FOR NEGOTIATION AND
DISCUSSION PURPOSES ONLY
NOT AN OFFER OR SALE OF SECURITIES

SECURITIES PURCHASE AGREEMENT
 
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April 6, 2010,
is by and among Tri-Valley Corporation, a Delaware corporation with offices
located at 4550 California Avenue, Suite 600, Bakersfield, California 93309
(the “Company”), and each of the investors listed on the Schedule of Buyers
attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

RECITALS
 
A.           The Company and each Buyer desire to enter into this transaction to
purchase the Common Shares (as defined below) and related Warrants (as defined
below) set forth herein pursuant to a currently effective shelf registration
statement on Form S-3, which has at least 14,519,232 unallocated shares of
common stock, $0.001 par value per share, of the Company (the “Common Stock”)
registered thereunder (Registration Number 333-163442) (the “Registration
Statement”), which Registration Statement has been declared effective in
accordance with the Securities Act of 1933, as amended (the “1933 Act”), by the
United States Securities and Exchange Commission (the “SEC”).
 
B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms stated in this Agreement and the Warrant Agreement (as defined below),
(i) the aggregate number of shares of Common Stock set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers (which aggregate amount for
all Buyers shall be 3,846,156 shares of Common Stock and shall collectively be
referred to herein as the “Common Shares”), (ii) a warrant to initially acquire
up to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers, as evidenced by a
certificate in the form attached hereto as Exhibit A (the “Series A Warrants”)
(as exercised, collectively, the “Series A Warrant Shares”), (iii) a warrant to
initially acquire  up to that number of additional shares of Common Stock set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers, as
evidenced by a certificate in the form attached hereto as Exhibit B (the “Series
B Warrants”) (as exercised, collectively, the “Series B Warrant Shares”), (iv) a
warrant to initially acquire  up to that number of additional shares of Common
Stock set forth opposite such Buyer’s name in column (6) on the Schedule of
Buyers, as evidenced by a certificate in the form attached hereto as Exhibit C
(the “Series C Warrants”) (as exercised, collectively, the “Series C Warrant
Shares”) and (v) a warrant to initially acquire  up to that number of additional
shares of Common Stock set forth opposite such Buyer’s name in column (7) on the
Schedule of Buyers, as evidenced by a certificate in the form attached hereto as
Exhibit D (the “Series D Warrants”) (as exercised, collectively, the “Series D
Warrant Shares”). The Series A Warrants, the Series B Warrants, the Series C
Warrants and the Series D Warrants are collectively referred to herein as the
“Warrants.” The Series A Warrant Shares, the Series B Warrant Shares, the Series
C Warrant Shares and the Series D Warrant Shares are collectively referred to
herein as the “Warrant Shares.”
 

 
 

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C.           Concurrently herewith, the Company and Registrar and Transfer
Company, as warrant agent (the “Warrant Agent”) are entering into that certain
Warrant Agent Agreement, in the form attached hereto as Exhibit F (the “Warrant
Agreement”), pursuant to which, among other things, the Company shall issue the
certificates with respect to the Warrants to the Buyers.
 
D.           The Common Shares, the Warrants and the Warrant Shares are
collectively referred to herein as the “Securities.”
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:
 
1.
PURCHASE AND SALE OF COMMON SHARES AND WARRANTS.

 
(a)           Common Shares and Warrants.  Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall
issue and sell to each Buyer, and each Buyer severally, but not jointly, shall
purchase from the Company on the Closing Date (as defined below), such aggregate
number of Common Shares as is set forth opposite such Buyer’s name in column (3)
on the Schedule of Buyers along with (i) Series A Warrants to initially
acquire  up to that aggregate number of Series A Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers, (ii) Series
B Warrants to initially acquire  up to that aggregate number of Series B Warrant
Shares as is set forth opposite such Buyer’s name in column (5) on the Schedule
of Buyers, (iii) Series C Warrants to initially acquire  up to that aggregate
number of Series C Warrant Shares as is set forth opposite such Buyer’s name in
column (6) on the Schedule of Buyers. and (iv) Series D Warrants to initially
acquire  up to that aggregate number of Series D Warrant Shares as is set forth
opposite such Buyer’s name in column (7) on the Schedule of Buyers.
 
(b)           Closing. The closing (the “Closing”) of the purchase of the Common
Shares and the Warrants by the Buyers shall occur at the offices of Greenberg
Traurig, LLP, MetLife Building, 200 Park Avenue, New York, NY 10166. The date
and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York time,
on the third (3rd) Trading Day (as defined in the Warrants) after the date
hereof (or such earlier date as is mutually agreed to by the Company and each
Buyer). As used herein “Business Day” means any day other than a Saturday,
Sunday or other day on which commercial banks in New York, New York are
authorized or required by law to remain closed.
 
(c)           Purchase Price. The aggregate purchase price for the Common Shares
and the Warrants to be purchased by each Buyer (the “Purchase Price”) shall be
the amount set forth opposite such Buyer’s name in column (8) on the Schedule of
Buyers.
 
(d)           Form of Payment; Deliveries. On the Closing Date, (i) each Buyer
shall pay its respective Purchase Price to the Company for the Common Shares and
the Warrants to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company’s written
wire instructions (less, in the case of Capital Ventures (as defined below) and
Empery (as defined below), the amounts withheld pursuant to
 
 
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Section 4(g)) and (ii) the Company shall (A) cause Registrar and Transfer
Company (together with any subsequent transfer agent, the “Transfer Agent”)
through the Depository Trust Company (“DTC”) Fast Automated Securities Transfer
Program, to credit such aggregate number of Common Shares that such Buyer is
purchasing as is set forth opposite such Buyer’s name in column (3) of the
Schedule of Buyers to such Buyer’s or its designee’s balance account with DTC
through its Deposit/Withdrawal at Custodian system, and (B) deliver to each
Buyer (w) a Series A Warrant pursuant to which such Buyer shall have the right
to initially acquire  up to such number of Series A Warrant Shares as is set
forth opposite such Buyer’s name in column (4) of the Schedule of Buyers, (x) a
Series B Warrant pursuant to which such Buyer shall have the right to initially
acquire  up to such number of Series B Warrant Shares as is set forth opposite
such Buyer’s name in column (5) of the Schedule of Buyers, (y) a Series C
Warrant pursuant to which such Buyer shall have the right to initially
acquire  up to such number of Series C Warrant Shares as is set forth opposite
such Buyer’s name in column (6) of the Schedule of Buyer and (z) a Series D
Warrant pursuant to which such Buyer shall have the right to initially acquire
up to such number of Series D Warrant Shares as is set forth opposite such
Buyer’s name in column (7) of the Schedule of Buyers, in each case, duly
executed on behalf of the Company and the Warrant Agent and registered in the
name of such Buyer or its designee.
 
2.
BUYER’S REPRESENTATIONS AND WARRANTIES.

 
Each Buyer, severally and not jointly, represents and warrants to the Company
with respect to only itself that:
 
(a)           Organization; Authority. Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents (as
defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.
 
(b)             Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and constitutes the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with its terms, except as such enforceability may be limited
by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.
 
(c)           No Conflicts.  The execution, delivery and performance by such
Buyer of this Agreement and the consummation by such Buyer of the transactions
contemplated hereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.
 

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 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 
The Company represents and warrants to each of the Buyers that:
 
(a)           Organization and Qualification. Each of the Company and its
Subsidiaries (which for purposes of this Agreement means any "Significant
Subsidiary" as such term is defined in Rule 1-02 of Regulation S-X of the 1933
Act) is an entity duly organized and validly existing and in good standing under
the laws of the jurisdiction in which it is formed, and has the requisite power
and authorization to own its properties and to carry on its business as now
being conducted and as presently proposed to be conducted. Each of the Company
and its Subsidiaries is duly qualified as a foreign entity to do business and is
in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on (i) the business,
properties, assets, liabilities, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company or any
Subsidiary, either individually or taken as a whole, (ii) the transactions
contemplated hereby or in any of the other Transaction Documents or (iii) the
authority or ability of the Company to perform any of its obligations under any
of the Transaction Documents. Other than the Persons (as defined below) set
forth on Schedule 3(a), the Company has no Subsidiaries.
 

(b)           Authorization; Enforcement; Validity. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement and the other Transaction Documents and to issue the Securities
in accordance with the terms hereof and thereof.  The execution and delivery of
this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Common Shares, the issuance
of the Warrants and the reservation for issuance and issuance of the Warrant
Shares issuable upon exercise of the Warrants) have been duly authorized by the
Company’s board of directors and (other than the filing with the SEC of the
prospectus supplement required by the Registration Statement pursuant to Rule
424(b) under the 1933 Act (the “Prospectus Supplement”) supplementing the base
prospectus forming part of the Registration Statement (the “Prospectus”) and any
other filings as may be required by any state securities agencies) no further
filing, consent or authorization is required by the Company, its board of
directors or its stockholders or other governing body. This Agreement has been,
and the other Transaction Documents will be prior to the Closing, duly executed
and delivered by the Company, and each constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies and except as rights to
indemnification and to contribution may be limited by federal or state
securities law. “Transaction Documents” means, collectively, this Agreement, the
Warrants, the Warrant Agreement, the Voting Agreements (as defined below), the
Irrevocable Transfer Agent Instructions (as defined below) and each of the other
agreements and instruments entered into or delivered by any of the parties
hereto in connection with the transactions contemplated hereby and thereby, as
may be amended from time to time.
 

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(c)           Issuance of Securities; Registration Statement. The issuance of
the Common Shares and the Warrants are duly authorized and, upon issuance in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and non-assessable and free from all preemptive or similar rights,
taxes, liens, charges and other encumbrances with respect to the issue thereof.
As of the Closing, the Company shall have reserved from its duly authorized
capital stock 150% of the maximum number of shares of Common Stock issuable upon
exercise of the Warrants (without taking into account any limitations on the
exercise of the Warrants set forth therein). The issuance of the Warrant Shares
is duly authorized, and upon exercise in accordance with the Warrants, the
Warrant Shares, when issued, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities has been registered under the 1933
Act, the Securities are being issued pursuant to the Registration Statement and
all of the Securities are freely transferable and freely tradable by each of the
Buyers without restriction. The Registration Statement is effective and
available for the issuance of the Securities thereunder and the Company has not
received any notice that the SEC has issued or intends to issue a stop-order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened in writing to do so.
The “Plan of Distribution” section under the Registration Statement permits the
issuance and sale of the Securities hereunder and as contemplated by the other
Transaction Documents. Upon receipt of the Securities, each of the Buyers will
have good and marketable title to the Securities. The Registration Statement and
any prospectus included therein, including the Prospectus and the Prospectus
Supplement, complied in all material respects with the requirements of the 1933
Act and the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the
rules and regulations of the SEC promulgated thereunder and all other applicable
laws and regulations. At the time the Registration Statement and any amendments
thereto became effective, at the date of this Agreement and at each deemed
effective date thereof pursuant to Rule 430B(f)(2) of the 1933 Act, the
Registration Statement and any amendments thereto complied and will comply in
all material respects with the requirements of the 1933 Act and did not and 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 not misleading. The Prospectus and any amendments or supplements thereto
(including, without limitation the Prospectus Supplement), at the time the
Prospectus or any amendment or supplement thereto was issued and at the Closing
Date, complied, and will comply, in all material respects with the requirements
of the 1933 Act and did not, and will not, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The Company meets all of the requirements for the use of Form
S-3 under the 1933 Act for the offering and sale of the Securities contemplated
by this Agreement and the other Transaction Documents, and the SEC has not
notified the Company of any objection to the use of the form of the Registration
Statement pursuant to Rule 401(g)(1) under the 1933 Act. The Registration
Statement meets the requirements set forth in Rule 415(a)(1)(x) under the 1933
Act. At the earliest time after the filing of the Registration Statement that
the Company or another offering participant made a bona fide offer (within the
meaning of Rule 164(h)(2) under the 1933 Act) relating to any of the Securities,
the Company was not and is not an “Ineligible Issuer” (as defined in Rule 405
under the 1933 Act). The Company (i) has not distributed any offering material
in connection with the offer or sale of any of the Securities and (ii) until no
Buyer holds any of the Securities, shall not distribute any offering material in
 
 
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connection with the offer or sale of any of the Securities to, or by, any of the
Buyers (if required), in each case, other than the Registration Statement, the
Prospectus or the Prospectus Supplement. In accordance with Rule
5110(b)(7)(C)(i) of the Financial Industry Regulatory Authority Manual, the
offering of the Securities has been registered with the SEC on Form S-3 under
the 1933 Act pursuant to the standards for Form S-3 in effect prior to October
21, 1992, and the Securities are being offered pursuant to Rule 415 promulgated
under the 1933 Act.
 
