2.1(g) hereto, there are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of the capital stock of any Subsidiary
or any convertible securities, rights, warrants or options of the type described
in the preceding sentence except as set forth on Schedule 2.1(g) hereto. Neither
the Company nor any Subsidiary is party to, nor has any knowledge of, any
agreement restricting the voting or transfer of any shares of the capital stock
of any Subsidiary.

(h)        No Material Adverse Change. Since December 31, 2004, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.

(i)         No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, since December 31, 2004, neither the Company nor any of its Subsidiaries
has incurred any liabilities, obligations, claims or losses (whether liquidated
or unliquidated, secured or unsecured, absolute, accrued, contingent or
otherwise) other than those incurred in the ordinary course of the Company's or
its Subsidiaries respective businesses or which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect.

(j)         No Undisclosed Events or Circumstances. Since December 31, 2004,
except as disclosed on Schedule 2.1(j) hereto, no event or circumstance has
occurred or exists with respect to the Company or its Subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

(k)        Indebtedness. Schedule 2.1(k) hereto sets forth as of the date hereof
all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

(l)         Title to Assets. Each of the Company and the Subsidiaries has good
and valid title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances,

 

6

 

--------------------------------------------------------------------------------

 

except for those indicated on Schedule 2.1(l) hereto or such that, individually
or in the aggregate, do not cause a Material Adverse Effect. Any leases of the
Company and each of its Subsidiaries are valid and subsisting and in full force
and effect.

(m)       Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
reasonably be expected, if adversely determined, to have a Material Adverse
Effect. There are no outstanding orders, judgments, injunctions, awards or
decrees of any court, arbitrator or governmental or regulatory body against the
Company or any Subsidiary or any officers or directors of the Company or
Subsidiary in their capacities as such, which individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.

(n)        Compliance with Law. The business of the Company and the Subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Commission Documents or on Schedule 2.1(n) hereto or
such that, individually or in the aggregate, the noncompliance therewith could
not reasonably be expected to have a Material Adverse Effect. The Company and
each of its Subsidiaries have all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

(o)        Taxes. The Company and each of the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been and
are reflected in the financial statements of the Company and the Subsidiaries
for all current taxes and other charges to which the Company or any Subsidiary
is subject and which are not currently due and payable. Except as disclosed on
Schedule 2.1(o) hereto or in the Commission Documents, none of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

(p)        Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment

 

7

 

--------------------------------------------------------------------------------

 

banking fees, commissions, finders' structuring fees, financial advisory fees or
other similar fees in connection with the Transaction Documents.

(q)        Disclosure. Except for the transactions contemplated by this
Agreement, the Company confirms that neither it nor any other person acting on
its behalf has provided any of the Purchasers or their agents or counsel with
any information that constitutes or might constitute material, nonpublic
information. To the best of the Company's knowledge, neither this Agreement or
the Schedules hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.

(r)         Operation of Business. Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the Subsidiaries owns or possesses the rights to
all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.

(s)         Environmental Compliance. To the best knowledge of the Company,
except as set forth on Schedule 2.1(s) hereto or in the Commission Documents,
the Company and each of its Subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. To the best of
the Company’s knowledge, the Company has all necessary governmental approvals
required under all Environmental Laws as necessary for the Company’s business or
the business of any of its subsidiaries. To the best of the Company’s knowledge,
the Company and each of its subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and
timetables required or imposed under all Environmental Laws. Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its Subsidiaries that violate or may violate any Environmental Law after the
Closing Date or that may give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation

 

8

 

--------------------------------------------------------------------------------

 

underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.

(t)         Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions are taken
with respect to any differences.

(u)        Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only), as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a
Material Adverse Effect, (i) the Company and each of its Subsidiaries have
performed all obligations required to be performed by them to date under any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, filed or required to be filed with the Commission (the "Material
Agreements"), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries is in
default under any Material Agreement now in effect.

(v)        Transactions with Affiliates. Except as set forth on Schedule 2.1(v)
hereto and in the Commission Documents, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
Subsidiaries, or any person owning at least 5% of the outstanding capital stock
of the Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents or in the Company’s most recently filed
definitive proxy statement on Schedule 14A, that is not so disclosed in the
Commission Documents or in such proxy statement.

(w)       Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Securities hereunder. Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or

 

9

 

--------------------------------------------------------------------------------

 

will sell, offer to sell or solicit offers to buy any of the Securities or
similar securities to, or solicit offers with respect thereto from, or enter
into any negotiations relating thereto with, any person, or has taken or will
take any action so as to bring the issuance and sale of any of the Securities
under the registration provisions of the Securities Act and applicable state
securities laws, and neither the Company nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the
Securities.

(x)        Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth on Schedule 2.1(x) hereto. Except as set forth on Schedule 2.1(x)
hereto, neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so disclosed.
No officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, would be reasonably likely
to have a Material Adverse Effect, has terminated or, to the knowledge of the
Company, has any present intention of terminating his or her employment or
engagement with the Company or any Subsidiary.

(y)        Absence of Certain Developments. Except as set forth in the
Commission Documents or provided on Schedule 2.1(y) hereto, since December 31,
2004, neither the Company nor any Subsidiary has:

(i)         issued any stock, bonds or other corporate securities or any right,
options or warrants with respect thereto;

(ii)         borrowed any amount in excess of $300,000 or incurred or become
subject to any other liabilities in excess of $100,000 (absolute or contingent)
except current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company and its Subsidiaries;

(iii)        discharged or satisfied any lien or encumbrance in excess of
$250,000 or paid any obligation or liability (absolute or contingent) in excess
of $250,000, other than current liabilities paid in the ordinary course of
business;

(iv)        declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or redeemed, or
made any agreements so to purchase or redeem, any shares of its capital stock,
in each case in excess of $50,000 individually or $100,000 in the aggregate;

 

10

 

--------------------------------------------------------------------------------

 

 

(v)        sold, assigned or transferred any other tangible assets, or canceled
any debts or claims, in each case in excess of $100,000, except in the ordinary
course of business;

(vi)        sold, assigned or transferred any patent rights, trademarks, trade
names, copyrights, trade secrets or other intangible assets or intellectual
property rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;

(vii)       suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;

 

(viii)      made any changes in employee compensation except in the ordinary
course of business and consistent with past practices;

(ix)        made capital expenditures or commitments therefor that aggregate in
excess of $100,000;

(x)        entered into any material transaction, whether or not in the ordinary
course of business;

(xi)

made charitable contributions or pledges in excess of $10,000;

(xii)       suffered any material damage, destruction or casualty loss, whether
or not covered by insurance;

(xiii)      experienced any material problems with labor or management in
connection with the terms and conditions of their employment; or

(xiv)      entered into an agreement, written or otherwise, to take any of the
foregoing actions.

 

(z)         Public Utility Holding Company Act and Investment Company Act
Status. The Company is not a “holding company” or a “public utility company” as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.

(aa)       ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries. The
execution and delivery of this Agreement and the issuance and sale of the
Securities will not involve any transaction which is

 

11

 

--------------------------------------------------------------------------------

 

subject to the prohibitions of Section 406 of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”) or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an “employee
pension benefit plan” (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a “party in interest” (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(aa), the term “Plan” shall mean
an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any Subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any Subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.

(bb)      Anti-takeover Device. Neither the Company nor any of its Subsidiaries
has any outstanding shareholder rights plan or “poison pill” or any similar
arrangement. There are no provisions of any anti-takeover or business
combination statute applicable to the Company, the Articles and the Bylaws which
would preclude the issuance and sale of the Securities, the reservation for
issuance of the Conversion Shares and the Warrant Shares and the consummation of
the other transactions contemplated by this Agreement or any of the other
Transaction Documents.

(cc)       Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase Securities pursuant to this Agreement has
been made by such Purchaser independently of any other purchase and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
its Subsidiaries which may have made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser or any of its agents
or employees shall have any liability to any Purchaser (or any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that for reasons of
administrative convenience only, the Transaction Documents have been prepared by
counsel for one of the Purchasers and such counsel does not represent all of the
Purchasers but only such Purchaser and the other Purchasers have retained their
own individual counsel with respect to the transactions contemplated hereby. 
The Company acknowledges that it has elected to provide all Purchasers with the
same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Purchasers are in any way acting in concert

 

12

 

--------------------------------------------------------------------------------

 

or as a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.

(dd)      No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Regulation D and Rule 506 thereof under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Securities to be
integrated with other offerings. The Company does not have any registration
statement pending before the Commission or currently under the Commission’s
review and since February 1, 2005, the Company has not offered or sold any of
its equity securities or debt securities convertible into shares of Common Stock
except as disclosed in this Agreement.

(ee)       Sarbanes-Oxley Act. The Company is in compliance with the applicable
provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the
rules and regulations promulgated thereunder, that are effective and intends to
comply with other applicable provisions of the Sarbanes-Oxley Act, and the rules
and regulations promulgated thereunder, upon the effectiveness of such
provisions.

(ff)        Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and 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 Notes in accordance with this Agreement
and the Notes and its obligations to issue the Warrant Shares upon the 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 interest of other stockholders of the
Company.

Section 2.2       Representations and Warranties of the Purchasers. Each of the
Purchasers hereby represents and warrants to the Company with respect solely to
itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date:

(a)        Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.

(b)        Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as

 

13

 

--------------------------------------------------------------------------------

 

the case may be, is required. When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding obligations of
each Purchaser enforceable against such Purchaser in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor's rights and remedies or by other equitable principles of general
application.

(c)        No Conflict. The execution, delivery and performance of the
Transaction Documents by the Purchaser and the consummation by the Purchaser of
the transactions contemplated thereby and hereby do not and will not (i) violate
any provision of the Purchaser’s charter or organizational documents, (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,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Purchaser is a party or by which the
Purchaser’s respective properties or assets are bound, or (iii) result in a
violation of any federal, state, local or foreign statute, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Purchaser or by which any property or asset of
the Purchaser are bound or affected, except, in all cases, other than violations
pursuant to clauses (i) or (iii) (with respect to federal and state securities
laws) above, except, for such conflicts, defaults, terminations, amendments,
acceleration, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect the Purchaser’s ability to perform
its obligations under the Transaction Documents.

(d)        Acquisition for Investment. Each Purchaser is purchasing the
Securities solely for its own account and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell any of the Securities, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by making the
representations herein, such Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it (i) has such
knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser's investment in the
Company, (ii) is able to bear the financial risks associated with an investment
in the Securities and (iii) has been given full access to such records of the
Company and the Subsidiaries and to the officers of the Company and the
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation.

(e)        Rule 144. Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either

 

14

 

--------------------------------------------------------------------------------

 

registration under the Securities Act or the existence of another exemption from
such registration requirement.

(f)         General. Each Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
Commencing on the date that the Purchasers were initially contacted regarding an
investment in the Securities, none of the Purchasers has engaged in any short
sale of the Common Stock and will not engage in any short sale of the Common
Stock prior to the consummation of the transactions contemplated by this
Agreement.

(g)        No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications. Each Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.

(h)        Accredited Investor. Each Purchaser is an “accredited investor” (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk.

(i)         Certain Fees. The Purchasers have not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders' structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.

(j)         Independent Investment. No Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Securities purchased hereunder for purposes of Section 13(d) under the
Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Securities.

(k)        Short Sales and Confidentiality. Each Purchaser covenants that
neither it nor any affiliates acting on its behalf or pursuant to any
understanding with it will execute any Short Sales (as defined below) during the
period after the date that such Purchaser first received a term sheet from the
Company or any other person or entity setting forth the material terms of the
transactions contemplated hereunder until the date that the transactions
contemplated by this

 

15

 

--------------------------------------------------------------------------------

 

Agreement are first publicly announced as described in Section 3.10. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in Section 3.10, such Purchaser will
maintain, the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date is a violation of Section 5 of the Securities Act, as set forth
in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Purchaser makes any representation, warranty or covenant hereby that it will not
engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 3.10. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser's assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser's assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement. Each Purchaser covenants and agrees
that it will (i) comply with Regulation M under the Exchange Act, (ii) comply
with all prospectus delivery requirements and (iii) will not knowingly violate
Regulation SHO under the Exchange Act. The Company further understands and
acknowledges that (a) each Purchaser may engage in hedging activities at various
times while the Securities are outstanding, including, without limitation,
during any amortization pricing periods under the Notes in which the value of
the Conversion Shares issuable upon conversion of the Notes is being determined
and (b) such hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that the
hedging activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of this Agreement
or the other Transaction Documents. For purposes hereof, “Short Sales” shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.

ARTICLE III

 

COVENANTS

The Company covenants with each Purchaser as follows, which covenants are for
the benefit of each Purchaser and their respective permitted assignees.

Section 3.1       Securities Compliance. The Company shall notify the Commission
in accordance with its rules and regulations, of the transactions contemplated
by any of the Transaction Documents and shall take all other necessary action
and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders. The Company agrees to

 

16

 

--------------------------------------------------------------------------------

 

file a Form D with respect to the Securities as required by Rule 506 under
Regulation D and to provide a copy thereof to the Purchasers promptly after such
filing.

Section 3.2       Registration and Listing. The Company shall cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, to comply in all respects with its reporting and filing obligations under
the Exchange Act, to comply with all requirements related to any registration
statement filed pursuant to this Agreement, and to not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading.
If required, the Company will promptly file the “Listing Application” for, or in
connection with, the issuance and delivery of the Shares and the Warrant Shares.
Subject to the terms of the Transaction Documents, the Company further covenants
that it will take such further action as the Purchasers may reasonably request,
all to the extent required from time to time to enable the Purchasers to sell
the Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.

Section 3.3       Inspection Rights. Provided same would not be in violation of
Regulation FD and subject to a Purchaser executing a confidentiality agreement
in a form reasonably satisfactory to the Company, the Company shall permit,
during normal business hours and upon reasonable request and reasonable notice,
each Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Notes or shall
beneficially own any Conversion Shares or Warrant Shares, for purposes
reasonably related to such Purchaser's interests as a stockholder, to examine
the publicly available, non-confidential records and books of account of, and
visit and inspect the properties, assets, operations and business of the Company
and any Subsidiary, and to discuss the publicly available, non-confidential
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.

Section 3.4      Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which would be reasonably likely to have a Material Adverse
Effect.

Section 3.5       Keeping of Records and Books of Account. The Company shall
keep and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

Section 3.6       Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports

 

17

 

--------------------------------------------------------------------------------

 

available via the Internet without charge, then the Company shall furnish the
following to each Purchaser so long as such Purchaser shall be obligated
hereunder to purchase the Securities or shall beneficially own Securities:

(a)        Quarterly Reports filed with the Commission on Form 10-QSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission;

(b)        Annual Reports filed with the Commission on Form 10-KSB as soon as
practical after the document is filed with the Commission, and in any event
within five (5) days after the document is filed with the Commission; and

(c)        Copies of all notices, information and proxy statements in connection
with any meetings, that are, in each case, provided to holders of shares of
Common Stock, contemporaneously with the delivery of such notices or information
to such holders of Common Stock.

Section 3.7       Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.

Section 3.8       Use of Proceeds. The net proceeds from the sale of the
Securities hereunder shall be used by the Company for working capital and
general corporate purposes and not to redeem any Common Stock or securities
convertible, exercisable or exchangeable into Common Stock or to settle any
outstanding litigation.

Section 3.9       Reporting Status. So long as a Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to the Exchange Act, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.

Section 3.10     Disclosure of Transaction. The Company shall issue a press
release describing the material terms of the transactions contemplated hereby
(the “Press Release”) on the day of the Closing but in no event later than one
hour after the Closing; provided, however, that if Closing occurs after 4:00
P.M. Eastern Time on any Trading Day, the Company shall issue the Press Release
no later than 9:00 A.M. Eastern Time on the first Trading Day following the
Closing Date. The Company shall also file with the Commission a Current Report
on Form 8-K (the “Form 8-K”) describing the material terms of the transactions
contemplated hereby (and attaching as exhibits thereto this Agreement, the form
of Note, the Registration Rights Agreement, the form of Warrant and the Press
Release) as soon as practicable following the Closing Date but in no event more
than two (2) Trading Days following the Closing Date, which Press Release and
Form 8-K shall be subject to prior review and comment by one counsel to the
Purchasers. "Trading Day" means any day during which the principal exchange on
which the Common Stock is traded shall be open for trading.

 

18

 

--------------------------------------------------------------------------------

 

 

Section 3.11     Disclosure of Material Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf has provided or
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

Section 3.12     Pledge of Securities. The Company acknowledges and agrees that
the Securities may be pledged by a Purchaser 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 Purchaser effecting a pledge
of the 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; provided that a Purchaser and its pledgee
shall be required to comply with the provisions of Article V hereof in order to
effect a sale, transfer or assignment of Securities to such pledgee. At the
Purchasers' expense, 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 a Purchaser.

Section 3.13     Amendments. The Company shall not amend or waive any provision
of the Articles or Bylaws of the Company in any way that would adversely affect
exercise rights, voting rights, conversion rights, prepayment rights or
redemption rights of the holder of the Notes.

