Exhibit 10.1

ECO2 PLASTICS, INC.
 
CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT
 
December 17, 2008
 
This Convertible Note and Warrant Purchase Agreement (this “Agreement”) is made
as of December 17, 2008 by and among ECO2 PLASTICS, INC., a Delaware corporation
(the “Company”), PENINSULA PACKAGING, LLC, a California limited liability
company (“Peninsula”), TRIDENT CAPITAL FUND-VI, L.P. (“Trident Capital I”),
TRIDENT CAPITAL FUND-VI PRINCIPALS FUND, L.L.C. (“Trident Capital II” and,
collectively with Trident Capital I, the “Trident Lenders”), HUTTON LIVING TRUST
DATED 12/10/1996 (“Hutton Trust”) and the other parties set forth on Schedule I
(each, an “Additional Lender” and collectively, the “Additional Lenders”).  Each
of Trident Capital I, Trident Capital II, the Hutton Trust and Peninsula, and
each Additional Lender, is sometimes referred to herein as a “Purchaser” and
collectively as the “Purchasers.”
 
WHEREAS on November 21, 2008, J. Charles Buff loaned Six Hundred Thousand
Dollars ($600,000) to the Company pursuant to a certain promissory note dated as
of the date thereof (the “Buff Note”); and
 
WHEREAS, on November 17 and November 21, 2008, the Trident Lenders loaned an
aggregate of Five Hundred Fifty Thousand Dollars ($550,000) to the Company
pursuant to certain promissory notes dated as of November 17 or November 21,
2008 (collectively, the “Trident Notes”); and
 
WHEREAS, on November 17, 2008, the Hutton Trust loaned Fifty Thousand Dollars
($50,000) to the Company pursuant to a certain promissory note dated as of such
date (the “Hutton Note” and, collectively with the Trident Notes and the Buff
Note, the “Nov08 Notes”); and
 
WHEREAS, on the date hereof, Buff assigned all of his right, title and interest
in, under and to the Buff Note and certain documents related thereto to
Peninsula; and
 
WHEREAS, Peninsula, on the one hand, and the Trident Lenders and Additional
Lenders, on the other hand, each desire to lend at least an additional Nine
Hundred Thousand Dollars ($900,000) to the Company, totaling at least One
Million Eight Hundred Thousand Dollars ($1,800,000) in the aggregate; and
 
WHEREAS, in connection with such additional loans, the Company and Peninsula
desire to amend and restate the Buff Note in order to evidence the entire
approximately One Million Five Hundred Thousand Dollar ($1,500,000) loan which
shall be owed to Peninsula; and

 
 

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WHEREAS, in connection with such additional loans, the Company and the Trident
Lenders desire to amend and restate the Trident Notes in order to evidence the
new amounts which shall be owed to the Trident Lenders; and
 
WHEREAS, in connection with such additional loans, the Hutton Trust has agreed
to amend and restate the Hutton Note in order to conform such note to the terms
of the new Peninsula and Trident Notes; and
 
WHEREAS, in connection with such additional loans, the Company desires to issue
certain promissory notes to the Additional Lenders; and
 
WHEREAS, the Company desires to issue certain warrants to the Purchasers.
 
AGREEMENT
 
In consideration of the mutual covenants contained in this Agreement, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and each Purchaser (severally and not jointly),
intending to be legally bound, hereby agree as follows:
 
1.           The Loans; Closing; Delivery.
 
(a)           The Notes.  Subject to the terms and conditions hereof, each
Purchaser shall loan to the Company the amount set forth opposite such
Purchaser’s name under the column heading, “Delivery Amount” on Schedule I
attached hereto.  Each Purchaser shall surrender its respective Nov08 Note(s) to
the Company, if any, and shall receive from the Company a promissory note in the
form relating to such Purchaser attached hereto as Exhibit A (a “Note” and,
collectively with all other promissory notes issued to the Purchasers hereunder,
the “Notes”), in the amount set forth opposite such Purchaser’s name under the
column heading “Aggregate Loan Amount” on Schedule I attached hereto.  The loans
evidenced by the Notes shall be referred to herein as the “Loans.”
 