(d)           No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Common Shares, the Warrants and Warrant Shares and the
reservation for issuance of the Warrant Shares) will not (i) result in a
violation of the Certificate of Incorporation (as defined below) (including,
without limitation, any certificates of designation contained therein) or other
organizational documents of the Company or any of its Subsidiaries, any capital
stock of the Company, or Bylaws (as defined below), (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including, without limitation, federal and state securities laws and
regulations and the rules and regulations of the NYSE Amex LLC (the “Principal
Market”)) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
except, in the case of clause (ii) or (iii) above, to the extent such violations
that could not reasonably be expected to have a Material Adverse Effect.
 
(e)           Consents.  The Company is not required to obtain any consent from,
authorization or order of, or make any filing or registration with (other than
the filing with the SEC of the Prospectus Supplement and any other filings as
may be required by any state securities agencies), any court, Governmental
Entity or any regulatory or self-regulatory agency or any other Person in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents, in each case, in accordance with the
terms hereof or thereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain at or prior to the Closing
have been obtained or effected on or prior to the Closing Date, and neither the
Company nor any of its Subsidiaries are aware of any facts or circumstances
which might prevent the Company from obtaining or effecting any of the
registration, application or filings contemplated by the Transaction Documents.
The Company is not in violation of the requirements of the Principal Market and
has no knowledge of any facts or circumstances which could reasonably lead to
delisting or suspension of the Common Stock in the foreseeable future.
 
(f)           Acknowledgment Regarding Buyer’s Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as
defined in Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
(collectively, “Rule 144”)) of the Company or any of its Subsidiaries or (iii)
to its knowledge, a “beneficial owner” of more than 10% of the shares of Common
Stock (as defined for purposes of Rule 13d-3 of the 1934 Act). The Company
further acknowledges that no
 
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Buyer is acting as a financial advisor or fiduciary of the Company or any of its
Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on an independent evaluation by the
Company and its representatives.
 
(g)           Placement Agent’s Fees. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for Persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated hereby.
Other than Roth Capital Partners, LLC (the “Placement Agent”), neither the
Company nor any of its Subsidiaries has engaged any placement agent or other
agent in connection with the offer or sale of the Securities.
 
(h)           No Integrated Offering. None of the Company, its Subsidiaries or
any of their affiliates, nor any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated for
quotation.  None of the Company, its Subsidiaries, their affiliates nor any
Person acting on their behalf will take any action or steps that would cause the
offering of any of the Securities to be integrated with other offerings of
securities of the Company.
 
(i)           Dilutive Effect. The Company understands and acknowledges that the
number of Warrant Shares will increase in certain circumstances. The Company
further acknowledges that its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is
absolute and unconditional, regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
 
(j)           Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including, without limitation, any
distribution under a rights agreement) or other similar anti-takeover provision
under the Certificate of Incorporation, Bylaws or other organizational documents
or the laws of the jurisdiction of its incorporation or otherwise which is or
could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Securities and any Buyer’s ownership of the Securities. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of shares of Common Stock or a
change in control of the Company or any of its Subsidiaries.
 
(k)           SEC Documents; Financial Statements. During the two (2) years
prior to the date hereof, except as disclosed in Schedule 3(k), the Company has
timely filed all reports, schedules,
 

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forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”). The Company has
delivered to the Buyers or their respective representatives true, correct and
complete copies of each of the SEC Documents not available on the EDGAR system.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Buyers which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the
circumstance under which they are or were made.
 
(l)           Absence of Certain Changes. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K, there has been no
material adverse change and no material adverse development in the business,
assets, liabilities, properties, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company or any of its
Subsidiaries. Since the date of the Company’s most recent audited financial
statements contained in a Form 10-K, neither the Company nor any of its
Subsidiaries has (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business or
(iii) made any material capital expenditures, individually or in the aggregate.
Neither the Company nor any of its Subsidiaries has taken any steps to seek
protection pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of their
respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do
so. The Company and its Subsidiaries, individually and on a consolidated basis,
are not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing will not be, Insolvent (as defined
below). For purposes of this Section 3(1), “Insolvent” means, (I) with respect
to the Company and its Subsidiaries, on a consolidated basis, (i) the present
fair saleable value of the Company’s and its Subsidiaries’ assets is less than
the amount required to pay the Company’s and its Subsidiaries’ total
Indebtedness (as defined below), (ii) the Company and its Subsidiaries are
unable to pay their debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities
 
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become absolute and matured or (iii) the Company and its Subsidiaries intend to
incur or believe that they will incur debts that would be beyond their ability
to pay as such debts mature; and (II) with respect to the Company and each
Subsidiary, individually, (i) the present fair saleable value of the Company’s
or such Subsidiary’s (as the case may be) assets is less than the amount
required to pay its respective total Indebtedness, (ii) the Company or such
Subsidiary (as the case may be) is unable to pay its respective debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured or (iii) the Company or such Subsidiary
(as the case may be) intends to incur or believes that it will incur debts that
would be beyond its respective ability to pay as such debts mature. Neither the
Company nor any of its Subsidiaries has engaged in any business or in any
transaction, and is not about to engage in any business or in any transaction,
for which the Company’s or such Subsidiary’s remaining assets constitute
unreasonably small capital.
 
(m)           No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of its
Subsidiaries or any of their respective businesses, properties, liabilities,
prospects, operations (including results thereof) or condition (financial or
otherwise) that (i) would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced, (ii) could have a material adverse effect
on any Buyer’s investment hereunder or (iii) could have a Material Adverse
Effect.
 
(n)           Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under its
Certificate of Incorporation, any certificate of designation, preferences or
rights of any other outstanding series of preferred stock of the Company or any
of its Subsidiaries or Bylaws or their organizational charter, certificate of
formation or certificate of incorporation or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except in all
cases for possible violations which could not, individually or in the aggregate,
have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or
circumstances that could reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future. Since January 1,
2008, (i) the Common Stock has been listed or designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market, except as disclosed
in Schedule 3(n). The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
 

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(o)           Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
(p)           Sarbanes-Oxley Act. The Company and each Subsidiary is in
compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002
that are effective as of the date hereof, and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.
 
(q)           Transactions With Affiliates. Except as disclosed in Schedule
3(q), none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other Person in which
any such officer, director or employee has a substantial interest or is an
employee, officer, director, trustee or partner.
 
(r)           Equity Capitalization.  As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
of which, 33,398,904 are issued and outstanding and 2,580,000 shares are
reserved for issuance pursuant to stock purchase agreements and securities
(other than the Warrants) exercisable or exchangeable for, or convertible into,
shares of Common Stock and (ii) 20,000,000 shares of preferred stock, of which
none are issued and outstanding. 100,025 shares of Common Stock are held in
treasury.  All of such outstanding shares are duly authorized and have been, or
upon issuance will be, validly issued and are fully paid and nonassessable.
100,025 shares of the Company’s issued and outstanding Common Stock on the date
hereof are owned by Persons who are “affiliates” (as defined in Rule 405 of the
1933 Act and calculated based on the assumption that only officers, directors
and holders of at least 10% of the Company’s issued and outstanding Common Stock
are “affiliates” without conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of its Subsidiaries.
To the Company’s knowledge, no Person owns 10% or more of the Company’s issued
and outstanding shares of Common Stock (calculated based on the assumption that
all Convertible Securities (as defined below), whether or not presently
exercisable or convertible, have been fully exercised or converted (as the case
may be) taking account of any limitations on exercise or conversion (including
“blockers”) contained therein without conceding that such identified Person is a
10% stockholder for purposes of federal securities laws). Except as disclosed in
Schedule 3(r): (i) none of the Company’s or any Subsidiary’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company or any Subsidiary; (ii) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or
 
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exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any amounts filed in connection with the Company or any
of its Subsidiaries; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except pursuant to this Agreement); (vi)
there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) neither the Company nor any Subsidiary has
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) neither the Company nor any of its
Subsidiaries have any liabilities or obligations required to be disclosed in the
SEC Documents which are not so disclosed in the SEC Documents, other than those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or could not have
a Material Adverse Effect. The Company has furnished to the Buyers true, correct
and complete copies of the Company’s Certificate of Incorporation, as amended
and as in effect on the date hereof (the “Certificate of Incorporation”), and
the Company’s bylaws, as amended and as in effect on the date hereof (the
“Bylaws”), and the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of the holders
thereof in respect thereto.
 
(s)           Indebtedness and Other Contracts. Neither the Company nor any of
its Subsidiaries (i) except as disclosed on Schedule 3(s), has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of, or in default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title
 
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retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, claim, lien, pledge, charge, tax,
right of first refusal, encumbrance, security interest or other encumbrance (an
“Encumbrance”) upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (H) all Contingent Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (A) through (G) above;
(y) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; and (z)
“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a Governmental Entity.
 
(t)           Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any Governmental
Entity or other self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company’s or its Subsidiaries’
officers or directors which is outside of the ordinary course of business or
individually or in the aggregate material to the Company or any of its
Subsidiaries. There has not been, and to the knowledge of the Company, there is
not pending or contemplated, any investigation by the SEC involving the Company,
any of its Subsidiaries or any current or former director or officer of the
Company or any of its Subsidiaries. The SEC has not issued any stop order or
other order suspending the effectiveness of any registration statement filed by
the Company under the 1933 Act or the 1934 Act, including, without limitation,
the Registration Statement.
 
(u)           Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
Subsidiary has any reason to believe that it will be unable to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
 
(v)           Employee Relations.  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union. The Company
 
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believes that its and its Subsidiaries’ relations with their respective
employees are good.  No executive officer (as defined in Rule 501(f) promulgated
under the 1933 Act) or other key employee of the Company or any of its
Subsidiaries has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such
officer’s employment with the Company or any such Subsidiary. No executive
officer or other key employee of the Company or any of its Subsidiaries is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer or other
key employee (as the case may be) does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.  The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
 
(w)           Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property, and have good and marketable title to
all personal property, owned by them which is material to the business of the
Company and its Subsidiaries, in each case, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company or any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company or any of its Subsidiaries.
 
(x)           Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, original works, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now conducted and
as presently proposed to be conducted. None of the Company’s or its
Subsidiaries’ Intellectual Property Rights have expired, terminated or been
abandoned, or are expected to expire, terminate or be abandoned, within three
years from the date of this Agreement. The Company has no knowledge of any
infringement by the Company or any of its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding their Intellectual
Property Rights. The Company is not aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
 
(y)           Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with all Environmental Laws (as defined below), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
 
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approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect.  The term “Environmental Laws” means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
 
(z)           Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
 
(aa)           Tax Status.  Each of the Company and its Subsidiaries (i) has
timely made or filed all foreign, federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has timely paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company and its Subsidiaries know of no basis for any
such claim. The Company is not operated in such a manner as to qualify as a
passive foreign investment company, as defined in Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended.
 
(bb)           Internal Accounting and Disclosure Controls. Each of the Company
and its Subsidiaries maintains internal control over financial reporting (as
such term is defined in Rule 13a-15(f) under the 1934 Act) that is effective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles, including that (i) transactions
are executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. Except as disclosed in Schedule 3(bb), the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act
 
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is accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. Except as disclosed in Schedule 3(bb), neither the Company nor any
of its Subsidiaries has received any notice or correspondence from any
accountant or other Person relating to any potential material weakness or
significant deficiency in any part of the internal controls over financial
reporting of the Company or any of its Subsidiaries.
 
(cc)           Off Balance Sheet Arrangements. There is no transaction,
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.
 
(dd)           Investment Company Status. The Company is not, and upon
consummation of the sale of the Securities will not be, an “investment company,”
an affiliate of an “investment company,” a company controlled by an “investment
company” or an “affiliated person” of, or “promoter” or “principal underwriter”
for, an “investment company” as such terms are defined in the Investment Company
Act of  1940, as amended.
 
(ee)           Acknowledgement Regarding Buyers’ Trading Activity. It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, none of the Buyers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from effecting any transactions in
or with respect to (including, without limitation, purchasing or selling, long
and/or short) any securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) any Buyer, and counterparties in “derivative” transactions to which
any such Buyer is a party, directly or indirectly, presently may have a “short”
position in the Common Stock which was established prior to such Buyer’s
knowledge of the transactions contemplated by the Transaction Documents; and
(iii) each Buyer shall not be deemed to have any affiliation with or control
over any arm’s length counterparty in any “derivative” transaction. The Company
further understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents pursuant to the Press
Release (as defined below) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
and/or number of the Warrant Shares deliverable with respect to the Securities
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing stockholders’ equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement or any other
Transaction Document or any of the documents executed in connection herewith or
therewith.
 