Section 3.14     Distributions. So long as any Notes or Warrants remain
outstanding, the Company agrees that it shall not (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock or (ii)
purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.

Section 3.15     Reservation of Shares. So long as any of the Notes or Warrants
remain outstanding, the Company shall take all action necessary to at all times
have authorized and reserved for the purpose of issuance, one hundred twenty
percent (120%) of the aggregate number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.

Section 3.16     Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit F
attached hereto (the “Irrevocable Transfer Agent Instructions”). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.16 will be given by the Company to its transfer agent and that
the Conversion Shares

 

19

 

--------------------------------------------------------------------------------

 

and Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 3.16 shall affect in any
way each Purchaser’s obligations and agreements set forth in Section 5.1 to
comply with all applicable prospectus delivery requirements, if any, upon resale
of the Conversion Shares and the Warrant Shares. If a Purchaser provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Conversion Shares or
Warrant Shares may be made without registration under the Securities Act or the
Purchaser provides the Company with reasonable assurances that the Conversion
Shares or Warrant Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.16 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.16 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to 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.

Section 3.17     Disposition of Assets. So long as the Notes remain outstanding,
neither the Company nor any subsidiary shall sell, transfer or otherwise dispose
of any of its properties, assets and rights including, without limitation, its
software and intellectual property, to any person except for sales of obsolete
assets and sales to customers in the ordinary course of business or with the
prior written consent of the holders of a majority of the Notes then
outstanding.

Section 3.18     Form SB-2 Eligibility. The Company currently meets, and will
take all necessary action to continue to meet, the "registrant eligibility" and
transaction requirements set forth in the general instructions to Form SB-2
applicable to "resale" registrations on Form SB-2 during the Effectiveness
Period (as defined in the Registration Rights Agreement) and the Company shall
file all reports required to be filed by the Company with the Commission in a
timely manner so as to maintain such eligibility for the use of Form SB-2.

Section 3.19

Subsequent Financings.

(a)        For a period of one (1) year following the Closing Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a "Rights Notice")
the Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a “Subsequent
Financing”), of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible debt securities
(collectively, the "Financing Securities"). The Rights Notice shall describe, in
reasonable detail,

 

20

 

--------------------------------------------------------------------------------

 

the proposed Subsequent Financing, the names and investment amounts of all
investors participating in the Subsequent Financing, the proposed closing date
of the Subsequent Financing, which shall be within twenty (20) calendar days
from the date of the Rights Notice, and all of the terms and conditions thereof
and proposed definitive documentation to be entered into in connection
therewith. The Rights Notice shall provide each Purchaser an option (the “Rights
Option”) during the ten (10) Trading Days following delivery of the Rights
Notice (the “Option Period”) to inform the Company whether such Purchaser will
purchase up to its pro rata portion of the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing. If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata basis
so long as such participation in the aggregate does not exceed the total
Purchase Price hereunder. For purposes of this Section, all references to “pro
rata” means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the principal amount of the
Notes purchased by such Purchaser at the Closing by (y) the total principal
amount of all of the Notes purchased by all of the participating Purchasers at
the Closing. Delivery of any Rights Notice constitutes a representation and
warranty by the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the Rights
Notice, to provide additional compensation to any party participating in any
proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing. If the Company
does not receive notice of exercise of the Rights Option from the Purchasers
within the Option Period, the Company shall have the right to close the
Subsequent Financing on the scheduled closing date with a third party; provided
that all of the material terms and conditions of the closing are the same as
those provided to the Purchasers in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.19(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.19(a) shall not apply to issuances of securities in a Permitted Financing (as
defined below).

(b)        For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A "Permitted
Financing" shall mean (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company’s securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to this Agreement and the Notes, (iv) the Warrant Shares, (v)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company’s stock option plans as they now exist
and employee stock purchase plans as they now exist, (vii) any warrants issued
to the placement agent and its designees for the transactions contemplated by
this Agreement, and (viii) the payment of any accrued interest in shares of
Common Stock pursuant to the Notes.

 

21

 

--------------------------------------------------------------------------------

 

 

ARTICLE IV

 

CONDITIONS

Section 4.1       Conditions Precedent to the Obligation of the Company to Close
and to Sell the Securities. The obligation hereunder of the Company to close and
issue and sell the Securities to the Purchasers at the Closing is subject to the
satisfaction or waiver, at or before the Closing of the conditions set forth
below. These conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion.

(a)        Accuracy of the Purchasers’ Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material 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 are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.

(b)        Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.

(c)        No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

(d)        Delivery of Purchase Price. The Purchase Price for the Securities
shall have been delivered to the Company on the Closing Date.

(e)        Delivery of Transaction Documents. The Transaction Documents shall
have been duly executed and delivered by the Purchasers to the Company.

Section 4.2       Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities. The obligation hereunder of the Purchasers
to purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Purchasers’
sole benefit and may be waived by the Purchasers at any time in their sole
discretion.

(a)        Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall be true and correct in all material respects as of
the Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such date.

(b)        Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions

 

22

 

--------------------------------------------------------------------------------

 

required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.

(c)        No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets
("Bloomberg") shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by Bloomberg,
or on the New York Stock Exchange, nor shall a banking moratorium have been
declared either by the United States or New York State authorities.

(d)        No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

(e)        No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

(f)         Opinion of Counsel. The Purchasers shall have received an opinion of
counsel to the Company, dated the date of such Closing, substantially in the
form of Exhibit G hereto, with such exceptions and limitations as shall be
reasonably acceptable to counsel to the Purchasers.

(g)        Notes and Warrants. At or prior to the Closing, the Company shall
have delivered to the Purchasers the Notes (in such denominations as each
Purchaser may request) and the Warrants (in such denominations as each Purchaser
may request).

(h)        Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.

(i)         Officer's Certificate. On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company's representations, warranties and covenants as of the Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in paragraphs (b)-(e) and (l) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section

 

23

 

--------------------------------------------------------------------------------

 

4.2, such confirmation shall be based on the knowledge of the executive officer
after due inquiry).

(j)         Registration Rights Agreement. As of the Closing Date, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.

(k)        Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Closing Date.

(l)         Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to the Company’s transfer agent.

Section 4.3      Conditions Precedent to the Obligation of the Purchasers to
Purchase the Option Notes. The obligation hereunder of each Purchaser to acquire
and pay for the Option Notes is subject to the satisfaction or waiver, at or
before the closing and sale of such Option Notes (the “Subsequent Closing
Date”), of each of the conditions set forth below. These conditions are for each
Purchaser’s sole benefit and may be waived by such Purchaser at any time in its
sole discretion.

(a)        Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall be true and correct in all material respects as of
the Closing Date, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such date.

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

(c)        No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the OTC Bulletin Board (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Subsequent
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets ("Bloomberg") shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium
have been declared either by the United States or New York State authorities,
nor shall a banking moratorium have been declared either by the United States or
New York State authorities.

(d)        No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.

 

24

 

--------------------------------------------------------------------------------

 

 

(e)        No Proceedings or Litigation. No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

(f)         Opinion of Counsel, Etc. At the Subsequent Closing Date, the
Purchasers shall have received an opinion of counsel to the Company, dated the
date of the Subsequent Closing Date, in the form of Exhibit G hereto, and such
other certificates and documents as the Purchasers or its counsel shall
reasonably require incident to the Subsequent Closing.

(g)        Option Notes and Warrants. At or prior to the Subsequent Closing
Date, the Company shall have delivered to the Purchasers the Option Notes (in
such denominations as each Purchaser may request) and the Warrants, in each
case, being acquired by the Purchasers at the Subsequent Closing Date.

(h)        Officer’s Certificate. The Company shall have delivered to the
Purchasers a certificate of an executive officer of the Company, dated as of the
Closing Date, confirming the accuracy of the Company’s representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.3 as of
the Subsequent Closing Date.

(i)         Material Adverse Effect. No Material Adverse Effect shall have
occurred at or before the Subsequent Closing Date.

ARTICLE V

 

CERTIFICATE LEGEND

Section 5.1       Legend Each certificate representing the Securities shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required by applicable state securities or "blue sky"
laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR EDEN ENERGY CORP. SHALL HAVE RECEIVED AN OPINION OF
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

 

25

 

--------------------------------------------------------------------------------

 

 

The Company agrees to issue or reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request. Such proposed transfer and removal will not be effected
until: (a) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that the registration of the
Conversion Shares or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer, (ii) a registration statement under the
Securities Act covering such proposed disposition has been filed by the Company
with the Commission and has become effective under the Securities Act, (iii) the
Company has received other evidence reasonably satisfactory to the Company that
such registration and qualification under the Securities Act and state
securities laws are not required, or (iv) the holder provides the Company with
reasonable assurances that such security can be sold pursuant to Rule 144 under
the Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, (ii) compliance with
applicable state securities or "blue sky" laws has been effected, or (iii) the
holder provides the Company with reasonable assurances that a valid exemption
exists with respect thereto. The Company will respond to any such notice from a
holder within three (3) business days. In the case of any proposed transfer
under this Section 5.1, the Company will use reasonable efforts to comply with
any such applicable state securities or "blue sky" laws, but shall in no event
be required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Conversion Shares or
Warrant Shares is required to be issued to a Purchaser without a legend, in lieu
of delivering physical certificates representing the Conversion Shares or
Warrant Shares, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, the
Company shall use its reasonable best efforts to cause its transfer agent to
electronically transmit the Conversion Shares or Warrant Shares to a Purchaser
by crediting the account of such Purchaser's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system (to the extent not
inconsistent with any provisions of this Agreement).

ARTICLE VI

 

INDEMNIFICATION

Section 6.1       General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by

 

26

 

--------------------------------------------------------------------------------

 

the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys’ fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.

Section 6.2       Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an “indemnified party”) will give written
notice to the indemnifying party of any matter giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of

 

27

 

--------------------------------------------------------------------------------

 

a release from all liability in respect of such claim. The indemnification
obligations to defend the indemnified party required by this Article VI shall be
made by periodic payments of the amount thereof during the course of
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party shall refund
such moneys if it is ultimately determined by a court of competent jurisdiction
that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar
rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the
law. No indemnifying party will be liable to the indemnified party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to the indemnified party’s breach of any of the
representations, warranties or covenants made by such party in this Agreement or
in the other Transaction Documents.

ARTICLE VII

 

MISCELLANEOUS

Section 7.1       Fees and Expenses. Each party shall pay the fees and expenses
of its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement; provided, however, that
the Company shall pay all actual attorneys' fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of the
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $25,000 (plus
disbursements and out-of-pocket expenses), and (ii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with the enforcement of this Agreement
or any of the other Transaction Documents, including, without limitation, all
reasonable attorneys' fees and expenses.

Section 7.2

Specific Performance; Consent to Jurisdiction; Venue.

(a)        The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the other Transaction Documents
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.

(b)        The parties agree that venue for any dispute arising under this
Agreement will lie exclusively in the state or federal courts located in New
York County, New York, and the parties irrevocably waive any right to raise
forum non conveniens or any other argument that New York is not the proper
venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent
to

 

28

 

--------------------------------------------------------------------------------

 

process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the other Transaction Documents, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party. The parties hereby
waive all rights to a trial by jury.

Section 7.3       Entire Agreement; Amendment. This Agreement and the
Transaction Documents contain the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the other Transaction Documents, neither the Company nor
any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon
each Purchaser (and their permitted assigns) and the Company.

Section 7.4       Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

If to the Company:

Eden Energy Corp.

 

 

1925-200 Burrard Street

 

 

Vancouver, BC V6C3L6

 

 

Attention: President

 

 

Tel. No.: (604) 693-0179

Fax No.: (604) 638-3525

 

with copies (which copies

shall not constitute notice

to the Company) to:

Clark Wilson LLP

 

 

800-885 West Georgia Street

 

 

Vancouver, B.C., Canada V6C 3H1

 

Attention: Bernard Pinsky

 

 

Tel. No.: (604) 687-5700

 

 

Fax No.: (604) 687-6314

 

 

 

29

 

--------------------------------------------------------------------------------

 

 

 

If to any Purchaser:

At the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser’s counsel as set forth on Exhibit A or as specified in
writing by such Purchaser with copies to:

 

Kramer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Attention: Christopher S. Auguste

Tel. No.: (212) 715-9100

Fax No.: (212) 715-8000

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

Section 7.5       Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter. No consideration shall be offered or paid to any
Purchaser to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. This provision constitutes a
separate right granted to each Purchaser by the Company and shall not in any way
be construed as the Purchasers acting in concert or as a group with respect to
the purchase, disposition or voting of Securities or otherwise.

Section 7.6       Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.

Section 7.7       Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement. Subject to
Section 5.1 hereof, the Purchasers may assign the Securities and its rights
under this Agreement and the other Transaction Documents and any other rights
hereto and thereto without the consent of the Company.

Section 7.8       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.

Section 7.9       Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law

 

30

 

--------------------------------------------------------------------------------

 

of another jurisdiction. This Agreement shall not be interpreted or construed
with any presumption against the party causing this Agreement to be drafted.

Section 7.10     Survival. The representations and warranties of the Company and
the Purchasers shall survive the execution and delivery hereof and the Closing
until the second anniversary of the Closing Date, except the agreements and
covenants set forth in Articles I, III, V, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder.

Section 7.11     Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.

Section 7.12    Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the names of the Purchasers without
the consent of the Purchasers, which consent shall not be unreasonably withheld
or delayed, or unless and until such disclosure is required by law, rule or
applicable regulation, including without limitation any disclosure pursuant to
the Registration Statement, and then only to the extent of such requirement.

Section 7.13     Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

Section 7.14     Further Assurances. From and after the date of this Agreement,
upon the request of the Purchasers or the Company, the Company and each
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

31

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Note and Warrant
Purchase Agreement to be duly executed by their respective authorized officers
as of the date first above written.

 

EDEN ENERGY CORP.

 

 

By:

 

 

Name: Donald Sharpe

 

Title:

President

 

 

PURCHASER:

 

 

By:

 

 

Name:

                                          
                                             Title:

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(b) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(b) – Further Consent or Authorization Required by the Company, its
Board of Directors or Stockholders

 

•

N/A

 

 

1

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(c) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(c) – Authorized Capital Stock and Issued and Outstanding Shares of
Capital Stock of the Company

 

Authorized Capital Stock:  

•

100,000,000 common shares at the par value of 0.001 and 10 000,000 preferred
stock at the par value of 0.001.

 

Issued and Outstanding Shares:  

•

31,243,714 common shares issued and outstanding and no preferred shares issued
and outstanding as of August 9, 2005.

 

Outstanding Options:  

•

700,000 stock options exercisable at $0.50 per share until June 11, 2009.

 

•

250,000 stock options exercisable at $1.00 per share until Sept 1st, 2009.

 

•

500,000 at $2.50 dollars until may 1st, 2010.

 

Warrants Outstanding:  

•

1,065,972 warrants outstanding exercisable at $0.50 per share until July 18,
2007.

 

•

1,374,200 exercisable at a price of $2.00 until April 4th, 2006.

 

Stock Option Plan:

•

As of the closing date, 1,800,000 options will be granted under the Company’s
stock option plan.

 

•

3 000,000 options are reserved for issuance under the Company’s stock option
plan.

 

Equity or Debt Securities:  

•

N/A

 

Restriction on Voting and Transfer of Any Shares:  

•

N/A

 

Contracts Commitments, Understandings, Arrangements:  

•

For each 10,000,000 barrels of proven reserves on the lands underlying the
petroleum natural gas leases the Company will issue to Fort Scott Energy
Corp.1,000,000 shares of common stock up to a maximum of 10,000,000 shares.

 

2

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(g) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(g) – The Company’s Ownership of Subsidiary Companies

 

Own Securities in Any Other Entity:  

•

N/A

 

Subsidiaries of the Company:

 

1.

Name:

Frontier Explorations Ltd.

Jurisdiction:

Nevada

 

Shareholder:

Eden Energy Corp.

 

Number of shares/percentage:

100%

 

 

2.

Name:

Southern Frontier Explorations Ltd.

Jurisdiction:

Nevada

 

Shareholder:

Eden Energy Corp.

 

Number of shares/percentage:

100%

 

 

Outstanding Pre-emptive, Conversion or Other Rights Options, Warrants or
Agreements granted or Issued by or Binding upon any Subsidiary for the Purchase
or acquisition of Any Shares of Capital Stock of Any Subsidiary or Any other
Securities Convertible into, Exchangeable For of Evidencing the Rights to
Subscribe for Any Shares of Such Capital Stock:

•

N/A

 

3

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(h) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(h) – Material Adverse Change or Adverse Effect

 

•

N/A

 

4

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(i) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(i) – Undisclosed Liabilities of the Company or its Subsidiaries

 

•

To the best of the Company’s knowledge neither the Company or any of its
Subsidiaries has incurred any liabilities, obligations, claims or losses other
than those incurred in the ordinary course of the Company’s or its Subsidiaries
respective businesses.