(b)           The Warrants.  Subject to the terms and conditions hereof, the
Company agrees to issue to each Purchaser a warrant, in the form relating to
such Purchaser attached hereto as Exhibit B (collectively, the “Warrants”), to
purchase, at an exercise price of $0.015 per share, that number of shares of
common stock of the Company, par value $0.001 per share (the “Common Stock”),
equal to 33.3333333 multiplied by the principal amount of such Purchaser’s Loan,
as more specifically set forth opposite each Purchaser’s name under the column
heading, “Warrant Shares” on Schedule I attached hereto.
 
(c)           Place and Date of Closing.  The closing of the transactions
provided for herein shall take place at the offices of Stradley Ronon Stevens &
Young, LLP, 200 Lake Drive East, Suite 100, Cherry Hill, NJ 08002, at not later
than 5:00 p.m. (EST) on December 17, 2008 (the “Initial Closing”), or at such
date as the Purchasers and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the “Initial Closing
Date.”  References herein to the “Closing Date” shall mean the Initial Closing
Date or the date of any Additional Closing (as defined below), as applicable.

 
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(d)           Delivery.  At each Closing, the Notes and Warrants in definitive
form evidencing the Loans and Warrants that the Purchasers have agreed to
purchase pursuant to this Agreement shall be delivered by or on behalf of the
Company, against delivery by or on behalf of each of the Purchasers of (i) the
amount set forth opposite such Purchaser’s name under the column heading,
“Delivery Amount” on Schedule I by check or wire transfer of immediately
available funds to the account of the Company previously designated by it in
writing, and (ii) the original Nov08 Notes issued to such Purchaser, if any.
 
(e)           Subsequent Closings.  The Purchasers understand and agree that at
any time and from time to time during the period following the Initial Closing
Date but not later than January 9, 2009, the Company may, at one or more
additional closings (each, an “Additional Closing”), without obtaining the
signature, consent or permission of any of the Purchasers, offer and sell any
authorized but unsold Notes and Warrants to such persons as shall be acceptable
to the Board of Directors of the Company on the terms and conditions set forth
herein.  The term “Closing” as used herein shall refer to the “Initial Closing”
and/or each “Additional Closing,” as appropriate.  Notwithstanding the
foregoing, in no event shall the Company offer and sell any Notes such that the
principal amount of all such Notes shall exceed $4,900,000 in the aggregate.
 
(f)           No Usury.  This Agreement and each Note issued pursuant to the
terms of this Agreement are hereby expressly limited so that in no event
whatsoever, whether by reason of deferment or advancement of loan proceeds,
acceleration of maturity of the loan evidenced hereby, or otherwise, shall the
amount paid or agreed to be paid to the Purchasers hereunder for the loan, use,
forbearance or detention of money exceed the maximum interest rate permitted by
the laws of the State of California.  If at any time the performance of any
provision hereof or any Note involves a payment exceeding the limit of the price
that may be validly charged for the loan, use, forbearance or detention of money
under applicable law, then automatically and retroactively, ipso facto, the
obligation to be performed shall be reduced to such limit, it being the specific
intent of the Company and the Purchasers hereof that all payments under this
Agreement or any Note are to be credited first to interest as permitted by law,
but not in excess of (i) the agreed rate of interest set forth in the Note, or
(ii) that permitted by law, whichever is the lesser, and the balance toward the
reduction of principal.  The provisions of this Section 1(f) shall never be
superseded or waived and shall control every other provision of this Agreement
and any Note.
 
(g)           Security Agreement.  The Company and the Purchasers agree to
execute the Amended and Restated Security Agreements, dated as of the date
hereof, in the forms attached hereto as Exhibit E-1 and Exhibit E-2 (the
“Security Agreements”), whereby the Purchasers will receive security interests
in the collateral of the Company described in the Security Agreements, pursuant
to the terms of the Security Agreements.  It is agreed that all of the Company’s
indebtedness, whether outstanding on the date hereof or subsequently incurred or
assumed, except all indebtedness secured by perfected security interests granted
by the Company in connection with the Senior Debt (as such term is defined in
the Security Agreements), shall be junior in right of payment to the
indebtedness and other obligations of the Company pursuant to the Notes.