(ff)           Manipulation of Price. Neither the Company nor any of its
Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the stabilization or manipulation of the price of any security
of the Company or any of its Subsidiaries to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any
 
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of the Securities (other than the Placement Agent), or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company or any of its Subsidiaries.
 
(gg)           U.S. Real Property Holding Corporation. Neither the Company nor
any of its Subsidiaries is, or has ever been, and so long as any of the
Securities are held by any of the Buyers, shall become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Buyer’s request.
 
   (hh)           Registration Eligibility. The Company is eligible to register
the issuance and sale of the Securities to the Buyers using Form S-3 promulgated
under the 1933 Act.
 
   (ii)           Transfer Taxes. On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the issuance and sale of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.
 
  (jj)           Bank Holding Company Act.  Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
 
  (kk)           Shell Company Status. The Company is not, and has never been,
an issuer identified in, or subject to, Rule 144(i).
 
  (ll)           Non-Oil, Gas and Mineral Real Property.  Each of the Company
and its Subsidiaries holds good title to all real property, leases in real
property, or other interests in real property owned or held by the Company or
any of its Subsidiaries (other than any property included in the Interests (as
defined below)) (the “Other Real Property”) owned by the Company or any of its
Subsidiaries, as applicable. The Other Real Property is free and clear of all
Encumbrances and is not subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except for (a)
liens for current taxes not yet due, and (b) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the property
subject thereto.
 
 (mm)           Non-Oil, Gas and Mineral Fixtures and Equipment. Each of the
Company and its Subsidiaries, as applicable, has good title to, or a valid
leasehold interest in, the tangible personal property, equipment, improvements,
fixtures, and other personal property and appurtenances that are used by the
Company or its Subsidiary in connection with the conduct of its business (the
“Company Fixtures and Equipment”), except that the Company Fixtures and
Equipment do not include any property included in the Interests.  The Company
Fixtures and Equipment are structurally sound, are in good operating condition
and repair, are adequate for the uses to which
 
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they are being put, are not in need of maintenance or repairs except for
ordinary, routine maintenance and repairs and are sufficient for the conduct of
the Company's and/or its Subsidiaries’ businesses, as applicable, in the manner
as conducted prior to the Closing.  Each of the Company and its Subsidiaries
owns all of its Company Fixtures and Equipment free and clear of all
Encumbrances except for (a) liens for current taxes not yet due, and (b) zoning
laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto.
 
(nn)           Oil, Gas and Mineral Interests.
 
(i)           For the purpose of this Agreement, the following definitions shall
apply:
 
(1)           “Appurtenant Rights” means, with respect to the Properties (as
defined below), in each case, insofar as they may relate to the Properties, the
Company’s or any of its Subsidiaries’, as applicable, interest in (a) all
presently existing and valid unitization and pooling declarations, agreements,
and/or orders relating to or affecting the Properties and all rights in the
Properties covered by the Units (as defined below) created thereby; (b) all
wells, well and leasehold equipment, pipelines, platforms, facilities,
improvements, goods and other personal property located on or used in connection
with the Properties; (c) all presently existing production sales contracts,
operating and other contracts or agreements which relate to the Properties; and
(d) all permits, licenses, easements, rights-of-way, rights of use, and similar
agreements pertaining to the Properties.
 
(2)            “Basic Documents” means all of the following documents and
instruments, including those that are recorded and unrecorded, with respect to
the Company or any of its Subsidiaries:
 
a.            All material contracts and agreements comprising any part of, or
relating or pertaining to, the Interests, including but not limited to farm-in
agreements, farm-out agreements, joint operating agreements, Unit agreements and
contracts by which the Interests were acquired;
 
b.            All agreements or arrangements for the sale, gathering,
transportation, compression, treating, processing or other marketing of a
material volume of production from the Interests (including calls on, or other
rights to purchase, production, whether or not the same are currently being
exercised), comprising any part of or otherwise relating or pertaining to the
Interests; and
 
   c.           All documents and instruments evidencing the Interests.
 
(3)           “Consent” means any consents, approvals, orders, authorizations,
notifications, notices, estoppel certificates, releases, registrations,
ratifications, declarations, filings, waivers, exemptions or variances.
 
(4)           “Good and Defensible Title” means, as to the Interest in question,
(i) title to such Interest by virtue of which the Company or any of its
Subsidiaries, as applicable, can successfully defend against a claim to the
contrary made by a
 
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third party, based upon industry standards in the acquisition of oil and gas
properties, and in the exercise of reasonable judgment and in good faith; and,
(ii) in the case of the Wells (as defined below) or Mines (as defined below),
title that entitles the Company or such Subsidiary, as applicable, to receive
not less than the Net Revenue Interest (as defined below) for each of the Wells
or Mines, as applicable, and obligates the Company or such Subsidiary, as
applicable, to bear not more than the Working Interest for each of the Wells or
Mines, as applicable (unless there is a corresponding increase in the Net
Revenue Interest  for a respective Well or Mine, as applicable); and (iii) such
Interest is subject to no liens, encumbrances, obligations or defects.
 
(5)           “Governmental Authorizations” means any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Entity or
pursuant to any Legal Requirement.
 
(6)           “Governmental Entity” means any:
 
a.           nation, state, county, city, town, village, district, or other
political jurisdiction of any nature;
 
b.           federal, state, local, municipal, foreign, or other government;
 
c.           governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
 
d.           multi-national organization or body; or
 
e.           body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
 
(7)           “Interests” means the Properties and the Appurtenant Rights of the
Company and its Subsidiaries.
 
(8)           “Legal Requirement” means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
 
(9)           “Mine” or “Mines” means all of the Company's and its Subsidiaries'
mines and interest in mineral reserves and resources.
 
(10)           “Net Revenue Interest” means a share, expressed as a decimal, of
the oil, gas and other minerals (or the proceeds of sale thereof) produced and
saved from or otherwise attributable to an Interest and the zones, horizons and
reservoirs produced therefrom, after the deduction of all royalties, overriding
royalties and other burdens on production.
 
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(11)           "Over-produced" means to have taken more production from an
Interest (or the Units in which the Interest participates) or any product
thereof, than the ownership of the Company or any of its Subsidiaries and the
Company's or any of its Subsidiaries’ predecessors in the Interest would entitle
the Company or any of its Subsidiaries and/or the Company's or any of its
Subsidiaries’ predecessors (absent any balancing agreement or arrangement) to
receive.
 
(12)           “Preferential Right” means any preferential right or option to
purchase or otherwise to acquire an Interest or any interest therein, held by
another party to a Basic Document, which arises as a result of the transactions
contemplated by this Agreement.
 
(13)           “Properties” means all of the Company's and its Subsidiaries’
rights, titles and interests in and to the following oil and gas and/or mineral
properties:
 
a.           All oil, gas and/or mineral leases and other mineral interests,
including, but not limited to, all of the Company's operating rights, record
title interests, working interests, and overriding royalty interests, without
depth or other restrictions or exclusions;
 
b.           All Wells and Mines of the Company and its Subsidiaries;
 
c.           All surface leases, rights-of-way, easements, servitudes and other
rights-of-use (whether surface, subsurface or subsea); and
 
    d.           All licenses and servitudes.
 
(14)           “Routine Governmental Approvals” means Governmental
Authorizations required to be obtained from any Governmental Entity that are
customarily obtained after consummation of a transaction.
 
(15)           "Under-produced" means to have taken less production from an
Interest (or the Units in which the Interest participates) or any product
thereof, than the ownership of the Company or any of its Subsidiaries and the
Company's or any of its Subsidiaries’ predecessors in the Interest would entitle
the Company or any of its Subsidiaries and/or the Company's or any of its
Subsidiaries’ predecessors (absent any balancing agreement or arrangement) to
receive.
 
(16)           “Units” means oil, gas and other mineral production, proration,
or other types of units, and any ownership interests therein.
 
(17)           “Well” or “Wells” means all of the Company's and any of its
Subsidiaries' oil, gas and condensate wells, (whether producing, not producing
or abandoned or temporarily abandoned).
 
(18)           “Working Interest” means a share, expressed as a decimal, of the
costs of exploring, drilling, developing and operating an Interest and producing
 

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oil, gas and other minerals from the zones, horizons and reservoirs therein and
thereunder.
 
(ii)           Except as disclosed in Schedule 3(nn), the Company holds Good and
Defensible Title to the Interests.
 
(iii)           Except as disclosed in Schedule 3(nn), the Basic Documents are
in full force and effect and constitute valid and binding obligations of the
parties thereto.
 
(iv)           Except as disclosed in Schedule 3(nn), neither the Company nor
any of its Subsidiaries is in material breach or default (and no situation
exists which with the passing of time or giving of notice would give rise to
such a breach or default) of its obligations under any Basic Document, and no
breach or default by any other party to any Basic Document (or situation which
with the passage of time or giving of notice would give rise to such a breach or
default) exists, to the extent such breach or default (whether by the Company,
any Subsidiary or another party to any Basic Document) could adversely affect
any of the Interests.
 
(v)           All payments (including, without limitation, all delay rentals,
royalties, excess royalties, minimum royalties, overriding royalty interests,
shut in royalties and valid calls for payment or prepayment under operating
agreements) owing under the Basic Documents have been and are being made timely
and properly, and before the same became delinquent (by the Company or the
applicable Subsidiary where the non payment of same by another party to any
Basic Document could adversely affect any of the Interests) have been and are
being made by such other party in all material respects.
 
(vi)           All conditions necessary to maintain the Basic Documents in force
have been duly performed.
 
(vii)           No non-consent operations exist with respect to any of the
Interests that have resulted or will result in a temporary or permanent increase
or decrease in either the Company’s or any of its Subsidiaries’ Net Revenue
Interest or Working Interest in such Interest.
 
(viii)           Except as disclosed in Schedule 3(nn), all expenses payable
under the terms of the Basic Documents have been properly and timely paid except
for such expenses as are being currently paid or will be paid prior to
delinquency. Except for budgeted capital expenditures disclosed in the SEC
Documents, no proposals calling for expenditures in excess of $250,000 for any
one project are currently outstanding (whether made by the Company, any of its
Subsidiaries, or by any other party) to drill additional wells, or to deepen,
plug back, sidetrack, abandon, or rework existing Wells or Mines, as applicable,
or to conduct other operations for which consent is required under the
applicable operating agreement, or to conduct any other operations, other than
normal operation of existing Wells or Mines, as applicable, on the Interests.
 
(ix)           Neither the Company nor any of its Subsidiaries has received
prepayments (including, but not limited to, payments for oil and gas not taken
pursuant to “take or pay” arrangements) for any oil or gas produced from the
Interests as a result of which the obligation does (or may) exist (i) to deliver
oil, gas or minerals produced from the
 
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Interests without then receiving payment therefor, or (ii) to make repayments in
cash.  There is no Interest with respect to which the Company has taken an
Over-Produced or Under-Produced position to the extent such Over-produced or
Under-produced position has not, as of the day immediately preceding the date
hereof been fully made up or otherwise extinguished.  No pipeline imbalances
have arisen and remain outstanding due to the failure of nominations made by the
Company or any of its Subsidiaries to match actual deliveries of production from
any one or more of the Interests. None of the purchasers under any production
sales contracts relating to an Interest has (i) exercised any economic out
provision; (ii) curtailed its takes of natural gas in violation of such
contracts; or (iii) given notice that it desires to amend the production sales
contracts with respect to price or quantity of deliveries under take-or-pay
provisions or otherwise.
 
(x)           To the Company’s knowledge, except as disclosed in Schedule 3(nn),
no delinquent unpaid bills or past due charges exist for any labor and materials
incurred by or on behalf of the Company or any of its Subsidiaries’ related to
the exploration, development or operation of the Interests.
 
(xi)           Except as may be provided for by a Basic Document, neither the
Company nor any of its Subsidiaries nor any of the Interests is subject to (i)
any area of mutual interest agreements, (ii) any farm out or farm in agreement
under which any party thereto is entitled to receive assignments of any Interest
or any interest therein not yet made, or could earn additional assignments of
any Interest or any interest therein after the date hereof, (iii) any tax
partnership or (iv) any agreement, contract or commitment relating to the
disposition or acquisition of the assets of, or any interest in, any other
entity.
 