 

5

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(j) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(j) – Undisclosed Events or Circumstances

 

•

To the best of the Company’s knowledge no event, or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

 

6

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(k) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(k) – Indebtedness and Leases

 

Liabilities for Borrowed Money or Amounts Owed in Excess of $100,000:

•

Subject to completion of a data acquisition program pursuant to a Participation
Agreement with Cedar Strat Corporation, the company is obliged to make final
payment in the amount of $145,600.

 

All Guaranties, Endorsements and other Contingent Obligations in Respect of
Indebtedness of Others:

•

N/A

 

The Present Value of Any Lease Payments in Excess of $25,000 due Under Leases
Required to be Capitalised in Accordance with GAAP:

•

N/A

 

 

7

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(l) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(l) – Title to Assets

 

•

Based on contractual obligations, for each 10,000,000 barrels of proven reserves
on the lands underlying the petroleum natural gas leases the Company will issue
to Fort Scott Energy Corp. 1,000,000 common shares of common stock up to a
maximum of 10,000,000 shares.

 

8

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(m) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(m) – Actions Pending

 

•

N/A

 

9

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(n) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(n) – Non-Compliance with the Law

 

Federal, State and Local Governmental Laws, Rules, Regulations and Ordinances:  

•

N/A

 

 

 

10

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(o) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(o) – Non Filing of Taxes

 

Audits by Internal Revenue Service:

•

N/A

 

Additional Assessments, Adjustments or Contingent Tax Liability:  

•

The Company has not filed any tax returns because they have yet to receive
revenue.

 

11

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(p) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(p) – Broker and Finder Fees

 

Fees:

•

Payment of $488,000 cash (includes $383,700 placement fees, plus $3,500
expenses, plus $100,800 in placement fees paid to other placement agents) and
64,600 warrants to H.C. Wainwright & Co., Inc. and others as per July 27, 2005
Engagement Letter.

 

12

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(r) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(r) – Non Ownership or Possession of Rights to Intellectual Property

 

Patents, Trademarks, Domain Names, Patentable Improvements or Copyrightable
Derivative Works, Websites, Intellectual Property Rights, Service Marks, Trade
Names, Copyrights, Licences, Authorizations necessary for the Conduct of
Business:

•

N/A

 

13

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(s) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(s) – Non Environmental Compliance

 

•

The Company has yet to obtain or apply for any and all permits necessary to
explore, drill and commercialise its oil and gas exploration properties.

 

14

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(u) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(u) – Material Agreements

 

All Obligations Required to be Performed to Date under any Contract/Agreement
etc. Filed or Required to be Filed with the Securities and Exchange Commission:
 

 

•

Investor relations contracts totalling approximately US$13,500 per month among
Levelogic Inc., TGR Group LLC, MGG Group LLC. ECON Inc. and Sundar Inc.

 

•

Agreement dated July 1, 2005 between Aguila International Inc. and Trace Energy
Services, Inc. for supporting services as they relate to a $2,500,000 seismic
data acquisition program.

 

•

A deposit of US$100,000 from DGM Bank & Trust was received on August 5, 2005 for
a potential Joint Venture Program on the Southern Frontier prospect.

 

•

Separate Participation Agreement from June 13, 2005 between the Company and
Cedar Strat Corporation. The Participation Agreement entitles Eden Energy Corp.
or its appointed wholly owned Southern Frontier Explorations Ltd. to acquire
petroleum and natural gas rights and leases in an area of mutual interest.

 

Notice of Default Under Any Material Agreements:  

•

N/A

 

Default Under any Material Agreement Now in Effect:

•

N/A

 

 

15

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(v) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(v) – Transactions with Affiliates

 

•

N/A

 

 

16

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(x) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(x) – Employee Agreements

 

•

Management Consulting Agreements with each of Don Sharpe, Drew Bonnell, Neil
Maedel and Olga Bespalaka.

 

17

 

--------------------------------------------------------------------------------

 

 

This is Schedule 2.1(y) to the Note and Warrant Purchase Agreement dated August
12, 2005 among Eden Energy Corp. (the “Company”) and certain purchasers.

 

SCHEDULE 2.1(y) – Absence of Certain Documents

 

Material Transactions Entered Into by the Company that are Not Set Forth in the
Commission Documents:

 

•

Participation Agreement dated June 13, 2005 between the Company and Cedar Strat
Corporation.

 

•

A deposit of US$100,000 from DGM Bank & Trust was received on August 5, 2005 for
a potential Joint Venture Program on the Southern Frontier prospect.

 

 

18

 

--------------------------------------------------------------------------------

 

 

EXHIBIT A

LIST OF PURCHASERS

 

Names and Addresses

Investment Amount and Number of

of Purchasers

Warrants Purchased

 

 

 

--------------------------------------------------------------------------------

 

 

EDE ENERGY CORP.

List of Investors

Name and Address of Purchaser

Amount Invested

RAB Special Situations (Master) Fund Ltd.
Credit Suisse First Boston LLC
One Madison Avenue
2nd Floor, New York, NY 10010

Marc Bamber
44-20-7387-7000
mb@rabcap.com

$4,000,000

Cranshire Capital LP
666 Dundee Road, Suite 1901
Northbrook, IL 60062

Mitch Kopin
847-562-9030
mkopin@cranshirecapital.com

250,000

Douglas Campbell Jr.
17 Brambele Lane
Riverside, CT 06878

203-637-1497
dcamjr@spiritcapital.net

200,000

SDS Capital Group SPC, Ltd.
c/o Ogler & Boxalls
Queengate House, 113 South Church Street
P.O. Box 1234GT
Grand Cayman, Cayman Islands

Kevin Johnson
203-967-5855
kevin@sdscapital.com

500,000

Nite Capital LP
100 East Cook Avenue, Suite 201
Libertyville, IL 60048

Keith Goodman
847-968-2655
keith@nitecapital.com

500,000

Omicron Master Trust
650 Fifth Avenue, 24th Floor
New York, NY 10019

Brian Daly
212-258-2302
bd@omicron.com

500,000

 

 

1

 

--------------------------------------------------------------------------------

 

 

 

Capital Ventures International
101 California Street, Suite 3250
San Francisco, CA 94111

Martin Kobinger
415-403-6500
kobinger@sig.com

500,000

Crestview Capital Master, LLC
95 Revere Drive, Suite A
Northbrook, IL 60062

Daniel Warsh
847-418-8333
danw@crestviewcap.com

625,000

Double U Master Fund LP
Harbour House, 2nd Floor
Waterfront Drive
Road Town, Tortola
British Virgin Islands

Carl Jacobson
284-494-4770
carl@beaconsecurities.com

750,000

Iroquois Master Fund Ltd.
641 Lexington Avenue, 26th Floor
New York, NY 10022

Joshua Silverman
212-974-3070
jsilverman@icfund.com

250,000

JGB Capital L.P.
660 Madison Avenue, 21st Floor
New York, NY 10021

Brett Cohen
212-355-5771
bcohen@jgbcap.com; ealexander@jgbcap.com

500,000

Enable Growth Partners LP
One Ferry Building, Suite 255
San Francisco, CA 94111

Brendan O’Neil
415-677-1578
boneil@enablecapital.com

350,000

Enable Opportunity Partners LP
One Ferry Building, Suite 255
San Francisco, CA 94111

Brendan O’Neil
415-677-1578
boneil@enablecapital.com

150,000

TOTAL:

$9,075,000

 

2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT B

FORM OF NOTE

 

--------------------------------------------------------------------------------

 

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.

 

EDEN ENERGY CORP.

 

Convertible Promissory Note

due August 25, 2008

 

No. CN-05-____

$__________

Dated: August 25, 2005

 

For value received, EDEN ENERGY CORP., a Nevada corporation (the "Maker"),
hereby promises to pay to the order of __________________________ (together with
its successors, representatives, and permitted assigns, the "Holder"), in
accordance with the terms hereinafter provided, the principal amount of
_____________________ ($__________), with interest thereon. Concurrently with
the issuance of this Note, the Maker is issuing separate convertible promissory
notes (the “Other Notes”) to separate purchasers (the “Other Holders”) pursuant
to the Purchase Agreement (as defined in Section 1.1 hereof).

All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on
August 25, 2008 (the "Maturity Date") or at such earlier time as provided
herein.

ARTICLE I

Section 1.1       Purchase Agreement. This Note has been executed and delivered
pursuant to the Note and Warrant Purchase Agreement dated as of August 18, 2005
(the "Purchase Agreement”) by and among the Maker and the purchasers listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.

Section 1.2

Interest.

(a)        Beginning on the issuance date of this Note (the “Issuance Date”),
the outstanding principal balance of this Note shall bear interest, in arrears,
at a rate per annum equal

 

1

 

--------------------------------------------------------------------------------

 

to six percent (6%) payable semi-annually on December 1st and June 1st of each
year commencing December 1, 2005 at the option of the Maker in cash or
registered shares of the Maker’s common stock, par value $0.001 per share, (the
“Common Stock”). The shares of Common Stock to be issued as interest payments
under this Note shall be registered pursuant to the Registration Statement (as
defined in Section 3.1(b) hereof). The number of shares of Common Stock to be
issued as payment of accrued and unpaid interest shall be determined by dividing
(a) the total amount of accrued and unpaid interest to be converted into Common
Stock by (b) the lesser of (i) the Conversion Price (as defined in Section
3.2(a) hereof) and (ii) the average of the VWAP (as defined in Section 1.2(b)
below) for the five (5) Trading Days immediately preceding the interest payment
date. Interest shall be computed on the basis of a 360-day year of twelve (12)
30-day months and shall accrue commencing on the Issuance Date. Furthermore,
upon the occurrence of an Event of Default (as defined in Section 2.1 hereof),
then to the extent permitted by law, the Maker will pay interest to the Holder,
payable on demand, on the outstanding principal balance of the Note from the
date of the Event of Default until such Event of Default is cured at the rate of
the lesser of fifteen percent (15%) and the maximum applicable legal rate per
annum.

(b)        For purposes hereof, “VWAP” means, for any date, (i) the daily volume
weighted average price of the Common Stock for such date on the OTC Bulletin
Board (or other exchange or market on which the Common Stock is trading) as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m.
Eastern Time to 4:02 p.m. Eastern Time); (ii) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board (or other exchange or market on which
the Common Stock is trading) and if prices for the Common Stock are then
reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (iii) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Maker.

Section 1.3       Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due on the next succeeding business day
and such next succeeding day shall be included in the calculation of the amount
of accrued interest payable on such date.

Section 1.4       Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.

Section 1.5       Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Maker shall issue a new Note,
of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.

 

 

2

 

--------------------------------------------------------------------------------

 

 

ARTICLE II

 

EVENTS OF DEFAULT; REMEDIES

Section 2.1       Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:

(a)        the Maker shall fail to make the payment of any amount of principal
outstanding on the date such payment is due hereunder; or

(b)        the Maker shall fail to make any payment of interest in shares of
Common Stock for a period of three (3) days after the date such interest is due;
or

(c)        the failure of the Registration Statement to be declared effective by
the Securities and Exchange Commission on or prior to the date which is one
hundred twenty (120) days after the Issuance Date; or

(d)        the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock
Exchange or The New York Stock Exchange, Inc. for a period of five (5)
consecutive Trading Days; or

(e)        the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or

(f)         the Maker shall fail to (i) timely deliver the shares of Common
Stock upon conversion of the Note or any accrued and unpaid interest, (ii)
timely file the Registration Statement or (iii) make the payment of any fees
and/or liquidated damages under this Note, the Purchase Agreement or the
Registration Rights Agreement, which failure in the case of items (i) and (iii)
of this Section 2.1(f) is not remedied within three (3) business days after the
incurrence thereof; or

(g)        while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days, provided that the Maker has not exercised its rights
pursuant to Section 3(n) of the Registration Rights Agreement and the cause of
such lapse or unavailability is not due to factors primarily within the control
of Holder; or

(h)        default shall be made in the performance or observance of (i) any
material covenant, condition or agreement contained in this Note (other than as
set forth in clause (f) of this Section 2.1) and such default is not fully cured
within five (5) business days after the

 

3

 

--------------------------------------------------------------------------------

 

occurrence thereof or (ii) any material covenant, condition or agreement
contained in the Purchase Agreement, the Other Notes, the Registration Rights
Agreement or any other Transaction Document which is not covered by any other
provisions of this Section 2.1 and such default is not fully cured within five
(5) business days after the occurrence thereof; or

(i)         any material representation or warranty made by the Maker herein or
in the Purchase Agreement, the Registration Rights Agreement, the Other Notes or
any other Transaction Document shall prove to have been false or incorrect or
breached in a material respect on the date as of which made; or

(j)         the Maker shall (A) default in any payment of any amount or amounts
of principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$100,000 or (B) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or

(k)        the Maker shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or assets, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or

(l)         a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of sixty (60) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
sixty (60) days; or

 

4

 

--------------------------------------------------------------------------------

 

 

(m)       the failure of the Maker to instruct its transfer agent to remove any
legends from shares of Common Stock eligible to be sold under Rule 144 of the
Securities Act and issue such unlegended certificates to the Holder within three
(3) business days of the Holder’s request so long as the Holder has provided
reasonable assurances to the Maker that such shares of Common Stock can be
resold pursuant to Rule 144; or

(n)        the failure of the Maker to pay any amounts due to the Holder herein
or in the Purchase Agreement or the Registration Rights Agreement within three
(3) business days of receipt of notice to the Maker; or

(o)

the occurrence of an Event of Default under the Other Notes.

Section 2.2       Remedies Upon An Event of Default. If an Event of Default
shall have occurred and shall be continuing, the Holder of this Note may at any
time at its option, (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued hereon, due and payable, and thereupon,
the same shall be accelerated and so due and payable, without presentment,
demand, protest, or notice, all of which are hereby expressly unconditionally
and irrevocably waived by the Maker; provided, however, that upon the occurrence
of an Event of Default described in (i) Sections 2.1 (k) or (l), the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable and (ii) Sections 2.1 (a)-(j) and 2.1(m)-(o), demand the prepayment of
this Note pursuant to Section 3.7 hereof, (b) subject to Section 3.4 hereof,
demand that the principal amount of this Note then outstanding shall be
converted into shares of Common Stock at a Conversion Price per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default
occurs is the Conversion Date (as defined in Section 3.1 hereof) and demand that
all accrued and unpaid interest under this Note shall be converted into shares
of Common Stock in accordance with Section 1.2 hereof, or (c) exercise or
otherwise enforce any one or more of the Holder's rights, powers, privileges,
remedies and interests under this Note, the Purchase Agreement, the Registration
Rights Agreement, other Transaction Document or applicable law. No course of
delay on the part of the Holder shall operate as a waiver thereof or otherwise
prejudice the right of the Holder. No remedy conferred hereby shall be exclusive
of any other remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.

ARTICLE III

 

CONVERSION; ANTIDILUTION; PREPAYMENT

Section 3.1

Conversion Option.

(a)        At any time on or after the Issuance Date, this Note shall be
convertible (in whole or in part), at the option of the Holder (the "Conversion
Option"), into such number of fully paid and non-assessable shares of Common
Stock (the "Conversion Rate") as is determined by dividing (x) that portion of
the outstanding principal balance under this Note as of such date that the
Holder elects to convert by (y) the Conversion Price (as defined in Section
3.2(a) hereof) then in effect on the date on which the Holder faxes a notice of
conversion (the "Conversion Notice"), duly executed, to the Maker (facsimile
number (604) 638-3525, Attn.: President) (the

 

5

 

--------------------------------------------------------------------------------

 

“Voluntary Conversion Date”), provided, however, that the Conversion Price shall
be subject to adjustment as described in Section 3.6 below. The Holder shall
deliver this Note to the Maker at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Maker shall keep written records of the
amount of this Note converted as of each Conversion Date.

(b)        On the Mandatory Conversion Date (as defined below), the Maker may
cause the principal amount of this Note plus all accrued and unpaid interest to
convert into a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (i) the principal amount of this Note plus all accrued
and unpaid interest outstanding on the Mandatory Conversion Date divided by (ii)
the Conversion Price in effect on the Mandatory Conversion Date by providing ten
(10) days prior written notice of such Mandatory Conversion Date. As used
herein, a "Mandatory Conversion Date" shall be a date following the effective
date of the registration statement providing for the resale of the shares of
Common Stock issuable upon conversion of this Note (the “Registration
Statement”) in which the Closing Bid Price (as defined below) exceeds two
hundred percent (200%) of the Conversion Price then in effect for a period of
twenty (20) consecutive Trading Days; provided, that (A) the Registration
Statement is effective and has been effective, without lapse or suspension of
any kind, for a period ten (10) consecutive calendar days immediately preceding
the Mandatory Conversion Date, (B) trading in the Common Stock shall not have
been suspended by the Securities and Exchange Commission or the OTC Bulletin
Board (or other exchange or market on which the Common Stock is trading), (C)
the Maker is in material compliance with the terms and conditions of this Note
and the other Transaction Documents, and (D) the issuance of shares of Common
Stock on the Mandatory Conversion Date pursuant to such mandatory conversion
does not violate the provisions of Section 3.4 hereof. Notwithstanding the
foregoing to the contrary, the Mandatory Conversion Date shall be extended for
as long as a Triggering Event (as defined in Section 3.7(f) hereof) shall have
occurred and be continuing. The Mandatory Conversion Date and the Voluntary
Conversion Date collectively are referred to in this Note as the "Conversion
Date."