 
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(h)           Subordination and Intercreditor Agreement.  The Company and the
Purchasers agree to execute the Amended and Restated Subordination and
Intercreditor Agreement, dated as of the date hereof, in the form attached
hereto as Exhibit F (the “Subordination Agreement”).
 
(i)           Securities and Disclosure.  The Notes and Warrants are referred to
herein as the “Securities.”  The Securities will be offered and sold to the
Purchasers without such offers and sales being registered under the Securities
Act of 1933, as amended (together with the rules and regulations of the
Securities and Exchange Commission (the “SEC”) promulgated thereunder, the
“Securities Act”), in reliance on exemptions therefrom.
 
In connection with the sale of the Securities, the Company has made available
(including electronically via the SEC's EDGAR system) to Purchasers its periodic
and current reports, forms, schedules, proxy statements and other documents
(including exhibits and all other information incorporated by reference) filed
with the SEC under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  These reports, forms, schedules, statements, documents,
filings and amendments, are collectively referred to as the “SEC
Documents.”  All references in this Agreement to financial statements and
schedules and other information which is “contained,” “included” or “stated” in
the SEC Documents (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules, documents, exhibits and
other information which is incorporated by reference in the SEC Documents.
 
This Agreement, the Notes, the Warrants, the Security Agreements and the
Subordination Agreement are sometimes herein collectively referred to as the
“Transaction Documents.”  The shares of Common Stock issuable upon exercise of
the Warrants are referred to herein as the “Warrant Conversion Shares.” The
Warrant Conversion Shares and the shares of Common Stock issuable upon
conversion of the Series C Convertible Preferred Stock are herein collectively
referred to as the “Conversion Shares.”
 
2.           Representations and Warranties of the Company.  Except as set forth
in the SEC Documents and on the Disclosure Schedule attached hereto and made a
part hereof (the “Disclosure Schedule”), the Company represents and warrants to
and agrees with Purchasers as follows:
 
(a)           Except as set forth in Section 2(a) of the Disclosure Schedule,
the Company has filed in a timely manner all documents that the Company was
required to file with the SEC under the Exchange Act since becoming subject to
the requirements of the Exchange Act.  The SEC Documents as of their respective
dates did not and will not as of the Closing Date (after giving effect to any
updated disclosures therein), contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  The SEC
Documents and the documents incorporated or deemed to be incorporated by
reference therein, at the time they were filed or hereafter are filed with the
SEC, complied and will comply, at the time of filing, in all material respects
with the requirements of the Securities Act and/or the Exchange Act, as the case
may be, as applicable.

 
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(b)           The Company has no subsidiaries.  The Company has been duly
incorporated and is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to own its properties and conduct its business as now conducted as
described in the SEC Documents and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), earnings, management, properties,
prospects or results of operations of the Company (any such event, a “Material
Adverse Effect”); the Company does not own directly or indirectly any of the
capital stock or other equity or long-term debt securities of or have any equity
interest in any other individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization or a government or
agency or political subdivision thereof (a “Person”); all of the outstanding
shares of capital stock of the Company have been duly authorized and validly
issued, are fully paid and non-assessable, have been issued in compliance with
all federal and state securities laws, and were not issued in violation of or
subject to any preemptive or other rights to subscribe for or purchase
securities, and are owned free and clear of all liens, encumbrances, equities,
and restrictions on transferability (other than those imposed by the Securities
Act and the state securities or “Blue Sky” laws); except as set forth in Section
2(b) of the Disclosure Schedule, no options, warrants or other rights to
purchase from the Company, agreements or other obligations of the Company to
issue or other rights to convert any obligation into, or exchange any securities
for, shares of capital stock of or ownership interests in the Company are
outstanding; and there is no agreement, understanding or arrangement between the
Company and any of its stockholders or any other Person relating to the
ownership or disposition of any capital stock of the Company or the election of
directors of the Company or the governance of the Company’s affairs, and, if
any, such agreements, understandings and arrangements will not be breached or
violated as a result of the execution and delivery of, or the consummation of
the transactions contemplated by, the Transaction Documents; there are no bonds,
debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) (“Voting Debt”) of the Company
issued and outstanding; except as set forth in Section 2(b) of the Disclosure
Schedule, there are no existing options, warrants, calls, subscriptions or other
rights, agreements, arrangements or commitments of any character, relating to
the issued or unissued capital stock of the Company, obligating the Company to
issue, transfer, sell, redeem, purchase, repurchase or otherwise acquire or
cause to be issued, transferred, sold, redeemed, purchased, repurchased or
otherwise acquired any capital stock or Voting Debt of, or other equity interest
in, the Company or securities or rights convertible into or exchangeable for
such shares or equity interests or obligations of the Company to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment; the issuance of the Notes, the Warrants or
the Conversion Shares will not give rise to any preemptive rights or rights of
first refusal on behalf of any Person or result in the triggering of any
anti-dilution or other similar right; except as set forth in Section 2(b) of the
Disclosure Schedule, there are no agreements or arrangements under which the
Company is obligated to register the sale of any of their securities under the
Securities Act; there are no securities, agreements, documents or instruments
containing anti-dilution provisions that will be triggered by the issuance of
the Notes, the Warrants and the Conversion Shares; the Company has made
available to Purchasers a true, correct and complete copy of its certificate of
incorporation and bylaws, each as amended and as in effect on the date hereof.