(xii)           All severance, production, ad valorem and other similar taxes
based on or measured by ownership or operation of, or production from, the
Interests have been, and are being, paid (properly and timely, and before the
same become delinquent) by the Company or the applicable Subsidiary in all
respects.
 
(xiii)           (i) The ownership and operation of the Interests has, to the
extent that non conformance could adversely affect the Interests, been conducted
in conformity with all applicable material Legal Requirements of all
Governmental Entities having jurisdiction over the Interests or the Company, and
(ii) the Company has not received any notice of noncompliance with regard to any
material Legal Requirement of any Governmental Entity having jurisdiction over
the Interests or the Company.
 
(xiv)           There are no Preferential Rights or Consents, other than Routine
Governmental Approvals that affect any of the Interests and that will be
triggered by the transactions contemplated by the Transaction Documents.
 
(xv)           There exist no agreements or other arrangements under which the
Company or any of its Subsidiaries undertakes to perform gathering,
transportation, processing or other marketing services for any other party for a
fee or other consideration that is now, or may hereafter be, unrepresentative of
commercial rates being received by other parties in comparable, arm’s length
transactions.
 

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(xvi)           Except as disclosed in Schedule 3(nn), there are no Wells or
Mines, as applicable, located on the Interests that (i) the Company or any of
its Subsidiaries is currently obligated by law or contract to currently plug and
abandon or to cease development or exploration, (ii) the Company or any of its
Subsidiaries will be obligated by law or contract to plug and abandon with the
lapse of time or notice or both because the Well or Mines, as applicable, is not
currently capable of producing severed crude oil, natural gas, casinghead gas,
drip gasoline, natural gasoline, petroleum, natural gas liquids, condensate,
products, liquids, other hydrocarbons or other minerals or materials in paying
quantities or otherwise currently being used in normal operations, (iii) are
subject to exceptions to a requirement to plug and abandon issued by a
Governmental Entity, or (iv) to the Company’s knowledge, have been plugged and
abandoned, but have not been plugged in accordance in all material respects with
all applicable requirements of any Governmental Entity.
 
(xvii)           Except as disclosed in Schedule 3(nn), no suit, action or
proceeding (including, without limitation, tax or environmental demands
proceedings) is pending or threatened, which might result in material impairment
or loss of title to any of the Interests or the material value thereof.
 
(xviii)           All proceeds from the sale of hydrocarbons produced from the
Company’s or the applicable Subsidiaries’ proportionate share of the Interests
are currently being paid to the Company or such Subsidiary in all material
respects, and no portion of such proceeds is currently being held in suspense by
any purchaser thereof or any other party by whom proceeds are paid except for
immaterial amounts.
 
(oo)           Illegal or Unauthorized Payments; Political
Contributions.  Neither the Company nor any of its Subsidiaries nor, to the best
of the Company's knowledge (after reasonable inquiry of its officers and
directors), any of the officers, directors, employees, agents or other
representatives of the Company or any of its Subsidiaries or any other business
entity or enterprise with which the Company or any Subsidiary is or has been
affiliated or associated, has, directly or indirectly, made or authorized any
payment, contribution or gift of money, property, or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or (b)
to any political organization, or the holder of or any aspirant to any elective
or appointive public office except for personal political contributions not
involving the direct or indirect use of funds of the Company or any of its
Subsidiaries.
 
(pp)           Money Laundering.  The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot Act of 2001
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, but not limited to, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control, including, but not limited, to (i) Executive Order 13224 of September
23, 2001 entitled, "Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism" (66 Fed. Reg. 49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.
 
(qq)           Management.  Except as set forth in Schedule 3(qq) hereto, during
the past five year period, no current or former officer or director or, to the
knowledge of the Company, stockholder of the Company or any of its Subsidiaries
has been the subject of:
 

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                (i)           a petition under bankruptcy laws or any other
insolvency or moratorium law or the appointment by a court of a receiver, fiscal
agent or similar officer for such Person, or any partnership in which such   
person was a general partner at or within two years before the filing of such
petition or such appointment, or any corporation or business association of
which such person was an executive officer at or within two years before the
time of the filing of such petition or such appointment;
 
(ii)            a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations that do not relate to
driving while intoxicated or driving under the influence);
 
(iii)            any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
 
(1)           Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity
Futures Trading Commission or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
 
(2)           Engaging in any type of business practice; or
 
(3)           Engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of securities
laws or commodities laws;
 
(iv)           any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any authority barring, suspending or otherwise limiting
for more than 60 days the right of any such person to engage in any activity
described in the preceding sub paragraph, or to be associated with persons
engaged in any such activity;
 
(v)           a finding by a court of competent jurisdiction in a civil action
or by the SEC or other authority to have violated any securities law, regulation
or decree and the judgment in such civil action or finding by the SEC or any
other authority has not been subsequently reversed, suspended or vacated; or
 
(vi)           a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
 
(rr)           No Additional Agreements. The Company does not have any agreement
or understanding with any Buyer with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.
 

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(ss)           Registration Rights.  No holder of securities of the Company has
rights to the registration of any securities of the Company because of the
filing of the Registration Statement or the issuance of the Securities hereunder
that could expose the Company to material liability or any Buyer to any
liability or that could impair the Company’s ability to consummate the issuance
and sale of the Securities in the manner, and at the times, contemplated hereby,
which rights have not been waived by the holder thereof as of the date hereof.
 
(tt)           Public Utility Holding Act.  None of the Company nor any of its
Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,”
as such terms are defined in the Public Utility Holding Act of 2005.
 
(uu)           Federal Power Act.  None of the Company nor any of its
Subsidiaries is subject to regulation as a “public utility” under the Federal
Power Act, as amended.
 
(vv)           Disclosure.  The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their agents or
counsel with any information that constitutes or could reasonably be expected to
constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the existence of the transactions contemplated by this
Agreement and the other Transaction Documents. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company and its Subsidiaries, their businesses and the
transactions contemplated hereby, including the schedules to this Agreement,
furnished by or on behalf of the Company or any of its Subsidiaries is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each press release issued by the Company or any of its Subsidiaries during the
twelve (12) months preceding the date of this Agreement did not at the time of
release 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 the light of the circumstances under which they are made,
not misleading.  No event or circumstance has occurred or information exists
with respect to the Company or any of its Subsidiaries or its or their business,
properties, liabilities, prospects, operations (including results thereof) or
conditions (financial or otherwise), which, under applicable law, rule or
regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
 
4.
COVENANTS.

 
(a)           Maintenance of Registration Statement  For so long as any of the
Warrants remain outstanding, the Company shall use its best efforts to maintain
the effectiveness of the Registration Statement for the issuance thereunder of
the Warrant Shares, provided that, if at any time while the Warrants are
outstanding the Company shall be ineligible to utilize Form S-3 (or any
successor form) for the purpose of issuance of the Warrant Shares, the Company
shall promptly amend the Registration Statement on such other form as may be
necessary to maintain the effectiveness of the Registration Statement for this
purpose. If at any time following the date hereof the Registration Statement is
not effective or is not otherwise available for the issuance of the Securities
or any prospectus contained therein is not available for use, the Company shall
immediately notify the holders of the Securities in writing that the
Registration Statement is not then effective or a prospectus contained therein
is not available for use and thereafter shall promptly notify such holders when
the Registration Statement is effective again and available for the issuance of
the Securities or such prospectus is again available for use.
 

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(b)           Prospectus Supplement and Blue Sky. Immediately prior to execution
of this Agreement, the Company shall have delivered, and as soon as practicable
after execution of this Agreement the Company shall file, the Prospectus
Supplement with respect to the Securities as required under, and in conformity
with, the 1933 Act, including Rule 424(b) thereunder. If required, the Company,
on or before the Closing Date, shall take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for, or to
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date. Without limiting any other obligation of the Company under this
Agreement, the Company shall timely make all filings and reports relating to the
offer and sale of the Securities required under all applicable securities laws
(including, without limitation, all applicable federal securities laws and all
applicable “Blue Sky” laws), and the Company shall comply with all applicable
federal, state and local laws, statutes, rules, regulations and the like
relating to the offering and sale of the Securities to the Buyers.
 
(c)           Reporting Status.  During the period from the date hereof until
the date on which no Warrants are outstanding (such period, the “Reporting
Period”), the Company shall timely file all reports required to be filed with
the SEC pursuant to the 1934 Act, and the Company shall not terminate its status
as an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would no longer require or otherwise permit
such termination.
 
(d)           Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities for drilling one SAGD injector well at the Company’s Pleasant
Valley property, reactivating up to four wells at the Company’s Claflin project,
reducing outstanding trade payables, the payment of the fees and expenses
described in Section 4(g) below and general corporate purposes and not for the
(i) repayment of any outstanding Indebtedness of the Company or any of its
Subsidiaries except as described in Schedule 4(d) or (ii) redemption or
repurchase of any securities of the Company or any of its Subsidiaries or (iii)
the settlement of any outstanding litigation.
 
(e)           Financial Information. The Company agrees to send the following to
each Buyer during the Reporting Period (i) unless the following are filed with
the SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim
reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual,
any Current Reports on Form 8-K and any registration statements (other than on
Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as
the release thereof, facsimile copies of all press releases issued by the
Company or any of its Subsidiaries and (iii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or delivery to the
stockholders.
 

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(f)           Listing. The Company shall promptly (but in no event later than
the Closing Date) secure the listing or designation for quotation (as the case
may be) of all of the Common Shares and, subject to the Stockholder Approval (as
defined below), the maximum number of Warrant Shares issuable upon exercise of
the Warrants (without regard to any limitations on the exercise thereof) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed or designated for quotation (as the case
may be) (subject to official notice of issuance) and shall maintain such listing
or designation for quotation (as the case may be) of all the shares of Common
Stock from time to time issuable under the terms of the Transaction Documents on
such national securities exchange or automated quotation system. The Company
shall maintain the Common Stock’s listing or designation for quotation (as the
case may be) on the Principal Market, The  New York Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market
(each, an “Eligible Market”). Neither the Company nor any of its Subsidiaries
shall take any action which could be reasonably expected to result in the
delisting or suspension of the Common Stock on an Eligible Market. The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(f).
 
(g)           Fees.
 
(i)           The Company shall reimburse Capital Ventures International
(“Capital Ventures”) or its designee(s) for all reasonable costs and expenses
incurred by it or its affiliates in connection with the transactions
contemplated by the Transaction Documents (including, without limitation, all
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence and regulatory filings in connection therewith), which amount
shall be withheld by Capital Ventures from its Purchase Price at the Closing or
paid by the Company upon termination of this Agreement on demand by Capital
Ventures so long as such termination did not occur as a result of a material
breach by Capital Ventures of any of its obligations hereunder (as the case may
be), less $20,000 which was previously advanced to Capital Ventures by the
Company. Subject to the limitation set forth in the immediately preceding
sentence, if the amount so withheld at the Closing by Capital Ventures was less
than the aggregate amount of reasonable costs and expenses actually incurred by
it or its affiliates in connection with the transactions contemplated by the
Transaction Documents, the Company shall promptly reimburse Capital Ventures on
demand for all such costs and expenses not so reimbursed through such
withholding at the Closing.
 
(ii)           The Company shall reimburse Empery Asset Master Ltd. (“Empery”)
or its designee(s) for all reasonable costs and expenses incurred by it or its
affiliates in connection with the transactions contemplated by the Transaction
Documents, not to exceed $10,000 (including, without limitation, all legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence and
regulatory filings in connection therewith), which amount shall be withheld by
Empery from its Purchase Price at the Closing or paid by the Company upon
termination of this Agreement on demand by Empery so long as such termination
did not occur as a result of a material breach by Empery of any of its
obligations hereunder (as the case may be).
 
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(iii)           The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, transfer agent fees, DTC fees
or broker’s commissions (other than for Persons engaged by any Buyer) relating
to or arising out of the transactions contemplated hereby (including, without
limitation, any fees payable to the Placement Agent, who is the Company’s sole
placement agent in connection with the transactions contemplated by this
Agreement). The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys’
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.
 
(h)           Pledge of Securities. Notwithstanding anything to the contrary
contained in this Agreement, the Company acknowledges and agrees that the
Securities may be pledged by a Buyer in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company hereby agrees to execute and deliver
such documentation as a pledgee of the Securities may reasonably request in
connection with a pledge of the Securities to such pledgee by a Buyer.
 