(c)        The term "Closing Bid Price" shall mean, on any particular date (i)
the closing bid price per share of the Common Stock on such date on the OTC
Bulletin Board or another registered national stock exchange on which the Common
Stock is then listed, or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the OTC
Bulletin Board or any registered national stock exchange, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (iii) if the Common Stock is not then
reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated
(or similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (iv) if the Common Stock
is not then publicly traded the fair market value of a share of Common Stock as
determined by the Holder and reasonably acceptable to the Maker.

 

6

 

--------------------------------------------------------------------------------

 

 

Section 3.2

Conversion Price.

(a)        The term "Conversion Price" shall mean $5.00, subject to adjustment
under Section 3.6 hereof.

(b)        Notwithstanding any of the foregoing to the contrary, if during any
period (a "Black-out Period"), a Holder is unable to trade any Common Stock
issued or issuable upon conversion of this Note immediately due to the
postponement of filing or delay or suspension of effectiveness of a registration
statement or because the Maker has otherwise informed such Holder that an
existing prospectus cannot be used at that time in the sale or transfer of such
Common Stock (provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely within the control of
the Holder of this Note or due to the Maker exercising its rights under Section
3(n) of the Registration Rights Agreement), such Holder shall have the option
but not the obligation on any Conversion Date within ten (10) Trading Days
following the expiration of the Black-out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected by such
Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten (10) Trading Days
thereafter. In no event shall the Black-out Period have any effect on the
Maturity Date of this Note.

Section 3.3

Mechanics of Conversion.

(a)        Not later than three (3) Trading Days after any Conversion Date, the
Maker or its designated transfer agent, as applicable, shall issue and deliver
to the Depository Trust Company (“DTC”) account on the Holder’s behalf via the
Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the “Delivery Date”). Notwithstanding the foregoing
to the contrary, the Maker or its transfer agent shall only be obligated to
issue and deliver the shares to the DTC on the Holder’s behalf via DWAC (or
certificates free of restrictive legends) if such conversion is in connection
with a sale and the Holder has complied with the applicable prospectus delivery
requirements. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
Delivery Date, the Holder shall be entitled by written notice to the Maker at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note if tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.

(b)        The Maker understands that a delay in the delivery of the shares of
Common Stock upon conversion of this Note beyond the Delivery Date could result
in economic

 

7

 

--------------------------------------------------------------------------------

 

loss to the Holder. If the Maker fails to deliver to the Holder such shares via
DWAC or a certificate or certificates pursuant to this Section hereunder by the
Delivery Date, the Maker shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such shares are delivered via DWAC or
certificates are delivered, together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Notes requested to be converted for the first five (5) Trading
Days after the Delivery Date and (ii) 2% of the aggregate principal amount of
the Notes requested to be converted for each Trading Day thereafter and (B)
$2,000 per day (which amount shall be paid as liquidated damages and not as a
penalty). Nothing herein shall limit a Holder's right to pursue actual damages
for the Maker's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein and such Holder 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). Notwithstanding anything to the contrary contained herein,
the Holder shall be entitled to withdraw a Conversion Notice, and upon such
withdrawal the Maker shall only be obligated to pay the liquidated damages
accrued in accordance with this Section 3.3(b) through the date the Conversion
Notice is withdrawn.

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

 

8

 

--------------------------------------------------------------------------------

 

 

Section 3.4       Ownership Cap and Certain Conversion Restrictions.
Notwithstanding anything to the contrary set forth in Section 3 of this Note, at
no time may the Holder convert all or a portion of this Note if the number of
shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by the Holder at
such time, the number of shares of Common Stock which would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) more than 4.9% of all of the Common Stock
outstanding at such time; provided, however, that upon the Holder providing the
Maker with sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the
"Waiver Notice") that the Holder would like to waive this Section 3.4(a) with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4(a) will be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice; provided, further, that
this provision shall be of no further force or effect during the sixty-one (61)
days immediately preceding the Maturity Date.

Section 3.5

Intentionally Omitted.

 

Section 3.6

Adjustment of Conversion Price.

(a)        The Conversion Price shall be subject to adjustment from time to time
as follows:

(i)         Adjustments for Stock Splits and Combinations. If the Maker shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Maker shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 3.6(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.

(ii)         Adjustments for Certain Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such record date shall have been fixed, as of the close of business on
such record date, by multiplying, the applicable Conversion Price then in effect
by a fraction:

(1)        the numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and

(2)        the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution.

 

9

 

--------------------------------------------------------------------------------

 

 

(iii)        Adjustment for Other Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the applicable
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of this Note shall
receive upon conversions thereof, in addition to the number of shares of Common
Stock receivable thereon, the number of securities of the Maker which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.6(a)(iii) with
respect to the rights of the holders of this Note and the Other Notes; provided,
however, that if such record date shall have been fixed and such dividend is not
fully paid or if such distribution is not fully made on the date fixed therefor,
the Conversion Price shall be adjusted pursuant to this paragraph as of the time
of actual payment of such dividends or distributions.

(iv)        Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed to the same or different number of
shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 3.6(a)(i), (ii) and (iii), or
a reorganization, merger, consolidation, or sale of assets provided for in
Section 3.6(a)(v)), then, and in each event, an appropriate revision to the
Conversion Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

(v)        Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Maker (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.6(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.6(a)(iv)), or a merger or
consolidation of the Maker with or into another corporation where the holders of
outstanding voting securities prior to such merger or consolidation do not own
over fifty percent (50%) of the outstanding voting securities of the merged or
consolidated entity, immediately after such merger or consolidation, or the sale
of all or substantially all of the Maker's properties or assets to any other
person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Maker or any successor
corporation resulting from Organic Change. In any such case,

 

10

 

--------------------------------------------------------------------------------

 

appropriate adjustment shall be made in the application of the provisions of
this Section 3.6(a)(v) with respect to the rights of the Holder after the
Organic Change to the end that the provisions of this Section 3.6(a)(v)
(including any adjustment in the applicable Conversion Price then in effect and
the number of shares of stock or other securities deliverable upon conversion of
this Note and the Other Notes) shall be applied after that event in as nearly an
equivalent manner as may be practicable.

(vi)

Adjustments for Issuance of Additional Shares of Common Stock.

(1)        In the event the Maker, shall, at any time, from time to time, issue
or sell any shares of additional shares of common stock (otherwise than as
provided in the foregoing subsections (i) through (v) of this Section 3.6(a) or
pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior
to the Issuance Date) (“Additional Shares of Common Stock”), at a price per
share less than the Conversion Price then in effect or without consideration,
then the Conversion Price upon each such issuance shall be adjusted to that
price (rounded to the nearest cent) determined by multiplying each of the
Conversion Price then in effect by a fraction:

(A)      the numerator of which shall be equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
Additional Shares of Common Stock plus (y) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for the
total number of such Additional Shares of Common Stock so issued would purchase
at a price per share equal to the Conversion Price then in effect, and

(B)       the denominator of which shall be equal to the number of shares of
Common Stock outstanding immediately after the issuance of such Additional
Shares of Common Stock.

(2)        The provisions of paragraph (1) of Section 3.6(a)(vi) shall not apply
to any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 3.6(a)(vii). No adjustment of the number of shares of
Common Stock for which this Note shall be convertible shall be made under
paragraph (1) of Section 3.6(a)(vi) upon the issuance of any Additional Shares
of Common Stock which are issued pursuant to the exercise of any Common Stock
Equivalents, if any such adjustment shall previously have been made upon the
issuance of such Common Stock Equivalents pursuant to Section 3.6(a)(vii).

(vii)       Issuance of Common Stock Equivalents. If the Maker, at any time
after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than the Notes, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively, the "Common Stock Equivalents") and the aggregate of the
price per share for which Additional Shares of Common Stock may be issuable
thereafter pursuant to such Common Stock Equivalent, plus the consideration
received by the Maker for issuance of such Common Stock Equivalent divided by
the number of shares of Common Stock issuable pursuant to such Common Stock
Equivalent (the “Aggregate Per Common Share Price”) shall be less than the
applicable Conversion Price then in effect, or if, after any such issuance of
Common Stock

 

11

 

--------------------------------------------------------------------------------

 

Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall make the Aggregate Per Share Common Price be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then the
applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
3.6(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Maker shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the
issuance of such warrants or other rights pursuant to this subsection (vii). No
adjustment shall be made to the Conversion Price upon the issuance of Common
Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.

(viii)      Consideration for Stock. In case any shares of Common Stock or any
Common Stock Equivalents shall be issued or sold:

(1)        in connection with any merger or consolidation in which the Maker is
the surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Maker shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the Maker,
of such portion of the assets and business of the nonsurviving corporation as
such Board may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case may be; or

(2)        in the event of any consolidation or merger of the Maker in which the
Maker is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Maker shall be changed into or exchanged for the
stock or other securities of another corporation, or in the event of any sale of
all or substantially all of the assets of the Maker for stock or other
securities of any corporation, the Maker shall be deemed to have issued a number
of shares of its Common Stock for stock or securities or other property of the
other corporation computed on the basis of the actual exchange ratio on which
the transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Notes, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Notes immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Notes. In

 

12

 

--------------------------------------------------------------------------------

 

the event Common Stock is issued with other shares or securities or other assets
of the Maker for consideration which covers both, the consideration computed as
provided in this Section 3.6(viii) shall be allocated among such securities and
assets as determined in good faith by the Board of Directors of the Maker.

(b)        Record Date. In case the Maker shall take record of the holders of
its Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.

(c)        Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Maker shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash)
in connection with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to a bona fide firm underwritten public offering of the Maker’s
securities, (iii) securities issued pursuant to the conversion or exercise of
convertible or excercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement, (iv) the shares of
Common Stock issuable upon the exercise of Warrants, (v) securities issued in
connection with strategic license agreements or other partnering arrangements so
long as such issuances are not for the purpose of raising capital, (vi) Common
Stock issued or options to purchase Common Stock granted or issued pursuant to
the Maker’s stock option plans and employee stock purchase plans as they now
exist, (vii) any warrants issued to the placement agent and its designees for
the transactions contemplated by the Purchase Agreement, and (viii) the payment
of any accrued interest in shares of Common Stock pursuant to this Note.

(d)        No Impairment. The Maker shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to one hundred thirty percent (130%) of the amount of the Notes the
Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.

(e)        Certificates as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.6, the Maker at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to the

 

13

 

--------------------------------------------------------------------------------

 

Holder a certificate setting forth such adjustment and readjustment, showing in
detail the facts upon which such adjustment or readjustment is based. The Maker
shall, upon written request of the Holder, at any time, furnish or cause to be
furnished to the Holder a like certificate setting forth such adjustments and
readjustments, the applicable Conversion Price in effect at the time, and the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon the conversion of this Note.
Notwithstanding the foregoing, the Maker shall not be obligated to deliver a
certificate unless such certificate would reflect an increase or decrease of at
least one percent (1%) of such adjusted amount.

(f)         Issue Taxes. The Maker shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Maker shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.

(g)        Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.

(h)        Reservation of Common Stock. The Maker shall at all times when this
Note shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note and all interest
accrued thereon; provided that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent (120%) of the number of
shares of Common Stock for which this Note and all interest accrued thereon are
at any time convertible. The Maker shall, from time to time in accordance with
Nevada corporate law, increase the authorized number of shares of Common Stock
if at any time the unissued number of authorized shares shall not be sufficient
to satisfy the Maker’s obligations under this Section 3.6(h).

(i)         Regulatory Compliance. If any shares of Common Stock to be reserved
for the purpose of conversion of this Note or any interest accrued thereon
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Maker shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.

 

Section 3.7

Prepayment.

(a)        Prepayment Upon an Event of Default. Notwithstanding anything to the
contrary contained herein, upon the occurrence of an Event of Default described
in Sections 2.1(a)-(j) and 2.1(m)-(o) hereof, the Holder shall have the right,
at such Holder's option, to require the Maker to prepay in cash all or a portion
of this Note at a price equal to one hundred

 

14

 

--------------------------------------------------------------------------------

 

twenty percent (120%) of the aggregate principal amount of this Note plus all
accrued and unpaid interest applicable at the time of such request (the “Event
of Default Prepayment Price”). Nothing in this Section 3.7(a) shall limit the
Holder's rights under Section 2.2 hereof.

(b)        Prepayment Option Upon Major Transaction. In addition to all other
rights of the Holder contained herein, simultaneous with the occurrence of a
Major Transaction (as defined in Section 3.7(e) hereof), the Holder shall have
the right, at the Holder's option, to require the Maker to prepay all or a
portion of the Holder's Notes at a price equal to one hundred ten percent (110%)
of the aggregate principal amount of this Note plus all accrued and unpaid
interest (the "Major Transaction Prepayment Price").

(c)        Prepayment Option Upon Triggering Event. In addition to all other
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require the
Maker to prepay all or a portion of this Note in cash at a price equal to the
sum of (i) the greater of (A) one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest and (B) in
the event at such time the Holder is unable to obtain the benefit of its
conversion rights through the conversion of this Note and resale of the shares
of Common Stock issuable upon conversion hereof in accordance with the terms of
this Note and the other Transaction Documents, the aggregate principal amount of
this Note plus all accrued but unpaid interest hereon, divided by the Conversion
Price on (x) the date the Prepayment Price (as defined below) is demanded or
otherwise due or (y) the date the Prepayment Price is paid in full, whichever is
less, multiplied by the VWAP on (x) the date the Prepayment Price is demanded or
otherwise due, and (y) the date the Prepayment Price is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Note and the other Transaction Documents (the "Triggering
Event Prepayment Price," and, collectively with the "Major Transaction
Prepayment Price," the "Prepayment Price").

(d)

Intentionally Omitted.

(e)        "Major Transaction." A "Major Transaction" shall be deemed to have
occurred at such time as any of the following events:

(i)         the consolidation, merger or other business combination of the Maker
with or into another Person (as defined in Section 4.13 hereof) (other than (A)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Maker or (B) a consolidation, merger or
other business combination in which holders of the Maker's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities); or

(ii)         the sale or transfer of more than fifty percent (50%) of the
Maker’s assets (based on the fair market value as determined in good faith by
the Maker’s Board of Directors) other than inventory in the ordinary course of
business in one or a related series of transactions; or

 

15

 

--------------------------------------------------------------------------------

 

 

(iii)        closing of a purchase, tender or exchange offer made to the holders
of more than fifty percent (50%) of the outstanding shares of Common Stock in
which more than fifty percent (50%) of the outstanding shares of Common Stock
were tendered and accepted.

(f)         "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:

(i)         so long as any Notes are outstanding, the effectiveness of the
Registration Statement, after it becomes effective, (i) lapses for any reason
(including, without limitation, the issuance of a stop order) or (ii) is
unavailable to the Holder for sale of the shares of Common Stock, and such lapse
or unavailability continues for a period of twenty (20) consecutive Trading
Days, and the shares of Common Stock into which the Holder's Notes can be
converted cannot be sold in the public securities market pursuant to Rule
144(k), provided that the cause of such lapse or unavailability is not due to
factors primarily within the control of the Holder of the Notes; and provided
further that a Triggering Event shall not have occurred if and to the extent the
Maker exercised its rights set forth in Section 3(n) of the Registration Rights
Agreement;

(ii)         the suspension from listing, without subsequent listing on any one
of, or the failure of the Common Stock to be listed on at least one of the OTC
Bulletin Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock
Exchange or The New York Stock Exchange, Inc. for a period of five (5)
consecutive Trading Days;

(iii)        the Maker's notice to any holder of the Notes, including by way of
public announcement, at any time, of its inability to comply (including for any
of the reasons described in Section 3.8) or its intention not to comply with
proper requests for conversion of any Notes into shares of Common Stock; or

(iv)        the Maker's failure to comply with a Conversion Notice tendered in
accordance with the provisions of this Note within ten (10) business days after
the receipt by the Maker of the Conversion Notice; or

(v)        the Maker deregisters its shares of Common Stock and as a result such
shares of Common Stock are no longer publicly traded; or

(vi)        the Maker consummates a “going private” transaction and as a result
the Common Stock is no longer registered under Sections 12(b) or 12(g) of the
Exchange Act.

(g)

Intentionally Omitted.

 

(h)        Mechanics of Prepayment at Option of Holder Upon Major Transaction.
No sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Maker shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to the Holder of
this Note. At any time after receipt of a Notice of Major

 

16

 

--------------------------------------------------------------------------------

 

Transaction (or, in the event a Notice of Major Transaction is not delivered at
least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Maker to prepay, effective immediately prior to the consummation of
such Major Transaction, all of the holder's Notes then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Major Transaction") to the Maker, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Major Transaction Prepayment Price, as calculated pursuant to Section
3.7(b) above.