 
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(c)           The authorized capital stock of the Company (immediately prior to
the Closing Date) consists of 1,500,000,000 shares of Common Stock and
700,000,000 shares of preferred stock, par value $0.001 per share (the
“Preferred Stock”), and 152,843,414 shares of Preferred Stock have been
designated as the Series A Convertible Preferred Stock (the “Series A Preferred
Stock”), 336,240,039 shares of Preferred Stock have been designated as Series
B-1 Stock, and 10,916,547 shares of Preferred Stock have been designated as
Series B-2 Stock.  The issued and outstanding capital stock of the Company, as
of immediately prior to the Closing Date and as of the Closing Date, is as set
forth in Section 2(c) of the Disclosure Schedule attached hereto (other than for
subsequent issuances, if any, pursuant to employee benefit plans described in
the SEC Documents or upon exercise of outstanding options, warrants and other
convertible securities described in the SEC Documents).  Each share of Preferred
Stock is convertible into one share of Common Stock.  Except for preemptive
rights or rights of first refusal which have been waived or complied with, the
issuance of the Securities will not give rise to any preemptive rights, rights
of first refusal, or similar rights on behalf of any person.  There are no
securities, agreements, documents or instruments containing anti-dilution
provisions that will be triggered by the issuance of the Securities.  The
Company has obtained the approval and consent of a majority of the outstanding
shares of its Series B Convertible Preferred Stock, as well as any other
approvals required, in order to authorize and designate a newly created series
of the Company’s preferred stock designated as “Series C Convertible Preferred
Stock.”  Subject to Section 3(d) hereof, the Series C Convertible Preferred
Stock shall initially have the rights, preferences and privileges as are set
forth in the Form of Certificate of Designations attached hereto as Exhibit C
(the “Series C Certificate of Designations”).  Not later than January 9, 2009,
the authorized capital stock of the Company shall, pursuant to a duly authorized
and filed amendment to the Certificate of Incorporation of the Company, consist
of 2,500,000,000 shares of Common Stock and 1,700,000,000 shares of Preferred
Stock, and 152,843,414 shares of Preferred Stock shall have been designated as
the Series A Preferred Stock, 336,240,039 shares of Preferred Stock shall have
been designated as Series B-1 Stock, approximately 140,000,000 shares of
Preferred Stock shall have been designated as Series B-2 Stock and 700,000,000
shares of Preferred Stock shall have been designated as Series C Stock.
 
(d)           The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Transaction
Documents.  Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights generally and
to general principles of equity).

 
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(e)           The Warrant Conversion Shares have been duly authorized and
validly reserved for issuance, and when issued upon exercise of the Warrants in
accordance with the terms of the Warrant, will have been validly issued, fully
paid and non-assessable.  Not later than January 9, 2009, the shares of Series C
Convertible Preferred Stock (and the shares of Common Stock issuable upon
conversion thereof) issuable upon conversion of the Notes shall have been duly
authorized and validly reserved for issuance, and when issued upon conversion of
the Notes in accordance with the terms thereof, will have been validly issued,
fully paid and non-assessable.  The Common Stock of the Company conforms to the
description thereof contained in the SEC Documents.  No stockholder of the
Company or other Person has any preemptive, co-sale rights, rights of first
refusal or any other similar rights with respect to the Warrants, the Notes or
the Common Stock, except for rights which have been waived or fully complied
with.
 