(i)           Disclosure of Transactions and Other Material Information. The
Company shall, on or before 9:30 a.m. (but in no event prior to 9:15 a.m.), New
York time, on the date of this Agreement, issue a press release (the “Press
Release”) reasonably acceptable to the Buyers disclosing all the material terms
of the transactions contemplated by the Transaction Documents. On or before
9:30 a.m. (but in no event prior to 9:15 a.m.), New York time, on the date of
this Agreement, the Company shall file a Current Report on Form 8-K describing
all the material terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching all the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement) and the form of Warrants) (including all
attachments, the “8-K Filing”). From and after the issuance of the Press
Release, the Company shall have disclosed all material, non-public information
(if any) delivered to any of the Buyers by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company shall not, and the Company shall cause each of its
Subsidiaries and each of its and their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, non-public information
regarding the Company or any of its Subsidiaries from and after the issuance of
the Press Release without the express prior written consent of such Buyer. In
the event of a breach of any of the foregoing covenants or any of the covenants
contained in Section 4(n) by the Company, any of its Subsidiaries, or any of its
or their respective officers, directors, employees and agents (as determined in
the reasonable good faith judgment of such Buyer), in addition to any other
remedy provided herein or in the Transaction Documents, such Buyer shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, non-public information without the
prior approval by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees or agents.
 
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No Buyer shall have any liability to the Company, any of its Subsidiaries, or
any of its or their respective officers, directors, employees, stockholders or
agents, for any such disclosure. Subject to the foregoing, neither the Company,
its Subsidiaries nor any Buyer shall issue any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, the Company shall be entitled, without the prior approval of
any Buyer, to make any press release or other public disclosure with respect to
such transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Without the prior written consent of
the applicable Buyer, the Company shall not (and shall cause each of its
Subsidiaries and affiliates to not) disclose the name of such Buyer in any
filing, announcement, release or otherwise unless required by applicable laws,
rules or regulations.
 
(j)           Additional Issuance of Securities; Amendments and Registrations.
 
(i)           The Company agrees that for the period commencing on the date
hereof and ending on the date immediately following the sixtieth (60th) calendar
day after the Closing Date (provided that such period shall be extended by the
number of days during such period and any extension thereof contemplated by this
proviso on which the Registration Statement is not effective or any prospectus
contained therein is not available for use) (the “Restricted Period”), neither
the Company nor any of its Subsidiaries shall directly or indirectly issue,
offer, sell, grant any option or right to purchase, or otherwise dispose of (or
announce any issuance, offer, sale , grant of any option or right to purchase or
other disposition of) any equity security or any equity-linked or related
security (including, without limitation, any “equity security” (as that term is
defined under Rule 405 promulgated under the 1933 Act), any Convertible
Securities (as defined below), any debt, any preferred stock or any purchase
rights) (any such issuance, offer, sale, grant, disposition or announcement
(whether occurring during the Restricted Period or at any time thereafter) is
referred to as a “Subsequent Placement”).
 
(ii)           The Company agrees that for the period commencing on the
sixty-first (61st) calendar day after the Closing Date and ending on the date
immediately following the one hundred and twentieth (120th) calendar day after
the Closing Date (provided that such period shall be extended by the number of
days during such period, and any extension thereof contemplated by this proviso,
on which the Registration Statement is not effective or any prospectus contained
therein is not available for use) (the “Additional Restricted Period”), neither
the Company nor any of its Subsidiaries shall directly or indirectly effect any
Subsequent Placement unless (i) the quotient of (x) the sum of the Closing Bid
Price (as defined in the Warrants) of the Common Stock on each of the ten (10)
consecutive Trading Days immediately preceding the date of the consummation of
such Subsequent Placement divided by (y) 10, is at least equal to $2.522 (as
adjusted for any stock dividend, stock split, stock combination or other similar
transaction) and (ii) the average daily volume (as reported on Bloomberg (as
defined in the Warrants)) of the Common Stock on the Eligible Market on which
the Common Stock is listed or designated for quotation as of such date of
determination over the ten (10) consecutive Trading Day period ending on the
Trading Day immediately preceding such date of determination is at least equal
to 200,000 shares per day (as adjusted for any stock dividend, stock split,
stock combination or other similar transaction).
 
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(iii)           During the Restricted Period and the Additional Restricted
Period, the Company shall not (i) file any registration statement with the SEC
with respect to any equity securities of the Company or (ii) exchange (other
than with respect to an exercise or conversion of such Convertible Security in
accordance with its terms), amend, modify or waive any of its Convertible
Securities outstanding prior to the date hereof.
 
(iv)           Notwithstanding the foregoing, this Section 4(j) shall not apply
in respect of the issuance of (A) shares of Common Stock or standard options to
purchase Common Stock to directors, officers or employees of the Company in
their capacity as such pursuant to an Approved Share Plan (as defined below),
provided that (1) all such issuances (taking into account the shares of Common
Stock issuable upon exercise of such options) after the date hereof pursuant to
this clause (A) do not, in the aggregate, exceed more than 10% of the Common
Stock issued and outstanding immediately prior to the date hereof and (2) the
exercise price of any such options is not lowered, none of such options are
amended to increase the number of shares issuable thereunder and none of the
terms or conditions of any such options are otherwise materially changed in any
manner that adversely affects any of the Buyers; (B) shares of Common Stock
issued upon the conversion or exercise of Convertible Securities (other than
standard options to purchase Common Stock issued pursuant to an Approved Share
Plan that are covered by clause (A) above) issued prior to the date hereof,
provided that the conversion price of any such Convertible Securities (other
than standard options to purchase Common Stock issued pursuant to an Approved
Share Plan that are covered by clause (A) above) is not lowered, none of such
Convertible Securities (other than standard options to purchase Common Stock
issued pursuant to an Approved Share Plan that are covered by clause (A) above)
are amended to increase the number of shares issuable thereunder and none of the
terms or conditions of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Share Plan that
are covered by clause (A) above) are otherwise materially changed in any manner
that adversely affects any of the Buyers; (C) the Warrant Shares issuable upon
exercise of any Warrant, provided that the exercise price of such Warrant is not
lowered and such Warrant is not amended to increase the number of shares
issuable thereunder (other than the holder of such Warrant) (each of the
foregoing in clauses (A) through (C), collectively the “Excluded
Securities”).  “Approved Share Plan” means any employee benefit plan which has
been approved by the board of directors of the Company prior to or subsequent to
the date hereof pursuant to which shares of Common Stock and standard options to
purchase Common Stock may be issued to any employee, officer or director for
services provided to the Company in their capacity as such. “Convertible
Securities” means any capital stock or other security of the Company or any of
its Subsidiaries that is at any time and under any circumstances directly or
indirectly convertible into, exercisable or exchangeable for, or which otherwise
entitles the holder thereof to acquire, any capital stock or other security of
the Company (including, without limitation, Common Stock) or any of its
Subsidiaries.
 
(k)           Reservation of Shares. So long as any Warrants remain outstanding,
the Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 150% of the maximum number of
shares of Common Stock issuable upon exercise of all the Warrants as of the date
hereof (without regard to any limitations on the exercise of the Warrants set
forth therein), less the number of Warrant Shares represented by any such
Warrants that have been exercised.
 
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(l)           Conduct of Business.  The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
 
(m)           Variable Rate Transaction. Until none of the Warrants are
outstanding, the Company and each Subsidiary shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Placement involving a
Variable Rate Transaction. “Variable Rate Transaction” means a transaction in
which the Company or any Subsidiary (i) issues or sells any Convertible
Securities either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of, or quotations for,
the shares of Common Stock at any time after the initial issuance of such
Convertible Securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance of
such Convertible Securities or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock, other than pursuant to a customary “weighted
average” anti-dilution provision or (ii) enters into any agreement (including,
without limitation, an equity line of credit) whereby the Company or any
Subsidiary may sell securities at a future determined price (other than standard
and customary “preemptive” or “participation” rights). Each Buyer shall be
entitled to obtain injunctive relief against the Company and its Subsidiaries to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.
 
(n)           Participation Right. From the date hereof until the twelve (12)
month anniversary of the Closing Date, neither the Company nor any of its
Subsidiaries shall, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4(n).  The
Company acknowledges and agrees that the right set forth in this Section 4(n) is
a right granted by the Company, separately, to each Buyer.
 
           (i)           At least five (5) Trading Days prior to any proposed or
intended Subsequent Placement, the Company shall deliver to each Buyer a written
notice of its proposal or intention to effect a Subsequent Placement (each such
notice, a “Pre-Notice”), which Pre-Notice shall not contain any information
(including, without limitation, material, non-public information) other than:
(i) a statement that the Company proposes or intends to effect a Subsequent
Placement, (ii) a statement that the statement in clause (i) above does not
constitute material, non-public information and (iii) a statement informing such
Buyer that it is entitled to receive an Offer Notice (as defined below) with
respect to such Subsequent Placement upon its written request. Upon the written
request of a Buyer within three (3) Trading Days after the Company’s delivery to
such Buyer of such Pre-Notice, and only upon a written request by such Buyer,
the Company shall promptly, but no later than one (1) Trading Day after such
request, deliver to such Buyer an irrevocable written notice (the “Offer
Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”)
of the securities being offered (the “Offered Securities”) in a Subsequent
Placement, which Offer Notice shall (w) identify and describe the Offered
Securities, (x) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered

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 Securities to be issued, sold or exchanged, (y) identify the Persons (if known)
to which or with which the Offered Securities are to be offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with such Buyer in
accordance with the terms of the Offer 50% of the Offered Securities, provided
that the number of Offered Securities which such Buyer shall have the right to
subscribe for under this Section 4(n) shall be (a) based on such Buyer’s pro
rata portion of the aggregate number of Common Shares purchased hereunder by all
Buyers (the “Basic Amount”), and (b) with respect to each Buyer that elects to
purchase its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Buyers as such Buyer shall indicate
it will purchase or acquire should the other Buyers subscribe for less than
their Basic Amounts (the “Undersubscription Amount”).

           (ii)           To accept an Offer, in whole or in part, such Buyer
must deliver a written notice to the Company prior to the end of the third (3rd)
Business Day after such Buyer’s receipt of the Offer Notice (the period from the
date of such Buyer’s receipt of the Offer Notice until the end of such third
Business day thereafter being, subject to the last sentence of this paragraph
(ii), the “Offer Period”), setting forth the portion of such Buyer’s Basic
Amount that such Buyer elects to purchase and, if such Buyer shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that
such Buyer elects to purchase (in either case, the “Notice of Acceptance”). If
the Basic Amounts subscribed for by all Buyers are less than the total of all of
the Basic Amounts, then such Buyer who has set forth an Undersubscription Amount
in its Notice of Acceptance shall be entitled to purchase, in addition to the
Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, if the Undersubscription Amounts subscribed for exceed
the difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the “Available Undersubscription Amount”), such Buyer who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
such Buyer bears to the total Basic Amounts of all Buyers that have subscribed
for Undersubscription Amounts, subject to rounding by the Company to the extent
it deems reasonably necessary. Notwithstanding the foregoing, if the Company
desires to modify or amend the terms and conditions of the Offer prior to the
expiration of the Offer Period, the Company may deliver to each Buyer a new
Offer Notice and the Offer Period shall expire on the fifth (5th) Business Day
after such Buyer’s receipt of such new Offer Notice.

           (iii)           The Company shall have five (5) Business Days from
the expiration of the Offer Period above (i) to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by a Buyer (the “Refused Securities”) pursuant to a
definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the
offerees described in the Offer Notice (if so described therein) and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring Person or Persons or less
favorable to the Company than those set forth in the Offer Notice and (ii) to
publicly announce (a) the execution of such Subsequent Placement Agreement, and
(b) either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Placement Agreement and any documents contemplated
therein filed as exhibits thereto.

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(iv)           In the event the Company shall propose to sell less than all of
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4(n)(iii) above), then such Buyer may, at its sole option
and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Buyer elected
to purchase pursuant to Section 4(n)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to this Section 4(n) prior to
such reduction) and (ii) the denominator of which shall be the original amount
of the Offered Securities. In the event that any Buyer so elects to reduce the
number or amount of Offered Securities specified in its Notice of Acceptance,
the Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have again
been offered to the Buyers in accordance with Section 4(n)(i) above.

(v)           Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, such Buyer shall acquire from the Company,
and the Company shall issue to such Buyer, the number or amount of Offered
Securities specified in its Notice of Acceptance. The purchase by such Buyer of
any Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and such Buyer of a separate purchase agreement relating
to such Offered Securities reasonably satisfactory in form and substance to such
Buyer and its counsel.