(i)         Mechanics of Prepayment at Option of Holder Upon Triggering Event.
Within one (1) business day after the occurrence of a Triggering Event, the
Maker shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note and the
Other Notes then outstanding may require the Maker to prepay all of the Notes on
a pro rata basis by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon Triggering
Event") to the Maker, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the amount of the Note that such holder is
electing to have prepaid and (ii) the applicable Triggering Event Prepayment
Price, as calculated pursuant to Section 3.7(c) above. A holder shall only be
permitted to require the Maker to prepay the Note pursuant to Section 3.7 hereof
for the greater of a period of ten (10) days after receipt by such holder of a
Notice of Triggering Event or for so long as such Triggering Event is
continuing.

(j)

Intentionally Omitted.

(k)        Payment of Prepayment Price. Upon the Maker's receipt of a Notice(s)
of Prepayment at Option of Holder Upon Triggering Event or a Notice(s) of
Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(h), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the Prepayment Price), in addition
to any remedy such holder of the

 

17

 

--------------------------------------------------------------------------------

 

Notes may have under this Note and the Purchase Agreement, the applicable
Prepayment Price payable in respect of such Notes not prepaid shall bear
interest at the rate of two percent (2%) per month (prorated for partial months)
until paid in full. Until the Maker pays such unpaid applicable Prepayment Price
in full to a holder of the Notes submitted for prepayment, such holder shall
have the option (the "Void Optional Prepayment Option") to, in lieu of
prepayment, require the Maker to promptly return to such holder(s) all of the
Notes that were submitted for prepayment by such holder(s) under this Section
3.7 and for which the applicable Prepayment Price has not been paid, by sending
written notice thereof to the Maker via facsimile (the "Void Optional Prepayment
Notice"). Upon the Maker's receipt of such Void Optional Prepayment Notice(s)
and prior to payment of the full applicable Prepayment Price to such holder, (i)
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Maker shall immediately return any Notes submitted to the Maker by each
holder for prepayment under this Section 3.7(k) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Maker and (B) the lowest Closing Bid Price during the period beginning on
the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Maker and ending on the date on
which the Void Optional Prepayment Notice(s) is delivered to the Maker; provided
that no adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3.7 shall have
priority to payments to other stockholders in connection with a Major
Transaction.

(l)         Maker Prepayment Option upon Major Transaction. Upon the
consummation of a Major Transaction commencing twelve (12) months following the
effective date of the Registration Statement, the Maker may prepay in cash all
or any portion of the outstanding principal amount of this Note together with
all accrued and unpaid interest thereon upon at least thirty (30) days prior
written notice to the Holder (the "Maker's Prepayment Notice") at a price equal
to one hundred twenty percent (120%) of the aggregate principal amount of this
Note plus any accrued but unpaid interest (the "Maker's Prepayment Price");
provided, however, that if a holder has delivered a Conversion Notice to the
Maker or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Maker’s Prepayment Notice, the principal amount of the
Notes plus any accrued but unpaid interest designated to be converted may not be
prepaid by the Maker and shall be converted in accordance with Section 3.3
hereof; provided further that if during the period between delivery of the
Maker's Prepayment Notice and the Maker's Prepayment Date (as defined below), a
holder shall become entitled and elects to deliver a Notice of Prepayment at
Option of Holder Upon Major Transaction or Notice of Prepayment at Option of
Holder upon Triggering Event, then such rights of the holders shall take
precedence over the previously delivered Maker Prepayment Notice if the holder
so elects. The Maker's Prepayment Notice shall state the date of prepayment

 

18

 

--------------------------------------------------------------------------------

 

which date shall be the date of the consummation of the Major Transaction (the
"Maker's Prepayment Date"), the Maker’s Prepayment Price and the principal
amount of Notes plus any accrued but unpaid interest to be prepaid by the Maker.
The Maker shall deliver the Maker's Prepayment Price on the Maker’s Prepayment
Date, provided, that if the holder(s) delivers a Conversion Notice before the
Maker's Prepayment Date, then the portion of the Maker's Prepayment Price which
would be paid to prepay the Notes covered by such Conversion Notice shall be
returned to the Maker upon delivery of the Common Stock issuable in connection
with such Conversion Notice to the holder(s). On the Maker's Prepayment Date,
the Maker shall pay the Maker's Prepayment Price, subject to any adjustment
pursuant to the immediately preceding sentence, to the holder(s) on a pro rata
basis. If the Maker fails to pay the Maker's Prepayment Price by the third (3rd)
business day after the Maker’s Prepayment Date, the prepayment will be declared
null and void and the Maker shall lose its right to serve a Maker 's Prepayment
Notice pursuant to this Section 3.7(l) in the future. Notwithstanding the
foregoing to the contrary, the Maker may effect a prepayment pursuant to this
Section 3.7(l) only if (A) the Registration Statement is effective and has been
effective, without lapse or suspension of any kind, for a period sixty (60)
consecutive calendar days immediately preceding the Maker’s Prepayment Notice
through the Maker’s Prepayment Date, or the shares of Common Stock into which
this Note can be converted may be offered for sale to the public pursuant to
Rule 144(k) under the Securities Act, (B) trading in the Common Stock shall not
have been suspended by the Securities and Exchange Commission or the Nasdaq
SmallCap Market (or other exchange or market on which the Common Stock is
trading), and (C) the Maker is in material compliance with the terms and
conditions of this Note and the other Transaction Documents.

Section 3.8

Inability to Fully Convert.

(a)        Holder's Option if Maker Cannot Fully Convert. If, upon the Maker's
receipt of a Conversion Notice, the Maker cannot issue shares of Common Stock
registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder's option, can elect to:

(i)         require the Maker to prepay that portion of this Note for which the
Maker is unable to issue Common Stock in accordance with the Holder's Conversion
Notice (the "Mandatory Prepayment") at a price per share equal to the Triggering
Event Prepayment Price as of such Conversion Date (the "Mandatory Prepayment
Price");

(ii)         if the Maker's inability to fully convert is pursuant to Section
3.8(a)(y) above, require the Maker to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice;

 

19

 

--------------------------------------------------------------------------------

 

 

(iii)        void its Conversion Notice and retain or have returned, as the case
may be, this Note that was to be converted pursuant to the Conversion Notice
(provided that the Holder's voiding its Conversion Notice shall not effect the
Maker's obligations to make any payments which have accrued prior to the date of
such notice).

In the event a Holder shall elect to convert any portion of its Notes as
provided herein, the Maker cannot refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, violation of an agreement to which such Holder is a party
or for any reason whatsoever, unless, an injunction from a court, on notice,
restraining and or adjoining conversion of all or of said Notes shall have been
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the principal amount of the Notes the Holder has elected
to convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.

 

(b)        Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").

(c)        Payment of Prepayment Price. If the Holder shall elect to have its
Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price to the Holder within thirty (30) days of the Maker's
receipt of the Holder's Notice in Response to Inability to Convert, provided
that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment.

 

20

 

--------------------------------------------------------------------------------

 

 

(d)        Pro-rata Conversion and Prepayment. In the event the Maker receives a
Conversion Notice from more than one holder of the Notes on the same day and the
Maker can convert and prepay some, but not all, of the Notes pursuant to this
Section 3.8, the Maker shall convert and prepay from each holder of the Notes
electing to have its Notes converted and prepaid at such time an amount equal to
such holder's pro-rata amount (based on the principal amount of the Notes held
by such holder relative to the principal amount of the Notes outstanding) of all
the Notes being converted and prepaid at such time.

Section 3.9       No Rights as Shareholder. Nothing contained in this Note shall
be construed as conferring upon the Holder, prior to the conversion of this
Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.

ARTICLE IV

 

MISCELLANEOUS

Section 4.1       Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker takes a record (x) with respect to any dividend or
distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Maker will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public. The Maker shall promptly notify the Holder of
this Note of any notices sent or received, or any actions taken with respect to
the Other Notes.

Section 4.2       Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Note shall not
be interpreted or construed with any presumption against the party causing this
Note to be drafted.

 

21

 

--------------------------------------------------------------------------------

 

 

Section 4.3       Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.

Section 4.4       Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including, without limitation, a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

Section 4.5       Enforcement Expenses. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.

Section 4.6       Binding Effect. The obligations of the Maker and the Holder
set forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.

Section 4.7       Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.

Section 4.8       Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefor shall be stamped or
imprinted with a legend in substantially the following form:

"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE MAKER OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE MAKER

 

22

 

--------------------------------------------------------------------------------

 

THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF,
UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES
LAWS."

 

Section 4.9       Consent to Jurisdiction. Each of the Maker and the Holder (i)
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court sitting in the Southern District of New York and the courts of
the State of New York located in New York county for the purposes of any suit,
action or proceeding arising out of or relating to this Note and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Maker and the
Holder consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.

Section 4.10     Parties in Interest. This Note shall be binding upon, inure to
the benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.

Section 4.11     Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.

Section 4.12     Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.

(a)        No delay or omission on the part of the Holder in exercising its
rights under this Note, or course of conduct relating hereto, shall operate as a
waiver of such rights or any other right of the Holder, nor shall any waiver by
the Holder of any such right or rights on any one occasion be deemed a waiver of
the same right or rights on any future occasion.

(b)        THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A
PART IS A COMMERCIAL TRANSACTION, AND TO THE

 

23

 

--------------------------------------------------------------------------------

 

EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING
WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR
ASSIGNS MAY DESIRE TO USE.

Section 4.13     Definitions. For the purposes hereof, the following terms shall
have the following meanings:

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

 

“Trading Day” means (a) a day on which the Common Stock is traded on the OTC
Bulletin Board (or other exchange or market on which the Common Stock is
trading), or (b) if the Common Stock is not traded on the OTC Bulletin Board (or
other exchange or market on which the Common Stock is trading), a day on which
the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

EDEN ENERGY CORP.  

 

By: ______________________________

Name: Donald Sharpe

          Title: President

 

24

 

--------------------------------------------------------------------------------

 

 

EXHIBIT A

 

WIRE INSTRUCTIONS.

 

Payee:

________________________________________________________

Bank:

________________________________________________________

Address:

________________________________________________________

 

________________________________________________________

Bank No.:

________________________________________________________

Account No.:

________________________________________________________

Account Name:________________________________________________________

 

25

 

--------------------------------------------------------------------------------

 

 

FORM OF

NOTICE OF CONVERSION

(To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of Eden
Energy Corp. (the “Maker”) according to the conditions hereof, as of the date
written below.

Date of Conversion _________________________________________________________

Applicable Conversion Price __________________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________

Signature __________________________________________________________________

[Name]

Address: __________________________________________________________________

____________________________________________________________________

 

 

26

 

--------------------------------------------------------------------------------

 

 

EXHIBIT C

FORM OF WARRANT

 

 

--------------------------------------------------------------------------------

 

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.

 

SERIES A WARRANT TO PURCHASE

 

SHARES OF COMMON STOCK

 

OF

 

EDEN ENERGY CORP.

 

Expires August 25, 2008

 

No.: W-A-05-___

Number of Shares: ________

Date of Issuance: August 25, 2005

 

FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, Eden Energy Corp., a Nevada corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that
______________________ or its registered assigns is entitled to subscribe for
and purchase, during the Term (as hereinafter defined), up to
_______________________ (_________) shares (subject to adjustment as hereinafter
provided) of the duly authorized, validly issued, fully paid and non-assessable
Common Stock of the Issuer, at an exercise price per share equal to the Warrant
Price then in effect, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth. Capitalized terms used in this Warrant and not
otherwise defined herein shall have the respective meanings specified in Section
8 hereof.

 

1.          Term. The term of this Warrant shall commence on August 25, 2005 and
shall expire at 5:00 p.m., eastern time, on August 25, 2008 (such period being
the "Term").

 

2.

Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange.

 

(a)        Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part during the Term.

 

1

 

--------------------------------------------------------------------------------

 

 

(b)        Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or by wire transfer to an account designated by the Issuer, (ii) by
"cashless exercise" in accordance with the provisions of subsection (c) of this
Section 2, but only when a registration statement under the Securities Act
providing for the resale of the Warrant Stock is not then in effect, or (iii) by
a combination of the foregoing methods of payment selected by the Holder of this
Warrant.

 

(c)        Cashless Exercise. Commencing one (1) year following the Original
Issue Date, if (i) the Per Share Market Value of one share of Common Stock is
greater than the Warrant Price (at the date of calculation as set forth below)
and (ii) a registration statement under the Securities Act providing for the
resale of the Warrant Stock is not then in effect by the date such registration
statement is required to be effective pursuant to the Registration Rights
Agreement (as defined in the Purchase Agreement) or not effective at any time
during the Effectiveness Period (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement
(except during a blackout period as contemplated therein), in lieu of exercising
this Warrant by payment of cash, the Holder may exercise this Warrant by a
cashless exercise and shall receive the number of shares of Common Stock equal
to an amount (as determined below) by surrender of this Warrant at the principal
office of the Issuer together with the properly endorsed Notice of Exercise in
which event the Issuer shall issue to the Holder a number of shares of Common
Stock computed using the following formula:

 

X = Y - (A)(Y)

 

B

 

 

Where

X =

the number of shares of Common Stock to be issued to the Holder.

 

Y =

the number of shares of Common Stock purchasable upon exercise of all of the
Warrant or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being exercised.

 

A =

the Warrant Price.

 

B =

the Per Share Market Value of one share of Common Stock.

 

(d)        Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise (the “Delivery Date”) or, at the request of the Holder and provided the
Issuer participates in the DTC FAST system described below (provided that a
registration

 

2

 

--------------------------------------------------------------------------------

 

statement under the Securities Act providing for the resale of the Warrant Stock
is then in effect), issued and delivered to the Depository Trust Company (“DTC”)
account on the Holder’s behalf via the Deposit Withdrawal Agent Commission
System (“DWAC”) within a reasonable time, not exceeding three (3) Trading Days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the holder of the shares of Warrant Stock so purchased as of the date of such
exercise and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.

 

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

(f)        Transferability of Warrant. Subject to Section 2(h), this Warrant may
be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this paragraph and subject to the provisions of subsection (h) of
this Section 2, this Warrant may be transferred on the books of the Issuer by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Issuer, properly endorsed (by the
Holder executing an assignment in the form attached hereto) and upon payment of
any necessary transfer tax or other governmental charge imposed upon such
transfer. This Warrant is

 

3

 

--------------------------------------------------------------------------------

 

exchangeable at the principal office of the Issuer for Warrants to purchase the
same aggregate number of shares of Warrant Stock, each new Warrant to represent
the right to purchase such number of shares of Warrant Stock as the Holder
hereof shall designate at the time of such exchange. All Warrants issued on
transfers or exchanges shall be dated the Original Issue Date and shall be
identical with this Warrant except as to the number of shares of Warrant Stock
issuable pursuant thereto.

 

(g)        Continuing Rights of Holder. The Issuer will, at the time of or at
any time after each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing the extent, if any, of its continuing obligation
to afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.

 

(h)

Compliance with Securities Laws.

 

(i)         The Holder of this Warrant, by acceptance hereof, acknowledges that
this Warrant and the shares of Warrant Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Warrant Stock to be issued
upon exercise hereof except pursuant to an effective registration statement, or
an exemption from registration, under the Securities Act and any applicable
state securities laws.

 

(ii)         Except as provided in paragraph (iii) below, this Warrant and all
certificates representing shares of Warrant Stock issued upon exercise hereof
shall be stamped or imprinted with a legend in substantially the following form:

 

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.

 

 

4

 

--------------------------------------------------------------------------------

 

 

(iii)        The Issuer agrees to reissue this Warrant or certificates
representing any of the Warrant Stock, without the legend set forth above if at
such time, prior to making any transfer of any such securities, the Holder shall
give written notice to the Issuer upon the occurrence of: (a) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the Issuer,
to the effect that the registration of such securities under the Securities Act
is not required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Issuer with the Securities and Exchange Commission and has become
effective under the Securities Act, (iii) the Issuer has received other evidence
reasonably satisfactory to the Issuer that such registration and qualification
under the Securities Act and state securities laws are not required, or (iv) the
Holder provides the Issuer with reasonable assurances that such security can be
sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the Issuer,
to the effect that registration or qualification under the securities or "blue
sky" laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or "blue sky"
laws has been effected or a valid exemption exists with respect thereto. The
Issuer will respond to any such notice from a holder within three (3) business
days. In the case of any proposed transfer under this Section 2(h), the Issuer
will use reasonable efforts to comply with any such applicable state securities
or "blue sky" laws, but shall in no event be required, (x) to qualify to do
business in any state where it is not then qualified, (y) to take any action
that would subject it to tax or to the general service of process in any state
where it is not then subject, or (z) to comply with state securities or “blue
sky” laws of any state for which registration by coordination is unavailable to
the Issuer. The restrictions on transfer contained in this Section 2(h) shall be
in addition to, and not by way of limitation of, any other restrictions on
transfer contained in any other section of this Warrant. Whenever a certificate
representing the Warrant Stock is required to be issued to a the Holder without
a legend, in lieu of delivering physical certificates representing the Warrant
Stock, provided the Issuer’s transfer agent is participating in the DTC Fast
Automated Securities Transfer program, the Issuer shall use its reasonable best
efforts to cause its transfer agent to electronically transmit the Warrant Stock
to the Holder by crediting the account of the Holder's Prime Broker with DTC
through its DWAC system (to the extent not inconsistent with any provisions of
this Warrant or the Purchase Agreement).