(f)           No consent, approval, order or authorization of, license,
registration, qualification, exemption or filing with any court or governmental
agency or body or third party is required for the performance of the Transaction
Documents by the Company or for the consummation by the Company of the
transactions contemplated thereby, or the application of the proceeds of the
issuance of the Securities as described in this Agreement, except for such
consents, approvals, authorizations, licenses, qualifications, exemptions or
orders (i) as have been obtained on or prior to the Closing Date, or (ii) as are
not required to be obtained on or prior to the Closing Date that will be
obtained when required.
 
(g)           The Company is not (i) in violation of its certificate of
incorporation, certificates of designations or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment, decree, order,
rule or regulation applicable to it or any of its properties or assets, or
(iii) in default (nor has any event occurred which with notice or passage of
time, or both, would constitute a default) in the performance or observance of
any obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which it
is a party or to which it is subject.
 
(h)           The execution, delivery and performance by the Company of the
Transaction Documents and the consummation by the Company of the transactions
contemplated thereby and the fulfillment of the terms thereof will not
(a) violate, conflict with or constitute or result in a breach of or a default
under (or an event that, with notice or lapse of time, or both, would constitute
a breach of or a default under) any of (i) the terms or provisions of any
contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which the Company is a party or to which any of its properties or assets are
subject, (ii) its certificate of incorporation, certificates of designations or
bylaws (or similar organizational document) or (iii) any statute, judgment,
decree, order, rule or regulation of any court or governmental agency or other
body applicable to the Company or any of its properties or assets or (b) result
in the imposition of any lien upon or with respect to any of the properties or
assets now owned or hereafter acquired by the Company; with respect to (a)(i),
(a)(iii) and (b) only, which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.

 
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(i)           The audited financial statements included in the SEC Documents
present fairly the financial position, results of operations, cash flows and
changes in shareholders’ equity of the Company, at the dates and for the periods
to which they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis; the interim
un-audited financial statements included in the SEC Documents present fairly the
financial position, results of operations and cash flows of the Company, at the
dates and for the periods to which they relate subject to year-end audit
adjustments and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis with the audited financial
statements included therein; the selected financial and statistical data
included in the SEC Documents present fairly the information shown therein and
have been prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and each of the
auditors previously engaged by the Company or to be engaged in the future by the
Company is an independent certified public accountant as required by the
Securities Act.  Except as set forth in the SEC Documents, since the date of the
latest interim un-audited balance sheet of the Company included in the SEC
Documents, (i) there has been no material change in total liabilities of the
Company and (ii) there have been no liabilities incurred outside of the ordinary
course of business.  Except as set forth in the SEC Documents, immediately after
the Closing Date, the Company will not have any indebtedness, except the Loans
and indebtedness incurred in the ordinary course of business and consistent with
past practices.  The Company is not a guarantor or indemnitor of any
indebtedness of any third party.
 
(j)           There is not pending or, to the knowledge of the Company,
threatened, any action, suit, proceeding, inquiry or investigation, governmental
or otherwise, to which the Company is a party, or to which its properties or
assets are subject, before or brought by any court, arbitrator or governmental
agency or body, that, if determined adversely to the Company, would,
individually or in the aggregate, have a Material Adverse Effect or that seeks
to restrain, enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Securities to be sold hereunder or the application of
the proceeds therefrom or the other transactions described in the SEC Documents.
The Company is not a party to or subject to the provisions of any injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental agency or body.
 
(k)           Intellectual Property.
 
(i)             General.  Section 2(k)(i) of the Disclosure Schedule sets forth
with respect to the Company Intellectual Property Rights: (A) for each patent
and patent application, the patent number or application serial number for each
jurisdiction in which the patent or application has been filed, the date filed
or issued and the present status thereof; (B) for each registered trademark,
trade name or service mark, the application serial number or registration number
for each applicable country, province and/or state and the class of goods
covered; (C) for each URL or domain name, the registration date, any renewal
date and name of registry; and (D) for each registered copyrighted work, the
number and date of registration for each by country, province and/or state in
which a copyright application has been registered.  In addition, true and
correct copies of all applications filed and registrations (including all
pending applications and application related documents) related to the
Intellectual Property Rights listed on Section 2(k)(i) of the Disclosure
Schedule have been provided or made available to Purchasers.