(vi)           Any Offered Securities not acquired by a Buyer or other Persons
in accordance with this Section 4(n) may not be issued, sold or exchanged until
they are again offered to such  Buyer under the procedures specified in this
Agreement.

(vii)           The Company and each Buyer agree that if any Buyer elects to
participate in the Offer, neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the “Subsequent Placement Documents”) shall include any term or
provision whereby such Buyer shall be required to agree to any restrictions on
trading as to any securities of the Company or be required to consent to any
amendment to or termination of, or grant any waiver, release or the like under
or in connection with, any agreement previously entered into with the Company or
any instrument received from the Company.

           (viii)           Notwithstanding anything to the contrary in this
Section 4(n) and unless otherwise agreed to by such Buyer, the Company shall
either confirm in writing to such Buyer that the transaction with respect to the
Subsequent Placement has been abandoned or shall publicly disclose its intention
to issue the Offered Securities, in either case in such a manner such that such
Buyer will not be in possession of any material, non-public information, by the
fifth (5th) Business Day following delivery of the Offer Notice. If by such
fifth (5th) Business Day , no public disclosure regarding a transaction with
respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by such Buyer, such
transaction shall be deemed to have been abandoned and such Buyer shall not be
in possession of any material,
 
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non-public information with respect to the Company or any of its Subsidiaries.
Should the Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide such Buyer with another Offer Notice and
such Buyer will again have the right of participation set forth in this Section
4(n). The Company shall not be permitted to deliver more than one Offer Notice
to such Buyer in any sixty (60) day period, except as expressly contemplated by
the last sentence of Section 4(n)(ii).
 
(ix)           The restrictions contained in this Section 4(n) shall not apply
in connection with the issuance of any Excluded Securities. The Company shall
not circumvent the provisions of this Section 4(n) by providing terms or
conditions to one Buyer that are not provided to all.
 
(o)           Dilutive Issuances.  Until the Stockholder Approval Date, (as
defined below), the Company shall not, in any manner, enter into or effect any
Dilutive Issuance (as defined in the Warrants).  For so long as any Warrants
remain outstanding, the Company shall not, in any manner, enter into or effect
any Dilutive Issuance (as defined in the Warrants) if the effect of such
Dilutive Issuance is to cause the Company to be required to issue upon exercise
of any Warrant any shares of Common Stock in excess of that number of shares of
Common Stock which the Company may issue upon exercise of the Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market.  At any time prior to the Stockholder Approval Date, the
Company shall not consummate any Subsequent Placement at a price per share of
Common Stock (as determined in accordance with Section 2(b) of the Warrants)
below the higher of (x) the Purchase Price per share of Common Stock hereunder
(as adjusted for stock splits, recapitalizations and similar events) and (y) the
Exercise Price (as defined in the Series A Warrants) at such time.
 
(p)           Passive Foreign Investment Company. The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.
 
(q)           Restriction on Redemption and Cash Dividends. So long as any
Warrants are outstanding, the Company shall not, directly or indirectly, redeem,
or declare or pay any cash dividend or distribution on, any securities of the
Company without the prior express written consent of the Buyers.
 
(r)           Recapitalizations. So long as any Warrants are outstanding, the
Company shall not effect any stock combination, reverse stock split or other
similar transaction (or make any public announcement or disclosure with respect
to any of the foregoing) without the prior written consent of each of the
Buyers.
 
(s)           Corporate Existence. So long as any Buyer owns any Warrants, the
Company shall not be party to any Fundamental Transaction (as defined in the
Warrants) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Warrants.
 
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(t)           Stockholder Approval.  The Company shall provide each stockholder
entitled to vote at either (x) the next annual meeting of stockholders of the
Company or (y) a special meeting of stockholders of the Company (the
"Stockholder Meeting"), which shall be promptly called and held not later than
June 30, 2010 (or in the event that such proxy statement is subject to a full
review by the SEC, July 31, 2010) (the "Stockholder Meeting Deadline"), a proxy
statement, substantially in a form which shall have been previously reviewed by
Greenberg Traurig LLP, at the expense of the Company but in any event such
expense not to exceed $15,000; soliciting each such stockholder's affirmative
vote at the Stockholder Meeting for approval of resolutions ("Stockholder
Resolutions") providing for the Company's issuance of all of the Securities as
described in the Transaction Documents in accordance with applicable law and the
rules and regulations of the Principal Market (such affirmative approval being
referred to herein as the "Stockholder Approval", and the date such Stockholder
Approval is obtained, the “Stockholder Approval Date”), and the Company shall
use its reasonable best efforts to solicit its stockholders' approval of such
resolutions and to cause the Board of Directors of the Company to recommend to
the stockholders that they approve such resolutions.  The Company shall be
obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting
Deadline.  If, despite the Company's reasonable best efforts the Stockholder
Approval is not obtained on or prior to the Stockholder Meeting Deadline, the
Company shall cause an additional Stockholder Meeting to be held once in each of
the three subsequent calendar quarters thereafter until such Stockholder
Approval is obtained.  If, despite the Company's reasonable best efforts the
Stockholder Approval is not obtained after such subsequent stockholder meetings,
the Company shall cause an additional Stockholder Meeting to be held
semi-annually thereafter until such Stockholder Approval is obtained.
 
(u)           No Waiver of Voting Agreements.  The Company shall not amend,
waive or modify any provision of any of the Voting Agreements.
 
(v)           Warrant Agent Removal.  At the request of any initial Buyer
holding Warrants following either (i) any Delivery Failure (as defined in any
applicable Warrants) or (ii) the failure of the Company or the Warrant Agent, as
applicable, to deliver Warrants to any Person within the time period specified
in any applicable Warrant, the Company shall promptly, but in no event later
than three (3) Business Days after notice from such initial Buyer, remove the
Warrant Agent and cause the Company to become the successor Warrant Agent
pursuant to the Warrant Agreement.
 
(w)           Closing Documents.  On or prior to fourteen (14) calendar days
after the Closing Date, the Company agrees to deliver, or cause to be delivered,
to each Buyer and Greenberg Traurig, LLP executed copies of the Transaction
Documents, Securities and other document required to be delivered to any party
pursuant to Section 6 hereof.
 
5.
REGISTER; TRANSFER AGENT INSTRUCTIONS; LEGEND.

 
(a)           Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Common Shares and the
Warrants in which the Company shall record the name and address of the Person in
whose name the Common Shares and the Warrants have been issued (including the
name and address of each transferee), the number of Common Shares held by such
Person and the number of Warrant Shares issuable upon exercise of the Warrants
held by such Person. The Company shall keep the register open and available at
all times during business hours for inspection of any Buyer or its legal
representatives.
 

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(b)           Transfer Agent Instructions. The Company shall issue irrevocable
instructions to the Transfer Agent in the form reasonably acceptable to such
Buyer (the “Irrevocable Transfer Agent Instructions”) to issue certificates or
credit shares to the applicable balance accounts at DTC, registered in the name
of each Buyer or its respective nominee(s), for the Common Shares and the
Warrant Shares in such amounts as specified from time to time by each Buyer to
the Company upon delivery of the Common Shares or the exercise of the Warrants
(as the case may be). The Company represents and warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b) will be given by the Company to the Transfer Agent with respect to
the Securities, and that the Securities shall otherwise be freely transferable
on the books and records of the Company. If a Buyer effects a sale, assignment
or transfer of the Securities, the Company shall permit the transfer and shall
promptly instruct the Transfer Agent to issue one or more certificates or credit
shares to the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer to effect such sale, transfer or
assignment. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that
each Buyer 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. Any fees (with respect to the Transfer
Agent, counsel to the Company or otherwise) associated with the issuance of such
opinion shall be borne by the Company.
 
(c)           Legends. Certificates and any other instruments evidencing the
Securities shall not bear any restrictive or other legend.
 
6.
CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 
The obligation of the Company hereunder to issue and sell the Common Shares and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

(a)           Such Buyer shall have executed this Agreement and delivered the
same to the Company.
 
(b)           Such Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Capital Ventures and Empery, the amounts withheld pursuant
to Section 4(g)) for the Common Shares and the related Warrants being purchased
by such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
 
(c)           The representations and warranties of such Buyer 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
speak as of a specific date, which shall be true and correct as of such specific
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.
 
 
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7.
CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.

 
The obligation of each Buyer hereunder to purchase the Common Shares and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

(a)           The Company shall have (i) executed and delivered to such Buyer
each of the Transaction Documents, (ii) electronically delivered the Common
Shares being purchased by such Buyer at the Closing pursuant to this Agreement
and (iii) executed and delivered the related Series A Warrants, Series B
Warrants, Series C Warrants and Series D Warrants (in such amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement.
 
(b)           Such Buyer shall have received the opinion of Strasburger & Price,
LLP, the Company’s counsel, dated as of the Closing Date, in a form reasonably
acceptable to the Buyers.
 
(c)           The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form reasonably acceptable to
such Buyer, which instructions shall have been delivered to and acknowledged in
writing by the Transfer Agent.
 
(d)           The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing (if applicable) of the Company
and each of its Subsidiaries in such corporation’s jurisdiction of incorporation
issued by the Secretary of State or other comparable authority of such
jurisdiction of incorporation as of a date within 10 days of the Closing Date.
 
(e)           The Company shall have delivered to such Buyer a certificate
evidencing the Company’s qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to so
qualify, as of a date within ten (10) days of the Closing Date.
 
(f)           The Common Stock (i) shall be listed on the Principal Market and
(ii) shall not have been suspended, as of the Closing Date, by the SEC or the
Principal Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened, as of the Closing Date,
either (A) in writing by the SEC or the Principal Market or (B) by falling below
the minimum listing maintenance requirements of the Principal Market.
 
(g)           From the date hereof to the Closing Date, (i) trading in the
Common Stock shall not have been suspended by the SEC or the Principal Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, (ii)
at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg L.P. shall not have been suspended or limited, or minimum
prices shall not have been established on securities whose trades are reported
by such service, or on the Principal Market, nor shall a banking moratorium have
been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Buyer, makes it impracticable or inadvisable to
purchase the Securities at the Closing
 
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(h)           The Company shall have delivered to such Buyer a certified copy of
the Certificate of Incorporation, certified within ten (10) days of the Closing
Date.
 
(i)           The Company shall have delivered to such Buyer a certificate, in
the form reasonably acceptable to such Buyer, executed by the Secretary of the
Company and dated as of the Closing Date, as to (i) the resolutions consistent
with Section 3(b) as adopted by the Company’s board of directors in a form
reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and
(iii) the Bylaws of the Company, each as in effect at the Closing.
 
(j)           The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that were made as of a
specific date, which shall be true and correct as of such specific date) and the
Company shall have performed, satisfied and complied in all respects with the
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date.  Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
in the form reasonably acceptable to such Buyer.
 
(k)           The Company shall have delivered to such Buyer a letter from the
Transfer Agent certifying the number of shares of Common Stock outstanding on
the Closing Date immediately prior to the Closing.
 
(l)           The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the Common
Shares, the Warrants and the Warrant Shares.
 
(m)           The Registration Statement shall be effective and available for
the issuance and sale of the Common Shares hereunder and the Company shall have
delivered to such Buyer the Prospectus and the Prospectus Supplement as required
thereunder.
 
(n)           There shall have been no Material Adverse Effect with respect to
the Company since the date hereof.
 
(o)           The Company shall have delivered to such Buyer a copy of the
Warrant Agreement, duly executed by the Company and the Warrant Agent in the
form attached hereto as Exhibit F.
 
(p)           The Company shall have delivered to such Buyer a copy of the
voting agreements in the form of Exhibit E hereof (collectively the “Voting
Agreements”), by and between the Company and each of Persons listed on Schedule
7(p) attached hereto
 
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(q)           The Company shall have delivered to such Buyer such other
documents, instruments or certificates relating to the transactions contemplated
by this Agreement as such Buyer or its counsel may reasonably request.
 
8.
TERMINATION.

 
In the event that the Closing shall not have occurred with respect to a Buyer
within five (5) days of the date hereof, then such Buyer shall have the right to
terminate its obligations under this Agreement with respect to itself at any
time on or after the close of business on such date without liability of such
Buyer to any other party; provided, however, (i) the right to terminate this
Agreement under this Section 8 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer’s breach of this Agreement
and (ii) the abandonment of the sale and purchase of the Common Shares and the
Warrants shall be applicable only to such Buyer providing such written notice,
provided further that no such termination shall affect any obligation of the
Company under this Agreement to reimburse such Buyer for the expenses described
in Section 4(g) above. Nothing contained in this Section 8 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.