 

(i)         In no event may the Holder exercise this Warrant in whole or in part
unless the Holder is an “accredited investor” as defined in Regulation D under
the Securities Act.

 

5

 

--------------------------------------------------------------------------------

 

 

 

3.

Stock Fully Paid; Reservation and Listing of Shares; Covenants.

 

(a)        Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, when issued in accordance with the
terms of this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges created by or through
the Issuer. The Issuer further covenants and agrees that during the period
within which this Warrant may be exercised, the Issuer will at all times have
authorized and reserved for the purpose of issuance upon exercise of this
Warrant a number of shares of Common Stock equal to at least one hundred twenty
percent (120%) of the aggregate number of shares of Common Stock to provide for
the exercise of this Warrant.

 

(b)        Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder (provided that such Warrant Stock has
been registered pursuant to a registration statement under the Securities Act
then in effect), and, to the extent permissible under the applicable securities
exchange rules, all unissued shares of Warrant Stock which are at any time
issuable hereunder, so long as any shares of Common Stock shall be so listed.
The Issuer will also so list on each securities exchange or market, and will
maintain such listing of, any other securities which the Holder of this Warrant
shall be entitled to receive upon the exercise of this Warrant if at the time
any securities of the same class shall be listed on such securities exchange or
market by the Issuer.

 

(c)        Covenants. The Issuer shall not by any action including, without
limitation, amending the Certificate of Incorporation or the by-laws of the
Issuer, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of the Holder hereof against dilution (to the extent
specifically provided herein) or impairment. Without limiting the generality of
the foregoing, the Issuer will (i) not permit the par value, if any, of its
Common Stock to exceed the then effective Warrant Price, (ii) not amend or
modify any provision of the Certificate of Incorporation or by-laws of the
Issuer in any manner that would adversely affect the rights of the Holders of
the Warrants, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body

 

6

 

--------------------------------------------------------------------------------

 

having jurisdiction thereof as may be reasonably necessary to enable the Issuer
to perform its obligations under this Warrant.

 

(d)        Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.

 

4.          Adjustment of Warrant Price. The price at which such shares of
Warrant Stock may be purchased upon exercise of this Warrant shall be subject to
adjustment from time to time as set forth in this Section 4. The Issuer shall
give the Holder notice of any event described below which requires an adjustment
pursuant to this Section 4 in accordance with the notice provisions set forth in
Section 5.

(a)

Recapitalization, Reorganization, Reclassification, Consolidation, Merger or
Sale.

 

(i)          In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate or merge with or
into any other Person and the Issuer shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) permit any other Person to
consolidate with or merge into the Issuer and the Issuer shall be the continuing
or surviving Person but, in connection with such consolidation or merger, any
Capital Stock of the Issuer shall be changed into or exchanged for Securities of
any other Person or cash or any other property, or (c) transfer all or
substantially all of its properties or assets to any other Person, or (d) effect
a capital reorganization or reclassification of its Capital Stock, then, and in
the case of each such Triggering Event, proper provision shall be made so that,
upon the basis and the terms and in the manner provided in this Warrant, the
Holder of this Warrant shall be entitled upon the exercise hereof at any time
after the consummation of such Triggering Event, to the extent this Warrant is
not exercised prior to such Triggering Event, to receive at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto (including the right of a shareholder to elect the type of
consideration it will receive upon a Triggering Event), subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible to the
adjustments provided for elsewhere in this Section 4.

 

(ii)         Notwithstanding anything contained in this Warrant to the contrary,
a Triggering Event shall not be deemed to have occurred if, prior to the
consummation thereof, each Person (other than the Issuer) which may be required
to deliver any Securities, cash or property upon the exercise of this Warrant as
provided herein shall

 

7

 

--------------------------------------------------------------------------------

 

assume, by written instrument delivered to, and reasonably satisfactory to, the
Holder of this Warrant, (A) the obligations of the Issuer under this Warrant
(and if the Issuer shall survive the consummation of such Triggering Event, such
assumption shall be in addition to, and shall not release the Issuer from, any
continuing obligations of the Issuer under this Warrant) and (B) the obligation
to deliver to such Holder such Securities, cash or property as, in accordance
with the foregoing provisions of this subsection (a), such Holder shall be
entitled to receive, and such Person shall have similarly delivered to such
Holder an opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such Holder, or in the alternative, a written acknowledgement
executed by the President or Chief Financial Officer of the Issuer, stating that
this Warrant shall thereafter continue in full force and effect and the terms
hereof (including, without limitation, all of the provisions of this subsection
(a)) shall be applicable to the Securities, cash or property which such Person
may be required to deliver upon any exercise of this Warrant or the exercise of
any rights pursuant hereto.

 

(b)       Stock Dividends, Subdivisions and Combinations. If at any time the
Issuer shall:

 

(i)          make or issue or set a record date for the holders of the Common
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, shares of Common Stock,

 

(ii)        subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or

 

(iii)       combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock,

 

then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.

 

(c)       Certain Other Distributions. If at any time the Issuer shall make or
issue or set a record date for the holders of the Common Stock for the purpose
of entitling them to receive any dividend or other distribution of:

 

(i)         cash (other than a cash dividend payable out of earnings or earned
surplus legally available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Issuer),

 

8

 

--------------------------------------------------------------------------------

 

 

(ii)         any evidences of its indebtedness, any shares of stock of any class
or any other securities or property of any nature whatsoever (other than cash,
Common Stock Equivalents or Additional Shares of Common Stock), or

 

(iii)        any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock
Equivalents or Additional Shares of Common Stock),

 

then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm of recognized
national standing acceptable to (but not affiliated with) the Holder) of any and
all such evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights so distributable,
and (2) the Warrant Price then in effect shall be adjusted to equal (A) the
Warrant Price then in effect multiplied by the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares of Common Stock for which this Warrant is
exercisable immediately after such adjustment. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by the Issuer to the holders
of its Common Stock of such shares of such other class of stock within the
meaning of this Section 4(c) and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4(b).

 

(d)

Issuance of Additional Shares of Common Stock.

 

(i)        In the event the Issuer shall at any time following the Original
Issue Date issue any Additional Shares of Common Stock (otherwise than as
provided in the foregoing subsections (b) through (c) of this Section 4), at a
price per share less than the Warrant Price then in effect or without
consideration, then the Warrant Price upon each such issuance shall be adjusted
to that price determined by multiplying the Warrant Price then in effect by a
fraction:

(A)       the numerator of which shall be equal to the sum of (x) the number of
shares of Outstanding Common Stock immediately prior to the issuance of such
Additional Shares of Common Stock plus (y) the number of shares of Common Stock
(rounded to the nearest whole share) which the aggregate consideration for

 

9

 

--------------------------------------------------------------------------------

 

the total number of such Additional Shares of Common Stock so issued would
purchase at a price per share equal to the Warrant Price then in effect, and

(B)        the denominator of which shall be equal to the number of shares of
Outstanding Common Stock immediately after the issuance of such Additional
Shares of Common Stock.

 

(ii)        No adjustment of the number of shares of Common Stock for which this
Warrant shall be exercisable shall be made under paragraph (i) of Section 4(d)
upon the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any Common Stock Equivalents, if any such adjustment
shall previously have been made upon the issuance of such Common Stock
Equivalents (or upon the issuance of any warrant or other rights therefor)
pursuant to Section 4(e).

 

(e)       Issuance of Common Stock Equivalents. If the Issuer shall at any time
following the Original Issue Date issue or sell any Common Stock Equivalents,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the aggregate price per share for which Common Stock is
issuable upon such conversion or exchange plus the consideration received by the
Issuer for issuance of such Common Stock Equivalent divided by the number of
shares of Common Stock issuable pursuant to such Common Stock Equivalent (the
“Aggregate Per Common Share Price”) shall be less than the Warrant Price then in
effect, or if, after any such issuance of Common Stock Equivalents, the price
per share for which Additional Shares of Common Stock may be issuable thereafter
is amended or adjusted, and such price as so amended shall make the Aggregate
Per Common Share Price be less than the Warrant Price in effect at the time of
such amendment or adjustment, then the Warrant Price upon each such issuance or
amendment shall be adjusted as provided in Section 4(d). No further adjustment
of the Warrant Price then in effect shall be made under this Section 4(e) upon
the issuance of any Common Stock Equivalents which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to this Section 4(e). No further adjustments
of the Warrant Price then in effect shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Common Stock Equivalents.

 

(f)          Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall have been made pursuant to Section 4(e) as
the result of any issuance of Common Stock Equivalents, and (i) such Common
Stock Equivalents, or the right of conversion or exchange in such Common Stock
Equivalents, shall expire, and all or a portion of such or the right of
conversion or exchange with respect to all or a portion of such Common Stock
Equivalents, as the case may be, shall not have been exercised, or (ii) the
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents shall be increased, then such previous
adjustment shall be rescinded and annulled and the Additional Shares of Common
Stock which were deemed to have been issued by virtue of the computation made in
connection with the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation. Upon the occurrence of
an event

 

10

 

--------------------------------------------------------------------------------

 

set forth in this Section 4(f) above, there shall be a recomputation made of the
effect of such Common Stock Equivalents on the basis of: (i) treating the number
of Additional Shares of Common Stock theretofore actually issued or issuable
pursuant to the previous exercise of Common Stock Equivalents or any such right
of conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which Additional Shares of Common
Stock are issuable under such Common Stock Equivalents; whereupon a new
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

 

(g)       Other Provisions applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:

 

(i)        Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Common Stock Equivalents (or any warrants or other
rights therefor) shall be issued for cash consideration, the consideration
received by the Issuer therefor shall be the amount of the cash received by the
Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
the Issuer for and in the underwriting of, or otherwise in connection with, the
issuance thereof). In connection with any merger or consolidation in which the
Issuer is the surviving corporation (other than any consolidation or merger in
which the previously outstanding shares of Common Stock of the Issuer shall be
changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value of such portion of the assets and business of the nonsurviving
corporation as the Board may determine to be attributable to such shares of
Common Stock or Common Stock Equivalents, as the case may be. Such determination
of the fair value of such consideration shall be made by an Independent
Appraiser. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Issuer for issuing such warrants or
other rights plus the additional consideration payable to the Issuer upon
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Common Stock
Equivalents shall be the consideration received by the Issuer for issuing
warrants or other rights to subscribe for or purchase such Common Stock
Equivalents, plus the consideration paid or payable to the Issuer in respect of
the subscription for or purchase of such Common Stock Equivalents, plus the
additional consideration, if any, payable to the Issuer upon the exercise of the
right of conversion or exchange in such Common Stock Equivalents. In the event
of any consolidation or merger of the Issuer in which the Issuer is not

 

11

 

--------------------------------------------------------------------------------

 

the surviving corporation or in which the previously outstanding shares of
Common Stock of the Issuer shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Issuer for stock or other securities of
any corporation, the Issuer shall be deemed to have issued a number of shares of
its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. In the event any consideration received by
the Issuer for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise applicable shall be
as determined in good faith by the Board. In the event Common Stock is issued
with other shares or securities or other assets of the Issuer for consideration
which covers both, the consideration computed as provided in this Section
4(g)(i) shall be allocated among such securities and assets as determined in
good faith by the Board.

 

(ii)        When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4(b)) up to, but not
beyond the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than one percent (1%) of
the shares of Common Stock for which this Warrant is exercisable immediately
prior to the making of such adjustment. Any adjustment representing a change of
less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.

 

(iii)       Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
one one-hundredth (1/100th) of a share.

 

(iv)       When Adjustment Not Required. If the Issuer shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.

 

(h)        Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.

 

12

 

--------------------------------------------------------------------------------

 

 

(i)        Escrow of Warrant Stock. If after any property becomes distributable
pursuant to this Section 4 by reason of the taking of any record of the holders
of Common Stock, but prior to the occurrence of the event for which such record
is taken, and the Holder exercises this Warrant, any shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for the Holder by the Issuer to be issued to the Holder upon
and to the extent that the event actually takes place, upon payment of the
current Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

 

5.          Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to a national or regional
accounting firm reasonably acceptable to the Issuer and the Holder, provided
that the Issuer shall have ten (10) days after receipt of notice from such
Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The costs and expenses of the initial accounting firm shall be paid
equally by the Issuer and the Holder and, in the case of an objection by the
Issuer, the costs and expenses of the subsequent accounting firm shall be paid
in full by the Issuer.

 

6.          Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.

 

7.         Ownership Cap and Certain Exercise Restrictions. (a) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder of
this Warrant exercise this Warrant if the number of shares of Common Stock to be
issued pursuant to such exercise would exceed, when aggregated with all other
shares of Common Stock owned by such Holder at such time, the number of shares
of Common Stock which would result in such Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.99% of the then issued and outstanding shares of
Common Stock;

 

13

 

--------------------------------------------------------------------------------

 

provided, however, that upon a holder of this Warrant providing the Issuer with
sixty-one (61) days notice (pursuant to Section 12 hereof) (the "Waiver Notice")
that such Holder would like to waive this Section 7(a) with regard to any or all
shares of Common Stock issuable upon exercise of this Warrant, this Section 7(a)
will be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice; provided, further, that this provision shall be
of no further force or effect during the sixty-one (61) days immediately
preceding the expiration of the term of this Warrant.

 

(b)       The Holder may not exercise the Warrant hereunder to the extent such
exercise would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.99% of the then issued and outstanding shares of Common Stock,
including shares issuable upon exercise of the Warrant held by the Holder after
application of this Section; provided, however, that upon a holder of this
Warrant providing the Issuer with a Waiver Notice that such holder would like to
waive this Section 7(b) with regard to any or all shares of Common Stock
issuable upon exercise of this Warrant, this Section 7(b) shall be of no force
or effect with regard to those shares of Warrant Stock referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the expiration of
the term of this Warrant.

 

8.          Definitions. For the purposes of this Warrant, the following terms
have the following meanings:

 

"Additional Shares of Common Stock" means all shares of Common Stock issued by
the Issuer after the Original Issue Date, and all shares of Other Common, if
any, issued by the Issuer after the Original Issue Date, except: (i) securities
issued (other than for cash) in connection with a merger, acquisition, or
consolidation, (ii) securities issued pursuant to a bona fide firm underwritten
public offering of the Issuer’s securities, (iii) securities issued pursuant to
the conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date hereof or issued pursuant to the Purchase
Agreement, (iv) the Warrant Stock, (v) securities issued in connection with bona
fide strategic license agreements or other partnering arrangements so long as
such issuances are not for the purpose of raising capital, (vi) Common Stock
issued or options to purchase Common Stock granted or issued pursuant to the
Issuer’s stock option plans as they now exist and employee stock purchase plans
as they now exist, (vii) any warrants issued to the placement agent and its
designees for the transactions contemplated by the Purchase Agreement and (viii)
the payment of any accrued interest in shares of Common Stock pursuant to the
convertible promissory notes issued pursuant to the Purchase Agreement.

 

"Articles of Incorporation" means the Articles of Incorporation of the Issuer as
in effect on the Original Issue Date, and as hereafter from time to time
amended, modified, supplemented or restated in accordance with the terms hereof
and thereof and pursuant to applicable law.

 

 

14

 

--------------------------------------------------------------------------------

 

 

"Board" shall mean the Board of Directors of the Issuer.

 

"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock, including, without limitation, shares of preferred or
preference stock, (ii) all partnership interests (whether general or limited) in
any Person which is a partnership, (iii) all membership interests or limited
liability company interests in any limited liability company, and (iv) all
equity or ownership interests in any Person of any other type.

 

"Common Stock" means the Common Stock, par value $0.001 per share, of the Issuer
and any other Capital Stock into which such stock may hereafter be changed.

 

"Common Stock Equivalent" means any Convertible Security or warrant, option or
other right to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Security.

 

"Convertible Securities" means evidences of Indebtedness, shares of Capital
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common Stock. The term "Convertible
Security" means one of the Convertible Securities.

 

"Governmental Authority" means any governmental, regulatory or self-regulatory
entity, department, body, official, authority, commission, board, agency or
instrumentality, whether federal, state or local, and whether domestic or
foreign.

 

"Holders" mean the Persons who shall from time to time own any Warrant. The term
"Holder" means one of the Holders.

 

"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the Holder
of any Warrant.

 

"Issuer" means Eden Energy Corp., a Nevada corporation, and its successors.