 
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(ii)           Sufficiency.  The Intellectual Property Rights and Technology
owned or licensed by the Company constitute all Intellectual Property Rights and
Technology necessary for the conduct of the Company’s business as presently
conducted, including the design, manufacture, license and sale of all products
currently under development or in production.
 
(iii)           Royalties and Licenses.  Except pursuant to the licenses listed
in Section 2(k)(iii) of the Disclosure Schedule, the Company has no obligation
to compensate or account to any person for the use of any of the Intellectual
Property Rights or Technology used by the Company in the conduct of the
business.  Section 2(k)(iii) of the Disclosure Schedule sets forth all third
party components, whether hardware, firmware or software, that are incorporated
in or provided by the Company with its products, or that are otherwise necessary
for the manufacture of the Company’s products.   Section 2(k)(iii) of the
Disclosure Schedule lists all in-licenses of the Intellectual Property Rights
and Technology applicable to the Company’s products, other than standard,
off-the-shelf software commercially available on standard terms from third-party
vendors.
 
(iv)           Ownership.  The Company (A) owns all right, title and interest in
and to the Company Intellectual Property Rights and Company Technology,
including the Intellectual Property Rights and Technology listed in Section
2(k)(iv) of the Disclosure Schedule, free and clear of any liens, claims or
encumbrances and (B) has a valid and enforceable right or license to use all
other Intellectual Property Rights and Technology used in the conduct of the
business, and all such licensed Intellectual Property Rights and rights to use
Technology will not cease to be valid and enforceable rights of the Company by
reason of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.  Without limiting the
foregoing, the Company Intellectual Property Rights and Company Technology have
been: (1) developed by employees of the Company within the scope of their
employment and who have assigned their rights to the Company pursuant to
enforceable written agreements; (2) developed by independent contractors or
agents who have assigned their rights to the Company pursuant to enforceable
written agreements or (3) otherwise acquired by the Company from a third party
who has assigned all the Intellectual Property Rights and ownership of all
Technology it has developed on the Company’s behalf to the Company.
 
(v)           Absence of Claims; Non-infringement.  No claim or legal proceeding
has been instituted or is pending against the Company, or, to the knowledge of
the Company, is threatened, that challenges the right of the Company with
respect to the use or ownership of the Company Intellectual Property Rights or
Company Technology.  Without limiting the foregoing, no interference,
opposition, reissue, reexamination, legal proceeding or other proceeding is or
has been pending or, to the best of the Company’s knowledge, threatened, in
which the scope, validity or enforceability of any of the Company Intellectual
Property Rights is being, has been or could reasonably be expected to be
contested or challenged.  The Company’s past and present use of the Company
Intellectual Property Rights or Company Technology does not infringe upon,
misappropriate, breach or otherwise conflict with the rights of any other Person
anywhere in the world.  The Company has not received any notice alleging, and
otherwise has no knowledge of (A) the invalidity of, or any limitation on the
Company’s right to use, any of the Company Intellectual Property Rights or
Company Technology or of (B) the alleged infringement, misappropriation or
breach of any Intellectual Property Rights of others by the Company.  The
Company Intellectual Property Rights and Company Technology are not subject to
any judgment, decree, order, writ, award, injunction or determination of an
arbitrator, court or other governmental authority affecting the rights of the
Company with respect thereto.  To the knowledge of the Company, no person has
interfered with, infringed upon or misappropriated any of the Company
Intellectual Property Rights, or is currently doing so.

 
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(vi)           Licenses to Third Parties.  Section 2(k)(vi) of the Disclosure
Schedule lists all of the contracts pursuant to which any person has been
granted any license under, or otherwise has received or acquired any right
(whether or not currently exercisable) or interest in, any Company Intellectual
Property Rights or Company Technology.  The Company is not bound by, and no
Company Intellectual Property Rights are subject to, any contract containing any
covenant or other provision that in any way limits or restricts the ability of
the Company to use, exploit, assert or enforce any of its Intellectual Property
Rights anywhere in the world.  Without limiting the foregoing, the Company has
not granted any exclusive licenses to the Company Intellectual Property Rights
or Company Technology.
 