9.
MISCELLANEOUS.

 
(a)           Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
(b)           Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof.
 
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(c)           Headings; Gender. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,”
“includes,” “include” and words of like import shall be construed broadly as if
followed by the words “without limitation.”  The terms “herein,” “hereunder,”
“hereof” and words of like import refer to this entire Agreement instead of just
the provision in which they are found.
 
(d)           Severability. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
 
(e)           Entire Agreement; Amendments. This Agreement, the other
Transaction Documents and the schedules and exhibits attached hereto and thereto
and the instruments referenced herein and therein supersede all other prior oral
or written agreements between the Buyers, the Company, their affiliates and
Persons acting on their behalf solely with respect to the matters contained
herein and therein, and this Agreement, the other Transaction Documents, the
schedules and exhibits attached hereto and thereto and the instruments
referenced herein and therein contain the entire understanding of the parties
solely with respect to the matters covered herein and therein; provided,
however, nothing contained in this Agreement or any other Transaction Document
shall (or shall be deemed to) (i) have any effect on any agreements any Buyer
has entered into with the Company or any of its Subsidiaries prior to the date
hereof with respect to any prior investment made by such Buyer in the Company or
(ii) waive, alter, modify or amend in any respect any obligations of the Company
or any of its Subsidiaries, or any rights of or benefits to any Buyer or any
other Person, in any agreement entered into prior to the date hereof between or
among the Company and/or any of its Subsidiaries and any Buyer and all such
agreements shall continue in full force and effect. Except as specifically set
forth herein or therein, neither the Company nor any Buyer makes any
representation, warranty, covenant or undertaking with respect to such matters.
For clarification purposes, the Recitals are part of this Agreement. No
provision of this Agreement may be amended or waived other than by an instrument
in writing signed by, or voted by, the Company and holders of Warrants
exercisable into 2/3rds of the Warrant Shares issuable upon exercise of the
Warrants then outstanding (without regard for any limitations on exercise set
forth therein and excluding any Warrants held by the Company or any of its
Subsidiaries). The Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction
Documents. Without limiting the foregoing, the Company confirms that, except as
set forth in this Agreement, no Buyer has made any commitment or promise or has
any other obligation to provide any financing to the Company, any Subsidiary or
otherwise.  As a material inducement for each Buyer to enter into this
Agreement, the Company expressly acknowledges and agrees that (i) no due
diligence investigation conducted by a Buyer or its advisors, if any, or its
representatives shall affect such Buyer’s right to rely on, or modify, qualify
or be an exception to any of, the Company’s representations and warranties
contained in this Agreement or any other Transaction Document, (ii) nothing
contained in the Registration Statement, the Prospectus or the Prospectus
Supplement shall affect such Buyer’s right to rely on, or modify, qualify or be
an exception to any of, the Company’s representations and warranties contained
in this Agreement or any other Transaction Document and (iii) unless a provision
of this Agreement or any other Transaction Document is expressly preceded by the
phrase “except as disclosed in the SEC Documents,” nothing contained in any of
the SEC Documents shall affect such Buyer’s right to rely on, or modify, qualify
or be an exception to any of, the Company’s representations and warranties
contained in this Agreement or any other Transaction Document.
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(f)           Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with an overnight courier service with next day delivery specified, in each
case, properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
 
If to the Company:
 
Tri-Valley Corporation
4550 California Avenue, Suite 600
Bakersfield, California 93309
Telephone:  661-864-0500
Facsimile:  661-864-0600
Attention:  John Durbin

With a copy (for informational purposes only) to:
 
Strasburger & Price, LLP
 
600 Congress Avenue, Suite 1600
 
Austin, Texas 78701
 
Telephone:  512-499-3600
 
Facsimile:  512-499-3660
 
Attention:  Lee Polson
 
If to the Transfer Agent:
 
Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Telephone:  908-497-2300
Facsimile:  908-497-2310
Attention:  Gleidy Pinho

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If to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers,
 
with a copy (for informational purposes only) to:
 
Greenberg Traurig, LLP
 
MetLife Building
 
200 Park Avenue
 
New York, NY 10166
 
Telephone:  (212) 801-9200
 
Facsimile:  (212) 805-9222
 
Attention:  Michael A. Adelstein, Esq.
 
or to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change,
provided that Greenberg Traurig, LLP shall only be provided copies of notices
sent to Capital Ventures. Written confirmation of receipt (A) given by the
recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender’s facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
 
(g)           Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including, as contemplated below, any assignee of any of the Securities. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of holders of Warrants exercisable into 2/3rds
of the Warrant Shares issuable upon exercise of the Warrants then outstanding
(without regard for any limitations on exercise set forth therein and excluding
any Warrants held by the Company or any of its Subsidiaries), including, without
limitation, by way of a Fundamental Transaction (as defined in the Warrants)
(unless the Company is in compliance with the applicable provisions governing
Fundamental Transactions set forth in the Warrants). A Buyer may assign some or
all of its rights hereunder in connection with any transfer of any of its
Securities without the consent of the Company, in which event such assignee
shall be deemed to be a Buyer hereunder with respect to such assigned rights.
 
(h)           No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than the Indemnitees referred to in Section 9(k).
 
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(i)           Survival. The representations, warranties, agreements and
covenants shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
 
(j)           Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 
(k)           Indemnification.
 
(i)           In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to
all of the Company’s other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
holder of any Securities and all of their stockholders, partners, members,
officers, directors, employees and direct or indirect investors and any of the
foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in any of the Transaction
Documents, (b) any breach of any covenant, agreement or obligation of the
Company contained in any of the Transaction Documents or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of any of the Transaction Documents, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure properly made by such Buyer pursuant to Section 4(i), or (iv) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
 
(ii)           Promptly after receipt by an Indemnitee under this Section 9(k)
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving an Indemnified Liability, such
Indemnitee shall, if a claim in respect thereof is to be made against the
Company under this Section 9(k), deliver to the Company a written notice of the
commencement thereof, and the Company shall have the right to participate in,
and, to the extent the Company so desires, to assume control of the defense
thereof with counsel mutually satisfactory to the Company and the Indemnitee;
provided, however, that an Indemnitee shall have the right to retain its own
counsel with
 
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 the fees and expenses of such counsel to be paid by the Company if: (i) the
Company has agreed in writing to pay such fees and expenses; (ii) the Company
shall have failed promptly to assume the defense of such Indemnified Liability
and to employ counsel reasonably satisfactory to such Indemnitee in any such
Indemnified Liability; or (iii) the named parties to any such Indemnified
Liability (including any impleaded parties) include both such Indemnitee and the
Company, and such Indemnitee shall have been advised by counsel that a conflict
of interest is likely to exist if the same counsel were to represent such
Indemnitee and the Company (in which case, if such Indemnitee notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, then the Company shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Company), provided
further, that in the case of clause (iii) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for such Indemnitee. The Indemnitee shall reasonably cooperate
with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company
all information reasonably available to the Indemnitee which relates to such
action or Indemnified Liability. The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable
for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the Company shall not unreasonably
withhold, delay or condition its consent. The Company shall not, without the
prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liability or litigation, and such settlement shall not include any admission as
to fault on the part of the Indemnitee. Following indemnification as provided
for hereunder, the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the Company within a reasonable time of the commencement of any such action
shall not relieve the Company of any liability to the Indemnitee under this
Section 9(k), except to the extent that the Company is materially and adversely
prejudiced in its ability to defend such action.
 
(iii)           The indemnification required by this Section 9(k) shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified
Liabilities are incurred.
 
(iv)           The indemnity agreement contained herein shall be in addition to
(A) any cause of action or similar right of the Indemnitee against the Company
or others, and (B) any liabilities the Company may be subject to pursuant to the
law.
 
(l)           No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
 
(m)           Remedies.  Each Buyer and each holder of any Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek specific performance
and/or temporary, preliminary and permanent injunctive or other equitable relief
from any court of competent jurisdiction in any such case without the necessity
of proving actual damages and without posting a bond or other security.
 
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(n)           Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Buyer may rescind or
withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
 
(o)           Payment Set Aside; Currency. To the extent that the Company makes
a payment or payments to any Buyer hereunder or pursuant to any of the other
Transaction Documents or any of the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“U.S. Dollars”), and all
amounts owing under this Agreement and all other Transaction Documents shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.
 
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(p)           Independent Nature of Buyers’ Obligations and Rights.  The
obligations of each Buyer under the Transaction Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document.  Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of group or entity, or create a presumption that the Buyers are in
any way acting in concert or as a group or entity with respect to such
obligations or the transactions contemplated by the Transaction Documents or any
matters, and the Company acknowledges that the Buyers are not acting in concert
or as a group, and the Company shall not assert any such claim, with respect to
such obligations or the transactions contemplated by the Transaction Documents.
The decision of each Buyer to purchase Securities pursuant to the Transaction
Documents has been made by such Buyer independently of any other Buyer. Each
Buyer acknowledges that no other Buyer has acted as agent for such Buyer in
connection with such Buyer making its investment hereunder and that no other
Buyer will be acting as agent of such Buyer in connection with monitoring such
Buyer’s investment in the Securities or enforcing its rights under the
Transaction Documents. The Company and each Buyer confirms that each Buyer has
independently participated with the Company in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Buyer shall be entitled to independently protect and enforce its rights,
including, without limitation, the rights arising out of this Agreement or out
of any other Transaction Documents, and it shall not be necessary for any other
Buyer to be joined as an additional party in any proceeding for such
purpose.  The use of a single agreement to effectuate the purchase and sale of
the Securities contemplated hereby was solely in the control of the Company, not
the action or decision of any Buyer, and was done solely for the convenience of
the Company and not because it was required or requested to do so by any
Buyer.  It is expressly understood and agreed that each provision contained in
this Agreement and in each other Transaction Document is between the Company and
a Buyer, solely, and not between the Company and the Buyers collectively and not
between and among the Buyers.
 
[signature pages follow]
 

45 
 

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

COMPANY:
 
TRI-VALLEY CORPORATION
By:
Name:
Title:
 

 
 

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

 

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

 

 
BUYER:
 
 
CAPITAL VENTURES INTERNATIONAL
 
 
 
By:
Name:
Title:
   

 

 
 

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

 

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

 
BUYER:
 
 
HUDSON BAY FUND, LP
 
 
 
By:
Name:
Title:
   

 
 

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

 

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

 
BUYER:
 
 
HUDSON BAY OVERSEAS FUND, LTD.
 
 
 
By:
Name:
Title:
   

 

 
 

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

 

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

 
BUYER:
 
 
RAMIUS NAVIGATION MASTER FUND LTD
 
 
 
By:
Name:
Title:
   

 

 
 

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

 

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

 
BUYER:
 
 
RAMIUS ENTERPRISE MASTER FUND LTD
 
 
 
By:
Name:
Title:
   

 

 
 

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

 

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

 
BUYER:
 
 
EMPERY ASSET MASTER LTD.
 
 
 
By:
Name:
Title:
   

 

 
 

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

 

SCHEDULE OF BUYERS
 

  (1 )     (2 )     (3 )     (4 )     (5 )     (6 )     (7 )     (8 )     (9 )  
                                                                   
Buyer
   
Address and Facsimile Number
   
Aggregate
Number of Common Shares
   
Aggregate
Number of Series A
Warrant Shares
   
Aggregate
Number of
Series B
Warrant Shares
   
Aggregate
Number of
Series C
Warrant Shares
   
Aggregate
Number of
Series D
Warrant Shares
   
Purchase Price
   
Legal Representative’s
Address and Facsimile Number
                                                                       
Capital Ventures International
   
c/o Heights Capital Management
101 California Street, Suite 3250
San Francisco, CA 94111
Attention: Martin Kobinger,
Investment Manager
Facsimile: 415-403-6525
Telephone: 415-403-6500
Residence: Cayman Islands
      961,539       288,462       288,462       600,961       600,961     $
1,250,000    
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue
New York, NY 10166
Telephone: (212) 801-9200
Facsimile: (212) 805-9222
Attention: Michael A. Adelstein, Esq.
 