 

"Majority Holders" means at any time the Holders of Warrants exercisable for a
majority of the shares of Warrant Stock issuable under the Warrants at the time
outstanding.

 

"Original Issue Date" means August 25, 2005.

 

"OTC Bulletin Board" means the over-the-counter electronic bulletin board.

 

 

15

 

--------------------------------------------------------------------------------

 

 

"Other Common" means any other Capital Stock of the Issuer of any class which
shall be authorized at any time after the date of this Warrant (other than
Common Stock) and which shall have the right to participate in the distribution
of earnings and assets of the Issuer without limitation as to amount.

 

“Outstanding Common Stock” means, at any given time, the aggregate amount of
outstanding shares of Common Stock, assuming full exercise, conversion or
exchange (as applicable) of all options, warrants and other Securities which are
convertible into or exercisable or exchangeable for, and any right to subscribe
for, shares of Common Stock that are outstanding at such time.

"Person" means an individual, corporation, limited liability company,
partnership, joint stock company, trust, unincorporated organization, joint
venture, Governmental Authority or other entity of whatever nature.

 

"Per Share Market Value" means on any particular date (a) the closing bid price
per share of the Common Stock on such date on OTC Bulletin Board or another
registered national stock exchange on which the Common Stock is then listed, or
if there is no such price on such date, then the closing bid price on such
exchange or quotation system on the date nearest preceding such date, or (b) if
the Common Stock is not listed then on OTC Bulletin Board or any registered
national stock exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by the OTC Bulletin Board or in the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the OTC Bulletin
Board or the National Quotation Bureau Incorporated (or similar organization or
agency succeeding to its functions of reporting prices), then the average of the
"Pink Sheet" quotes for the five (5) Trading Days preceding such date of
determination, or (d) if the Common Stock is not then publicly traded the fair
market value of a share of Common Stock as determined by an Independent
Appraiser selected in good faith by the Majority Holders; provided, however,
that the Issuer, after receipt of the determination by such Independent
Appraiser, shall have the right to select an additional Independent Appraiser,
in which case, the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and provided, further that
all determinations of the Per Share Market Value shall be appropriately adjusted
for any stock dividends, stock splits or other similar transactions during such
period. The determination of fair market value by an Independent Appraiser shall
be based upon the fair market value of the Issuer determined on a going concern
basis as between a willing buyer and a willing seller and taking into account
all relevant factors determinative of value, and shall be final and binding on
all parties. In determining the fair market value of any shares of Common Stock,
no consideration shall be given to any restrictions on transfer of the Common
Stock imposed by agreement or by federal or state securities laws, or to the
existence or absence of, or any limitations on, voting rights.

 

"Purchase Agreement" means the Note and Warrant Purchase Agreement dated as of
August 18, 2005, among the Issuer and the Purchasers.

 

16

 

--------------------------------------------------------------------------------

 

 

"Purchasers" means the purchasers of convertible promissory notes and Warrants
issued by the Issuer pursuant to the Purchase Agreement.

 

"Securities" means any debt or equity securities of the Issuer, whether now or
hereafter authorized, any instrument convertible into or exchangeable for
Securities or a Security, and any option, warrant or other right to purchase or
acquire any Security. "Security" means one of the Securities.

 

"Securities Act" means the Securities Act of 1933, as amended, or any similar
federal statute then in effect.

 

"Subsidiary" means any corporation at least 50% of whose outstanding Voting
Stock shall at the time be owned directly or indirectly by the Issuer or by one
or more of its Subsidiaries, or by the Issuer and one or more of its
Subsidiaries.

 

"Term" has the meaning specified in Section 1 hereof.

 

"Trading Day" means (a) a day on which the Common Stock is traded on OTC
Bulletin Board, or (b) if the Common Stock is not listed on OTC Bulletin Board,
a day on which the Common Stock is traded on any other registered national stock
exchange, or (c) if the Common Stock is not traded on any other registered
national stock exchange, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) or (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.

 

"Voting Stock" means, as applied to the Capital Stock of any corporation,
Capital Stock of any class or classes (however designated) having ordinary
voting power for the election of a majority of the members of the Board of
Directors (or other governing body) of such corporation, other than Capital
Stock having such power only by reason of the happening of a contingency.

 

"Warrants" means the Warrants issued and sold pursuant to the Purchase
Agreement, including, without limitation, this Warrant, and any other warrants
of like tenor issued in substitution or exchange for any thereof pursuant to the
provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other
Warrants.

 

"Warrant Price" initially means U.S. $6.00, as such price may be adjusted from
time to time as shall result from the adjustments specified in this Warrant,
including Section 4 hereto.

 

 

17

 

--------------------------------------------------------------------------------

 

 

"Warrant Share Number" means at any time the aggregate number of shares of
Warrant Stock which may at such time be purchased upon exercise of this Warrant,
after giving effect to all prior adjustments and increases to such number made
or required to be made under the terms hereof.

 

"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or
Warrants or otherwise issuable pursuant to any Warrant or Warrants.

 

9.

Other Notices. In case at any time:

 

(A)

the Issuer shall make any distributions to all the holders of Common Stock; or

 

(B)

the Issuer shall authorize the granting to all holders of its Common Stock of
rights to subscribe for or purchase any shares of Capital Stock of any class or
other rights; or

 

(C)

there shall be any reclassification of the Capital Stock of the Issuer; or

 

(D)

there shall be any capital reorganization by the Issuer; or

 

(E)

there shall be any (i) consolidation or merger involving the Issuer or (ii)
sale, transfer or other disposition of all or substantially all of the Issuer's
property, assets or business (except a merger or other reorganization in which
the Issuer shall be the surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and except a consolidation,
merger, sale, transfer or other disposition involving a wholly-owned
Subsidiary); or

 

(F)

there shall be a voluntary or involuntary dissolution, liquidation or winding-up
of the Issuer or any partial liquidation of the Issuer or distribution to
holders of Common Stock;

 

then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the

 

18

 

--------------------------------------------------------------------------------

 

action in question and not less than ten (10) days prior to the record date or
the date on which the Issuer's transfer books are closed in respect thereto.
This Warrant entitles the Holder to receive copies of all financial and other
information distributed or required to be distributed to the holders of the
Common Stock.

 

10.        Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 10 without the consent of the Holder of this Warrant.
No consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of this Warrant unless the same
consideration is also offered to all holders of the Warrants.

 

11.        Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Warrant
shall not be interpreted or construed with any presumption against the party
causing this Warrant to be drafted. The Issuer and the Holder agree that venue
for any dispute arising under this Warrant will lie exclusively in the state or
federal courts located in New York County, New York, and the parties irrevocably
waive any right to raise forum non conveniens or any other argument that New
York is not the proper venue. The Issuer and the Holder irrevocably consent to
personal jurisdiction in the state and federal courts of the state of New York.
The Issuer and the Holder consent to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in
this Section 11 shall affect or limit any right to serve process in any other
manner permitted by law. The Issuer and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
the this Warrant or the Purchase Agreement, shall be entitled to reimbursement
for reasonable legal fees from the non-prevailing party.

 

12.        Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the
date of mailing, if sent by overnight delivery by a nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to the Holder of this Warrant or of Warrant Stock issued pursuant
hereto, addressed to such Holder

 

19

 

--------------------------------------------------------------------------------

 

at its last known address or facsimile number appearing on the books of the
Issuer maintained for such purposes, or with respect to the Issuer, addressed
to:

 

Eden Energy Corp.

 

1925-200 Burrard Street

 

Vancouver, BC V6C 3L6

Attention: President

 

Tel. No.: (604) 693-0179

 

Fax No.: (604) 638-3525

 

with copies (which copies

shall not constitute notice

to the Issuer) to:

Clark Wilson LLP

 

 

800-885 West Georgia Street

 

 

Vancouver, B.C. Canada V6C 3H1

 

Attention: Bernard Pinsky

 

 

Tel. No.: (604) 687-5700

 

 

Fax No.: (604) 687-6314

 

 

Copies of notices to the Holder shall be sent to Kramer Levin Naftalis & Frankel
LLP, 1177 Avenue of the Americas, New York, New York 10036, Attention:
Christopher S. Auguste, Tel. No.: (212) 715-9100, Fax. No.: (212) 715-8000. Any
party hereto may from time to time change its address for notices by giving at
least ten (10) days written notice of such changed address to the other party
hereto.

 

13.        Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

 

14.        Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any default or threatened default by the
Issuer in the performance of or compliance with any of the terms of this Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.

 

15.        Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.

 

 

20

 

--------------------------------------------------------------------------------

 

 

16.        Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.

 

17.        Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

21

 

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the Issuer has executed this Series A Warrant as of the day
and year first above written.

 

 

EDEN ENERGY CORP.

 

 

 

By:

 

 

Name: Donald Sharpe

          Title: President

 

22

 

--------------------------------------------------------------------------------

 

 

EXERCISE FORM

 

SERIES A WARRANT

 

EDEN ENERGY CORP.

 

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Eden Energy
Corp. covered by the within Warrant.

 

Dated: _________________

Signature

___________________________

 

Address

_____________________

_____________________

 

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________

 

ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

 

Dated: _________________

Signature

___________________________

 

Address

_____________________

_____________________

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

 

Dated: _________________

Signature

___________________________

 

Address

_____________________

_____________________

 

 

23

 

 

--------------------------------------------------------------------------------

 

 

FOR USE BY THE ISSUER ONLY:

 

This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.

 

24

 

--------------------------------------------------------------------------------

 

 

EXHIBIT D

PURCHASER OPTION EXERCISE FORM

 

To: Eden Energy Corp.

The undersigned hereby exercises its Purchaser Option to purchase $______ of
convertible promissory notes of Eden Energy Corp., pursuant to and subject to
the terms of that certain Note and Warrant Purchase Agreement by and among the
Company and the purchasers named therein dated as of August 18, 2005, the terms
of which are incorporated herein by reference.

 

The undersigned is paying the option exercise price as follows:

 

_______________________________

 

Dated: _________________

Signature

_____________________

 

Address

_____________________

_____________________

 

--------------------------------------------------------------------------------

 

 

EXHIBIT E

FORM OF REGISTRATION RIGHTS AGREEMENT

 

 

--------------------------------------------------------------------------------

 

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this "Agreement") is made and entered into
as of August 18, 2005, by and among Eden Energy Corp., a Nevada corporation (the
"Company"), and the purchasers listed on Schedule I hereto (the "Purchasers").

 

This Agreement is being entered into pursuant to the Note and Warrant Purchase
Agreement dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").

 

The Company and the Purchasers hereby agree as follows:

 

1.

Definitions.

 

Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:

 

"Advice" shall have meaning set forth in Section 3(m).

 

"Affiliate" means, with respect to any Person, any other Person that directly or
indirectly controls or is controlled by or under common control with such
Person. For the purposes of this definition, "control," when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.

 

"Board" shall have meaning set forth in Section 3(n).

 

"Business Day" means any day except Saturday, Sunday and any day which shall be
a legal holiday or a day on which banking institutions in the state of New York
generally are authorized or required by law or other government actions to
close.

 

"Closing Date" means the date of the closing of the purchase and sale of the
Notes pursuant to the Purchase Agreement.

 

"Commission" means the Securities and Exchange Commission.

 

"Common Stock" means the Company's Common Stock, par value $0.001 per share.

 

"Effectiveness Date" means with respect to the Registration Statement the
earlier of the ninetieth (90) day following the Closing Date or the date which
is within three (3) Business Days of the date on which the Commission informs
the Company that the Commission

 

1

 

--------------------------------------------------------------------------------

 

(i) will not review the Registration Statement or (ii) that the Company may
request the acceleration of the effectiveness of the Registration Statement and
the Company makes such request.

 

"Effectiveness Period" shall have the meaning set forth in Section 2.

 

"Event" shall have the meaning set forth in Section 7(d).

 

"Event Date" shall have the meaning set forth in Section 7(d).

 

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

 

"Filing Date" means the thirtieth (30th) day following the Closing Date.

 

"Holder" or "Holders" means the holder or holders, as the case may be, from time
to time of Registrable Securities.

 

"Indemnified Party" shall have the meaning set forth in Section 5(c).

 

"Indemnifying Party" shall have the meaning set forth in Section 5(c).

 

"Losses" shall have the meaning set forth in Section 5(a).

 

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

 

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

 

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

 

"Registrable Securities" means (i) the shares of Common Stock issuable upon
conversion of the Notes and the Option Notes issued to the Purchasers pursuant
to the Purchase Agreement and (ii) the shares of Common Stock issuable upon
exercise of the Warrants and the Additional Warrants.

 

 

2

 

--------------------------------------------------------------------------------

 

 

"Registration Statement" means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.

 

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

 

"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

"Rule 424" means Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

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

 

"Special Counsel" means Kramer Levin Naftalis & Frankel LLP, for which the
Holders will be reimbursed by the Company pursuant to Section 4.

 

"Warrants" means the warrants to purchase shares of Common Stock issued to the
Purchasers pursuant to the Purchase Agreement.

 

2.

Resale Registration.

 

On or prior to the Filing Date the Company shall prepare and file with the
Commission a "resale" Registration Statement providing for the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form SB-2 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form SB-2, in which case such registration shall be on another appropriate
form in accordance with the Securities Act and the rules promulgated
thereunder). The Company shall (i) not permit any securities other than the
Registrable Securities and the securities to be listed on Schedule II hereto to
be included in the Registration Statement and (ii) use its reasonable best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, but in any
event prior to the Effectiveness Date, and to keep such Registration Statement
continuously effective under the Securities Act until such date as is the
earlier of (x) the date when all Registrable Securities covered by such
Registration Statement have been sold or (y) the date on

 

3

 

--------------------------------------------------------------------------------

 

which the Registrable Securities may be sold without any restriction pursuant to
Rule 144(k) as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period").

 

3.

Registration Procedures.

 

In connection with the Company's registration obligations hereunder, the Company
shall:

 

(a)       Prepare and file with the Commission on or prior to the Filing Date, a
Registration Statement on Form SB-2 (or if the Company is not then eligible to
register for resale the Registrable Securities on Form SB-2 such registration
shall be on another appropriate form in accordance with the Securities Act and
the rules promulgated thereunder) in accordance with the method or methods of
distribution thereof as specified by the Holders (except if otherwise directed
by the Holders), and use its reasonable best efforts to cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however, that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated therein by
reference), the Company shall (i) furnish to the Holders care of the Special
Counsel, copies of all such documents proposed to be filed, which documents
(other than those incorporated by reference) will be subject to the review of
such Holders and such Special Counsel, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of Special
Counsel, to conduct a reasonable investigation within the meaning of the
Securities Act. Unless otherwise advised by outside counsel to the Company, the
Company shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities or any Special Counsel shall reasonably object in writing
within three (3) Business Days of their receipt thereof.

 

(b)        (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements as necessary in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible, but in no event later
than ten (10) Business Days, to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto and as promptly
as possible provide the Holders care of the Special Counsel true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in

 

4

 

--------------------------------------------------------------------------------

 

such Prospectus as so supplemented. The Company and the Purchasers agree that
the Holders will suffer damages if the Company fails to comply with the
provisions of subclause (iii) of this Section 3(b). The Company and the Holders
further agree that it would not be feasible to ascertain the extent of such
damages with precision. Accordingly, if the Company fails to comply with the
time restrictions set forth in subclause (iii) of this Section 3(b), of the
Company shall pay an amount in cash as liquidated damages to each Holder equal
to .025% for each day after the expiration of such ten (10) Business Day period
of the Holder’s initial investment in the Notes and/or Option Notes pursuant to
the Purchase Agreement, until the event referred to in subclause (iii) of this
Section 3(b) is cured. No such liquidated damages shall be payable if,
notwithstanding the Company’s compliance with the restrictions set forth in
subclause (iii) of this Section 3(b), the Registration Statement does not become
effective by the Effectiveness Date.

 

(c)        Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

 

(d)        Use its reasonable best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of, (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

 

 

5

 

--------------------------------------------------------------------------------

 

 

(e)        If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.

 

(f)         Furnish to each Holder and any Special Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

 

(g)        Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

 

(h)        Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders and any Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to use commercially
reasonable efforts to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.

 

(i)         Cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to a Registration Statement, which certificates shall be free of all restrictive
legends (provided that the issuance of such unlegended certificates is in
compliance with applicable securities laws), and to enable such Registrable
Securities to be in such denominations and registered in such names as any
Holder may request in writing at least two (2) Business Days prior to any sale
of Registrable Securities.

 

(j)         Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other

 

6

 

--------------------------------------------------------------------------------

 

required document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

 

(k)        Use its reasonable best efforts to cause all Registrable Securities
relating to the Registration Statement to be listed on the OTC Bulletin Board or
any other securities exchange, quotation system or market, if any, on which
similar securities issued by the Company are then listed or traded as and when
required pursuant to the Purchase Agreement.

 

(l)         Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) or such extended period as is permitted under the Securities Act
commencing on the first day of the first fiscal quarter of the Company after the
effective date of the Registration Statement, which statement shall conform to
the requirements of Rule 158.