(vii)          Protection of Intellectual Property Rights.  All of the
registrations and pending applications to governmental or regulatory bodies with
respect to the Company Intellectual Property Rights have been timely and duly
filed, prosecution for such applications has been attended to, all maintenance
and related fees have been paid and the Company has taken all other actions
required to maintain their validity and effectiveness.  The Company has taken
all steps reasonably necessary or appropriate (including, entering into written
confidentiality and nondisclosure agreements with officers, directors,
subcontractors, employees, licensees and customers) to safeguard the Company
Intellectual Property Rights and maintain the secrecy and confidentiality of
trade secrets that are material to the Company.  Without limiting the foregoing,
(A) there has been no misappropriation of any trade secrets or other
confidential Intellectual Property Rights or Technology used in connection with
the business by any person; (B) no employee, independent contractor or agent of
the Company has misappropriated any trade secrets of any other person in the
course of performance as an employee, independent contractor or agent of the
business and (C) no employee, independent contractor or agent of the Company is
in default or breach of any term of any employment agreement, nondisclosure
agreement, assignment of invention agreement or similar agreement or contract
relating in any way to the protection, ownership, development, use or transfer
of the Company Intellectual Property Rights and Company Technology.
 
(viii)         Funding; Certification with Standards Bodies. Except as set forth
in Section 2(k)(viii) of the Disclosure Schedule, no funding, facilities or
personnel of any governmental entity or educational institution were used,
directly or indirectly, to develop or create, in whole or in part, any of the
Company Intellectual Property Rights or Company Technology.   The Company has
not made any submission or suggestion to, or otherwise participated in, and is
not subject to any agreement with, government, any standards bodies or other
entities that could obligate the Company to grant licenses to or otherwise
impair its control of Company Intellectual Property Rights.

 
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(ix)           “Intellectual Property Rights” means all (A) United States and
foreign patents and patent applications and disclosures relating thereto (and
any patents that issue as a result of those patent applications), and any
renewals, reissues, reexaminations, extensions, continuations,
continuations-in-part, divisions and substitutions relating to any of the
patents and patent applications; (B) United States and foreign trademarks,
service marks, trade dress, logos, 800 numbers, trade names and corporate names,
whether registered or unregistered, and the goodwill associated therewith,
together with any registrations and applications for registration thereof; (C)
United States and foreign copyrights and rights under copyrights, whether
registered or unregistered, including moral rights, and any registrations and
applications for registration thereof; (D) rights in databases and data
collections (including knowledge databases, customer lists and customer
databases) under the laws of the United States or any other jurisdiction,
whether registered or unregistered, and any applications for registration
therefor; (E) trade secrets and other rights in know-how and confidential or
proprietary information (including any business plans, designs, technical data,
customer data, financial information, pricing and cost information, bills of
material or other similar information); (F) URL and domain name registrations;
(G) inventions (whether or not patentable) and improvements thereto; (H) all
claims and causes of action arising out of or related to infringement or
misappropriation of any of the foregoing and (I) other proprietary or
intellectual property rights now known or hereafter recognized in any
jurisdiction.
 
(x)           “Technology” means tangible embodiments of the Intellectual
Property Rights, whether in electronic, written or other media, including
software, technical documentation, specifications, designs, bills of material,
build instructions, test reports, schematics, algorithms, application
programming interfaces, user interfaces, routines, formulae, databases, lab
notebooks, processes, prototypes, samples, studies or other know-how and other
works of authorship.
 
(l)           The Company possesses all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and other governmental
authorities (including, but not limited to, those that may be required by the
U.S. Food and Drug Administration (the “FDA”)), all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its properties and to carry
on its business as now or proposed to be conducted as set forth in the SEC
Documents (“Permits”), except where the failure to obtain such Permits would
not, individually or in the aggregate, have a Material Adverse Effect.   Each of
such Permits is in full force and effect, and the Company has not received any
notice of any proceeding relating to revocation or modification of any such
Permit, except where such revocation or modification would not, individually or
in the aggregate, be reasonably expected to have a Material Adverse Effect.
 