Hudson Bay Fund, LP
   
120 Broadway, 40th Floor
New York, New York 10271
Attention: Yoav Roth
Facsimile: (646) 214-7946
Telephone: (212) 571-1244
E-mail: investments@hudsonbaycapital.com
      394,231       118,269       118,269       246,394       246,394     $
512,500       N/A  
Hudson Bay Overseas Fund, Ltd.
   
c/o Walkers SPV Limited
Walker House
P.O. Box 908GT
Mary Street
George Town, Grand Cayman
Cayman Islands
 
with a copy to:
 
120 Broadway, 40th Floor
New York, New York 10271
Attention: Yoav Roth
Facsimile:  (646) 214-7946
Telephone: (212) 571-1244
E-mail: investments@hudsonbaycapital.com
      567,308       170,193       170,193       354,567       354,567     $
737,500       N/A  
Ramius Navigation Master Fund Ltd
   
c/o Ramius LLC
599 Lexington Avenue
20th Floor
New York, NY 10022
Attention: Jeffrey Smith
 Owen Littman
Facsimile: (212) 845-7986
Telephone: (212) 845-7955
 (212) 201-4841
      480,770       144,231       144,231       300,481       300,481     $
625,000       N/A  
Ramius Enterprise Master Fund Ltd
   
c/o Ramius LLC
599 Lexington Avenue
20th Floor
New York, NY 10022
Attention: Jeffrey Smith
 Owen Littman
Facsimile: (212) 845-7986
Telephone: (212) 845-7955
 (212) 201-4841
      480,770       144,231       144,231       300,481       300,481     $
625,000       N/A  
Empery Asset Master Ltd.
   
c/o Empery Asset Management LP
120 Broadway, Suite 1019
New York, NY 10271
Attention: Ryan M. Lane
Facsimile: 212-608-3307
Telephone: 212-608-3300
      961,540       288,462       288,462       600,962       600,962     $
1,250,000    
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Attn: Eleazer Klein, Esq.
Fax: (212) 593-5955
Tel: (212)756-2376
Email: Eleazer.Klein@srz.com
 

 

 
 

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SECURITIES PURCHASE AGREEMENT
DISCLOSURE SCHEDULES

Schedule 3(a)

The Company has the following subsidiaries:

Tri-Valley Oil and Gas Company
Select Resources Corporation
Great Valley Production Services, LLC
Great Valley Drilling Company, LLC
Tri-Valley Power Corporation
Pleasant Valley Energy Corporation

Schedule 3(k)

Since March 1, 2008, the following events were not timely reported to the SEC on
Form 8-K:

1.
The Company’s Form 10-Q dated March 31, 2008, reported the issuance of 721,946
shares of common stock in the first quarter of 2008, which had not been
previously reported on Form 8-K.  The Company had 25,991,189 shares of common
stock outstanding on March 31, 2008.

2.
The Company’s Form 10-Q dated June 30, 2008, reported the issuance of 527,155
shares of common stock during the second quarter of 2008, which had not been
previously reported on Form 8-K.  The Company had 26,941,764 shares of common
stock outstanding on June 30, 2008.

3.
The Company’s Form 10-Q dated September 30, 2008, reported the issuance of
426,603 shares of common stock during the third quarter of 2008, which had not
been previously reported on Form 8-K.  The Company had 27,368,367 shares
outstanding on September 30, 2008.

Schedule 3(n)

1.
On September 23, 2009, NYSE Amex LLC notified the Company by letter that the
Company was not currently in compliance with the requirement for continued
listing on the exchange that companies listed on NYSE Amex are required by
Section 1003(a)(iii) of the Company Guide to maintain a minimum of $6 million in
stockholders’ equity,  if the company has sustained losses from continuing
operations and/or net losses in its five most recent fiscal years.

2.
On December 3, 2009, the NYSE Amex LLC  notified the Company by letter that the
company had resolved the continued listing deficiency referenced in the
Company’s Form 8-K dated September 23, 2009.

Disclosure Schedules Page 1
 

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Schedule 3(q)

The Company’s board of directors has approved the entry of a consulting
agreement with Pinnacle Capital Management, LLC , to provide financial
consulting services to the Company.  Pinnacle is owned by James S. Mayer, a
director of Tri-Valley.  The agreement has not been executed as of the date of
this Stock Purchase Agreement.

The Company has a related party payable of $850,000 to Mr. G. Thomas Gamble,
Director and Chairman of the Board of Directors, and our largest
shareholder.  This payable resulted from Mr. Gamble’s ordinary, intended
purchase of the Company’s common stock.  When it was determined that the
intended purchase of shares did not satisfy NYSE Amex, LLC, exchange
requirements, the Company did not provide timely notice to Mr. Gamble.  Upon
such notification, the Company offered Mr. Gamble a refund of his investment
funds.  The Company remains in negotiation with Mr. Gamble on this transaction.

Schedule 3(r)

(ii)
Outstanding Options  and Warrants.

1.
The Company has agreed to issue warrants to purchase 700,000 shares of common
stock at a purchase price of $1.85 per share to F. Lynn Blystone as part of an
executive retirement agreement.

2.
The company has outstanding options to issue a total of 1,880,000 shares of
common stock at exercise prices between $10.00 and $1.10 per share.

(iii)
Outstanding Debt

The following is a schedule of notes payable at December 31, 2009 and 2008:

   
2009
   
2008
 
Note payable to Rabobank dated October 5, 2005. The note is secured by a vehicle
at an interest rate of 6.5%, payable in 60 monthly installments of $599.
  $ 5,813     $ 12,380  
Note payable to Jim Burke Ford dated November 18, 2005; secured by a vehicle;
interest at 6.49%; payable in 60 monthly installments of $714.
    7,602       15,387  
Note payable to Sealaska Corporation dated July 15, 2005; secured by mining
machines and equipment; imputed interest at 7.5%; payable in 10 yearly
installments of $200,000. Face amount was $2,000,000 before the imputed interest
discount of $627,184 which resulted in a principal amount of $1,372,816.
    944,551       1,029,405  
Note payable to Three Way Chevrolet dated April 03, 2006; secured by a vehicle;
interest at 5.90%; payable in 60 monthly installments of $577.
    8,865       15,073  
Note payable to Three Way Chevrolet dated February 24, 2006; secured by a
vehicle; interest at 9.86%; payable in 60 monthly installments of $1,324.
    -       31,937  
Note payable to Moss Family Trust dated February 14, 2006; secured by 200,000
shares of Tri Valley corporation unregistered restricted common stock, interest
at 12.00%; payable in 60 monthly installments of $13,747.
    190,604       323,876  
Note payable to Moss Family Trust dated March 8, 2006; secured by 80,000 shares
of Tri Valley corporation unregistered restricted common stock; interest at
12.00%; payable in 60 monthly installments of $5,728
    79,418       134,948  
Note payable to Three Way Chevrolet dated January 22, 2007; secured by a
vehicle; interest at 6.90%; payable in 60 monthly installments of $622.
    14,450       20,685  
Note payable to Gary D, Borgna and Julie R. Borgna, and Equipment 2000 dated
December 30, 2006; secured by Rig Equipment; imputed interest at 8.00%; payable
in 120 monthly installments of $9,100 and a payment of $300,000 paid January 3,
2007. Face amount was $1,392,000 before the discount of $342,000 which resulted
in a principal amount of $1,050,000.
    583,829       643,690  
 Total Debt at December 31, 2009
    1,835,132       2,227,381  
 Less Current Portion
    439,483       389,648  
 Long-Term Portion of Notes Payable
  $ 1,395,649     $ 1,837,733  

(iv)
As indicated in subsection (iii) above, all of the Company’s outstanding
promissory notes are secured by financing statements, deeds of trust or similar
instruments.

Disclosure Schedules Page 2
 

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Schedule 3(s)

(i)
The schedule of notes payable at December 31, 2009, contained in Schedule
3(r)(iii) above, is incorporated herein by reference.

 
(ii)

1.
The Company, either directly or through its wholly owned subsidiaries, is a
party to various oil and gas leases which cover the company’s oil and gas
reserves.  A material violation or default on its leases on which it has proven
or probable reserves could have a Material Adverse Effect.  The Company’s leases
on which it has oil and gas reserves are described in the Company’s reserve
report of Leland B. Cecil, P.E., dated January 27, 2010, and of AJM Petroleum
Consultants dated March 8, 2010, which have been filed as Exhibits 99.1 and 99.2
to the Company’s Form 10-K for the year ended December 31, 2009, filed with the
SEC on March 29, 2010, which Exhibits are incorporated herein by reference.

2.
The Company’s subsidiary, Select Resources Corporation, is party to mining
claims and the Admiral calcium carbonate quarry in Alaska.  A material violation
or default on its claims or default in its obligations with respect to the
calcium carbonate mine, including the obligation to make annual payments on the
note payable to Sealaska Corporation dated July 15, 2005 and secured by the
mine, which is described in Schedule 3(s), would have a Material Adverse Effect.

 
The Company’s mining claims and calcium quarry are described in Item 2 of its
Form 10-K for the year ended December 31, 2009, filed with the SEC on March 29,
2010, which is incorporated herein by reference.

Schedule 3(bb)

Item 9A of the Company’s 10-K for the year ended December 31, 2009, filed with
the SEC on March __, 2010, which is incorporated herein by reference, describes
the Company’s determinations that it has not maintained effective internal
control over financial reporting or effective disclosure controls and procedures
as of December 31, 2010, and the correspondence received by the Company from its
independent auditors regarding potential material weaknesses and significant
deficiencies in internal control over financial reporting.

Disclosure Schedules Page 3
 

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Schedule 3(mm)

The notes payable schedule contained in Schedule 3(r)(iii), which is
incorporated herein by reference, lists outstanding liens and encumbrances
against the personal property of the Company.

Schedule 3(nn)

 
(ii ) – (iv), (xvii)  Good and Defensible Title; Litigation.  The Company is
involved in two legal actions to quiet title to its oil and gas leases as
disclosed in Item 3 of its Form 10-K for the year ended December 31, 2009, filed
with the SEC on March 29, 2010, which is incorporated herein by reference.

(viii)
Capital Expenditures.  The Company expects to use the proceeds of this Agreement
to, among other things, fund development of a SAGD injector well at its Pleasant
Valley properties at a cost of approximately $2.5 million and to begin
production operations at its Claflin project at a cost of approximately $1.0
million.

(x)
Charges for Labor and Materials.  The Company has trade payables of
approximately $6 million as of December 31, 2010, consisting mainly of charges
due for labor and materials related to the exploration, development or operation
of the Interests.

(xvi)
Asset Retirement Obligations.  The Company expects to incur asset retirement
obligations in connection with its well operations in 2009 and in subsequent
years in the normal course, as is the case the other oil and gas exploration and
development companies and as is consistent with past practices disclosed Note 2
– Summary of Significant Accounting Policies – Asset Retirement Obligations  to
its Consolidated Financial Statements contained in its Form 10-K for the year
ended December 31, 2009, which was filed with the SEC on March 29, 2010, and is
incorporated herein by reference.

Schedule 4(d)

The use of proceeds of from the sale of the Securities include using
approximately $1 million to reduce outstanding trade payables.

Disclosure Schedules Page 4
 

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Schedule 7(p)

The following table sets forth the common stock ownership of officers and
directors who have agreed to execute voting agreements.

   
Number of
 
Percent of
Directors and Executive Officers
 
Shares (1)
 
Total (2)
         
Maston N. Cunningham
 
200,000
 
0.6%
         
John E. Durbin
 
100,000
 
0.3%
         
G. Thomas Gamble
 
3,005,650
 
9.0%
         
Paul W. Bateman
 
105,000
 
0.3%
         
Edward M. Gabriel
 
104,000
 
0.3%
         
Joseph R. Kandle
 
360,946
 
1.1%
         
James G. Bush
 
120,500
 
0.4%
         
Henry Lowenstein, Ph.D.
 
107,200
 
0.3%
         
Loren J. Miller
 
249,236
 
0.8%
         
James S. Mayer
 
102,000
 
0.3%
         
James C. Kromer
 
100,000
 
0.3%
         
All officers and directors as a group (12 persons)
 
4,554,532
 
13.2%

(1)  
Includes shares which the listed shareholder has the right to acquire from
options as follows:  G. Thomas Gamble 80,000; Joseph R. Kandle 285,000; Dr.
Henry Lowenstein 100,000; Paul W. Bateman 100,000; Edward M. Gabriel 100,000;
James S. Mayer 100,000; James G. Bush 120,500; Maston N. Cunningham 200,000;
James C. Kromer 100,000; and John E. Durbin 100,000.

 
(2)  
Based on total issued and outstanding shares of 33,256,230 as of March 22, 2010
and calculated pursuant to SEC Rule 13d-3.  The persons named herein have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where applicable.

 

Disclosure Schedules Page 5
 
 

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