 

(m)       The Company may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.

 

If the Registration Statement refers to any Holder by name or otherwise as the
holder of any securities of the Company, then such Holder shall have the right
to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.

 

Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

 

Each Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that

 

7

 

--------------------------------------------------------------------------------

 

the use of the applicable Prospectus may be resumed, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus or Registration
Statement.

 

(n)        If (i) there is material non-public information regarding the Company
which the Company's Board of Directors (the "Board") reasonably determines not
to be in the Company's best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including, but not limited to, the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose, then the Company may (x) postpone or suspend filing of a
registration statement for a period not to exceed 30 consecutive days or (y)
postpone or suspend effectiveness of a registration statement for a period not
to exceed 20 consecutive days; provided that the Company may not postpone or
suspend effectiveness of a registration statement under this Section 3(n) for
more than 45 days in the aggregate during any 360 day period; provided, however,
that no such postponement or suspension shall be permitted for consecutive 20
day periods arising out of the same set of facts, circumstances or transactions.

 

4.

Registration Expenses.  

 

All fees and expenses incident to the performance of or compliance with this
Agreement by the Company, except as and to the extent specified in this Section
4, shall be borne by the Company whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed, (B) with respect to filing fees required to be paid to
the National Association of Securities Dealers, Inc. and the NASD Regulation,
Inc. and (C) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders, in
the case of the Special Counsel, up to a maximum amount of $5,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Company's independent public
accountants (including the expenses of any comfort letters or costs associated
with the delivery by independent public accountants of a comfort letter or
comfort letters). In addition, the Company

 

8

 

--------------------------------------------------------------------------------

 

shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.

 

5.

Indemnification.  

 

(a)        Indemnification by the Company. The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, except to the extent, but only to the
extent, that (i) such untrue statements or omissions are based solely upon
information regarding such Holder or such other Indemnified Party furnished in
writing to the Company by or on behalf of such Holder expressly for use therein
and (ii) that the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any untrue statement, allegedly untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of any
Holder, underwriter, broker or other Person acting on behalf of holders of the
Registrable Securities, from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Securities which are the subject
thereof, if a copy of such final prospectus had been made available to such
Person and such Holder, underwriter, broker or other Person acting on behalf of
holders of the Registrable Securities and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Securities to such Person. The Company shall notify the
Holders promptly of the claim, threat or assertion of any Proceeding of which
the Company is aware in connection with the transactions contemplated by this
Agreement.

 

(b)        Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses

 

9

 

--------------------------------------------------------------------------------

 

(as determined by a court of competent jurisdiction in a final judgment not
subject to appeal or review), as incurred, arising solely out of or based solely
upon any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder or other Indemnifying Party
to the Company specifically for inclusion in the Registration Statement or such
Prospectus. Notwithstanding anything to the contrary contained herein, the
Holders shall be liable under this Section 5(b) for only that amount as does not
exceed the lesser of (i) the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation and (ii) the aggregate purchase price paid by the
Holder for the Shsares pursuant to the Purchase Agreement.

 

(c)        Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel (which shall be reasonably acceptable to the Indemnifying Party) that
a conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any

 

10

 

--------------------------------------------------------------------------------

 

Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.

 

All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten (10) Business Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(d)        Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other from
the offering of the Notes and Warrants. If, but only if, the allocation provided
by the foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault, as applicable, of the Indemnifying Party and Indemnified Party
in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with (i) any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms or (ii) enforcing any rights under this
Section 5. In no event shall any selling Holder be required to contribute an
amount under this Section 5(d) in excess of the net proceeds received by such
Holder upon sale of such Holder’s Registrable Securities pursuant to the
Registration Statement giving rise to such contribution obligation.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No Person
guilty of fraudulent misrepresentation (within the

 

11

 

--------------------------------------------------------------------------------

 

meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. Notwithstanding anything to the contrary contained herein,
the Holders shall be liable under this Section 5(d) for only that amount as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement.

 

6.

Rule 144.

 

As long as any Holder owns any Registrable Securities, Notes, Option Notes,
Warrants or Additional Warrants, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders
with true and complete copies of all such filings. As long as any Holder owns
any Registrable Securities, Notes, Option Notes, Warrants or Additional
Warrants, if the Company is not required to file reports pursuant to Section
13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any Holder may
reasonably request in writing, all to the extent required from time to time to
enable such Person to sell the Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
relating to such sale pursuant to Rule 144.

 

7.

Miscellaneous.

 

(a)        Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

 

(b)        No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with

 

12

 

--------------------------------------------------------------------------------

 

respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as disclosed in Schedule 2.1(c) of the Purchase Agreement, neither the
Company nor any of its subsidiaries has previously entered into any agreement
currently in effect granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register any securities of the Company, under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Holders set forth herein, and are not otherwise in
conflict with the provisions of this Agreement.

 

(c)        No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto or as
disclosed on Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto)
may include securities of the Company in the Registration Statement, and the
Company shall not after the date hereof enter into any agreement providing such
right to any of its securityholders, unless the right so granted is subject in
all respects to the prior rights in full of the Holders set forth herein, and is
not otherwise in conflict with the provisions of this Agreement.

 

(d)        Failure to File Registration Statement. The Company and the
Purchasers agree that the Holders will suffer damages if the Registration
Statement is not filed on or prior to the Filing Date. The Company and the
Holders further agree that it would not be feasible to ascertain the extent of
such damages with precision. Accordingly, if the Registration Statement is not
filed on or prior to the Filing Date (any such failure or breach being referred
to as an “Event,” and the date on which such Event occurs, being referred to as
“Event Date”), the Company shall pay an amount as liquidated damages to each
Holder, payable in cash equal to .025% for each day of the Holder’s initial
investment in the Notes and/or Option Notes from the Event Date until the Event
is cured.

 

(e)        Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of a majority of the Registrable Securities outstanding.

 

(f)         Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice later than 5:00 p.m., New York City time, on any
date and earlier than 11:59 p.m., New York City time, on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect

 

13

 

--------------------------------------------------------------------------------

 

to each Holder at its address set forth under its name on Schedule I attached
hereto, or with respect to the Company, addressed to:

 

Eden Energy Corporation

1925-200 Burrard Street

 

Vancouver, BC V6C3L6

 

Attention: President

 

Tel. No.: (604) 693-0179

 

Fax No.: (604) 638-3525

 

with copies (which copies

shall not constitute notice

to the Company) to:

Clark Wilson LLP

 

 

800-885 West Georgia Street

 

 

Vancouver, B.C. Canada V6C2H1

 

Attention: Bernard Pinsky

 

 

Tel. No.: (604) 687-5700

 

 

Fax No.: (604) 687-6314

 

 

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice.

 

(g)        Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. Each Purchaser may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.

 

(h)        Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
assignable by each Holder to any Affiliate of such Holder or any other Holder or
Affiliate of any other Holder of all or a portion of the Registrable Securities
if: (i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement and the assignee makes the representations of
the Holder contained in the Purchase Agreement, and (v) such transfer shall have
been made in accordance with the applicable requirements of the Purchase
Agreement and the Securities Act. In addition, each

 

14

 

--------------------------------------------------------------------------------

 

Holder shall have the right to assign its rights hereunder to any other Person
with the prior written consent of the Company, which consent shall not be
unreasonably withheld. The rights to assignment shall apply to the Holders (and
to subsequent) successors and assigns.

 

(i)         Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

 

(j)         Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.

 

(k)        Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.

 

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

 

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

 

(n)        Shares Held by the Company and its Affiliates. Whenever the consent
or approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.

 

(o)        Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that the
decision of each Purchaser to purchase securities pursuant to the

 

15

 

--------------------------------------------------------------------------------

 

Purchase Agreement has been made by such Purchaser independently of any other
purchase and independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties, liabilities,
results of operations, condition (financial or otherwise) or prospects of the
Company or of its Subsidiaries which may have made or given by any other
Purchaser or by any agent or employee of any other Purchaser, and no Purchaser
or any of its agents or employees shall have any liability to any Purchaser (or
any other person) relating to or arising from any such information, materials,
statements or opinions. The Company acknowledges that nothing contained herein,
or in any Transaction Document, and no action taken by any Purchaser pursuant
hereto or thereto (including, but not limited to, the (i) inclusion of a
Purchaser in the Registration Statement and (ii) review by, and consent to, such
Registration Statement by a Purchaser) shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Company acknowledges that each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the
Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby.  The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

16

 

--------------------------------------------------------------------------------

 

 

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

 

EDEN ENERGY CORP.

 

 

By:

 

 

Name: Donald Sharpe

 

Title:

President

 

 

 

PURCHASER:

 

 

By:

 

 

Name:

 

Title:

 

 

 

17

 

--------------------------------------------------------------------------------

 

 

Schedule I

List of Purchasers

 

 

18

 

 

--------------------------------------------------------------------------------

 

 

Schedule II

Securities Allowed to be Included on Registration Statement

 

1.          Shares of Common Stock issuable upon the exercise of Warrants issued
to the placement agent and its designees in connection with the transactions
contemplated by the Purchase Agreement.

 

19

 

--------------------------------------------------------------------------------

 

 

EXHIBIT F

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

 

EDEN ENERGY CORP.

as of August 18, 2005

[Name and address of Transfer Agent]

Attn: _____________

 

Ladies and Gentlemen:

Reference is made to that certain Note and Warrant Purchase Agreement (the
“Purchase Agreement”), dated as of August 18, 2005, by and among Eden Energy
Corp., a Nevada corporation (the “Company”), and the purchasers named therein
(collectively, the “Purchasers”) pursuant to which the Company is issuing to the
Purchasers convertible promissory notes (the “Notes”) and warrants (the
“Warrants”) to purchase shares of the Company’s common stock, par value $0.001
per share (the “Common Stock”). This letter shall serve as our irrevocable
authorization and direction to you (provided that you are the transfer agent of
the Company at such time) to issue shares of Common Stock upon conversion of the
Notes (the “Conversion Shares”) and exercise of the Warrants (the “Warrant
Shares”) to or upon the order of a Purchaser from time to time upon (i)
surrender to you of a properly completed and duly executed Conversion Notice or
Exercise Notice, as the case may be, in the form attached hereto as Exhibit I
and Exhibit II, respectively, (ii) in the case of the conversion of Notes, a
copy of the Note (with the original delivered to the Company) representing the
Notes being converted or, in the case of Warrants being exercised, a copy of the
Warrants (with the original Warrants delivered to the Company) being exercised
(or, in each case, an indemnification undertaking with respect to such Notes or
the Warrants in the case of their loss, theft or destruction), and (iii)
delivery of a treasury order or other appropriate order duly executed by a duly
authorized officer of the Company. So long as you have previously received (x)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”), and no subsequent
notice by the Company or its counsel of the suspension or termination of its
effectiveness and (y) a copy of such registration statement, and if the
Purchaser represents in writing that the prospectus delivery requirements have
been or will be met, the Conversion Shares or the Warrant Shares, as the case
may be, were sold pursuant to the Registration Statement, then certificates
representing the Conversion Shares and the Warrant Shares, as the case may be,
shall not bear any legend restricting transfer of the Conversion Shares and the
Warrant Shares, as the case may be, thereby and should not be subject to any
stop-transfer restriction. Provided, however, that if you have not previously
received (i) written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares or Warrant
Shares, as applicable, has been declared effective by the SEC under the 1933
Act, and (ii) a copy of such registration statement, then the certificates for
the Conversion Shares and the Warrant Shares shall bear the following legend:

 

1

 

--------------------------------------------------------------------------------

 

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR EDEN
ENERGY CORP. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.”

and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.

A form of written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares and the Warrant Shares has
been declared effective by the SEC under the 1933 Act is attached hereto as
Exhibit III.

Please be advised that the Purchasers are relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, each Purchaser
is a third party beneficiary to these instructions.

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions. Should you have any questions
concerning this matter, please contact me at ___________.

Very truly yours,

EDEN ENERGY CORP.

 

By:

 

Name:

Title:

 

ACKNOWLEDGED AND AGREED:

[TRANSFER AGENT]

By:

 

Name:

Title:

 

Date:

 

 

2

 

--------------------------------------------------------------------------------

 

 

EXHIBIT I

EDEN ENERGY CORP.

CONVERSION NOTICE

(To be Executed by the Registered Holder in order to Convert the Note)

The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of EDEN
ENERGY CORP. (the “Maker”) according to the conditions hereof, as of the date
written below.

Date of Conversion _________________________________________________________

Applicable Conversion Price __________________________________________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion: _________________________

 

Signature___________________________________________________________________

[Name]

Address:__________________________________________________________________

_______________________________________________________________________

 

 

 

3

 

--------------------------------------------------------------------------------

 

 

EXHIBIT II

FORM OF EXERCISE NOTICE

EXERCISE FORM

EDEN ENERGY CORP.

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Eden Energy
Corp. covered by the within Warrant.

Dated: _________________

Signature

___________________________

 

Address

_____________________

 

_____________________

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the date of Exercise: _________________________

 

ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

Dated: _________________

Signature

___________________________

 

Address

_____________________

 

_____________________

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

Dated: _________________

Signature

___________________________

 

Address

_____________________

 

_____________________

 

FOR USE BY THE ISSUER ONLY:

 

This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day
of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.

 

4

 

 

--------------------------------------------------------------------------------

 

 

EXHIBIT III

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and address of Transfer Agent]

Attn: _____________

 

Re:

Eden Energy Corp.  

Ladies and Gentlemen:

We are counsel to Eden Energy Corp, Inc., a Nevada corporation (the “Company”),
and have represented the Company in connection with that certain Note and
Warrant Purchase Agreement (the “Purchase Agreement”), dated as of August 18,
2005, by and among the Company and the purchasers named therein (collectively,
the “Purchasers”) pursuant to which the Company issued to the Purchasers
convertible promissory notes (the “Notes”) and warrants (the “Warrants”) to
purchase shares of the Company’s common stock, par value $0.001 per share (the
“Common Stock”). Pursuant to the Purchase Agreement, the Company has also
entered into a Registration Rights Agreement with the Purchasers (the
“Registration Rights Agreement”), dated as of August 18, 2005, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants,
under the Securities Act of 1933, as amended (the “1933 Act”). In connection
with the Company’s obligations under the Registration Rights Agreement, on
________________, 2005, the Company filed a Registration Statement on Form SB-2
(File No. 333-________) (the “Registration Statement”) with the Securities and
Exchange Commission (the “SEC”) relating to the resale of the Registrable
Securities which names each of the present Purchasers as a selling stockholder
thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

Very truly yours,

[COMPANY COUNSEL]

By:            

cc:            [LIST NAMES OF PURCHASERS]

 

5

 

--------------------------------------------------------------------------------

 

 

EXHIBIT G

FORM OF OPINION

 

1.          The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.

2.          The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes, the Warrants and the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants. The execution, delivery and performance of
each of the Transaction Documents by the Company and the consummation by it of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required. Each of the
Transaction Documents have been duly executed and delivered, and the Notes and
the Warrants have been duly executed, issued and delivered by the Company and
each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
respective terms. The Common Stock issuable upon conversion of the Notes and
exercise of the Warrants are not subject to any preemptive rights under the
Articles of Incorporation or the Bylaws.

3.          The Notes and the Warrants have been duly authorized and, when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon conversion of the Notes and exercise of the Warrants have been
duly authorized and reserved for issuance, and when delivered upon conversion or
against payment in full as provided in the Notes and the Warrants, as
applicable, will be validly issued, fully paid and nonassessable.

4.          The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes, the Warrants
and the Common Stock issuable upon conversion of the Notes and exercise of the
Warrants do not (a) violate any provision of the Articles of Incorporation or
Bylaws, (b) 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
material agreement, mortgage, deed of trust, indenture, note, bond, license,
lease agreement, instrument or obligation to which the Company is a party and
which is set forth on Schedule I, (c) create or impose a lien, charge or
encumbrance on any property of the Company under any agreement or any commitment
which is set forth on Schedule I to which the Company is a party or by which the
Company is bound or by which any of its respective properties or assets are
bound, or (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such

 

1

 

--------------------------------------------------------------------------------

 

conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.

5.          No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Notes, the Warrants and the Common Stock issuable
upon conversion of the Notes and exercise of the Warrants other than filings as
may be required by applicable Federal and state securities laws and regulations
and any applicable stock exchange rules and regulations.

6.          To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Purchase Agreement or the transactions contemplated thereby or
any action taken or to be taken pursuant thereto. There is no action, suit,
claim, investigation or proceeding pending, or to our knowledge, threatened,
against or involving the Company or any of its properties or assets and which,
if adversely determined, is reasonably likely to result in a Material Adverse
Effect. To our knowledge, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any officers or directors of the Company
in their capacities as such.

7.          Assuming that all of the Purchasers’ representations and warranties
in the Purchase Agreement are complete and accurate, the offer, issuance and
sale of the Notes and the Warrants and the offer, issuance and sale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
are exempt from the registration requirements of the Securities Act of 1933, as
amended.

8.          The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

 

 

2