(m)           The Company holds and is operating in compliance with such
exceptions, permits, licenses, franchises, authorizations and clearances of the
FDA and/or any committee thereof required, for the conduct of its business as
currently conducted (collectively, the “FDA Permits”), and all such FDA Permits
are in full force and effect.  The Company has fulfilled and performed all of
its obligations with respect to the FDA Permits, and, no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other impairment of the rights of the
holder of any FDA Permit.

 
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(n)           The Company: (i) is and at all times has been in material
compliance with all statutes, rules, regulations, or guidance applicable to the
ownership, testing, development, manufacture, packaging, processing, use,
distribution, marketing, labeling, promotion, sale, offer for sale, storage,
import, export or disposal of any product under development, manufactured or
distributed by the Company (“Applicable Laws”); (ii) has not received any FDA
Form 483, notice of adverse finding, warning letter, untitled letter or other
correspondence or notice from the FDA or any other federal, state, local or
foreign governmental or regulatory authority alleging or asserting noncompliance
with any Applicable Laws or any licenses, certificates, approvals, clearances,
authorizations, permits and supplements or amendments thereto required by any
such Applicable Laws (“Authorizations”); (iii) has not received notice of any
claim, action, suit, proceeding, hearing, enforcement, investigation,
arbitration or other action from the FDA or any other federal, state, local or
foreign governmental or regulatory authority or third party alleging that any
product operation or activity is in violation of any Applicable Laws or
Authorizations and has no knowledge that the FDA or any other federal, state,
local or foreign governmental or regulatory authority or third party is
considering any such claim, litigation, arbitration, action, suit, investigation
or proceeding; (iv) has not received notice that the FDA or any other federal,
state, local or foreign governmental or regulatory authority has taken, is
taking or intends to take action to limit, suspend, modify or revoke any
Authorizations and has no knowledge that the FDA or any other federal, state,
local or foreign governmental or regulatory authority is considering such
action; (v) has filed, obtained, maintained or submitted all reports, documents,
forms, notices, applications, records, claims, submissions and supplements or
amendments as required by any Applicable Laws or Authorizations and that all
such reports, documents, forms, notices, applications, records, claims,
submissions and supplements or amendments were complete and correct on the date
filed (or were corrected or supplemented by a subsequent submission); and
(vi) has not, either voluntarily or involuntarily, initiated, conducted, or
issued or caused to be initiated, conducted or issued, any recall, market
withdrawal or replacement, safety alert, post sale warning, “dear doctor”
letter, or other notice or action relating to the alleged lack of safety or
efficacy of any product or any alleged product defect or violation and, to the
Company’s knowledge, no third party has initiated, conducted or intends to
initiate any such notice or action.

(o)           (i) The Company is not in material violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code, policy
or rule of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata), natural resources or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum, petroleum products or by-products, asbestos-containing
materials or mold (collectively, “Hazardous Materials”) or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of, or exposure to, Hazardous Materials (collectively, “Environmental
Laws”), including, without limitation, to the best of the Company’s knowledge,
the handling, transport, and disposal of the by-product generated by the
Company’s recycling operations, (ii) the Company has all permits, authorizations
and approvals required under any applicable Environmental Laws for the operation
of its business and facilities (“Environmental Permits”) and is in material
compliance with their requirements, (iii) no material expenditures will be
required to maintain compliance with applicable Environmental Laws or
Environmental Permits; (iv) there are no pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings relating to
any Environmental Law against the Company and (v) there are no events or
circumstances that would reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company relating
to Hazardous Materials or Environmental Laws, including, without limitation, the
Company’s leasing of facilities located at the Riverbank Army Ammunition Plant
Superfund site (EPA ID# CA7210020759).
 
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(p)           Subsequent to the respective dates as of which information is
given in the SEC Documents, (i) the Company has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business or (ii) the Company has not
purchased any of its outstanding capital stock, or declared, paid or otherwise
made any dividend or distribution of any kind on any of its capital stock or
otherwise, (iii) there has not been any material increase in the indebtedness of
the Company, (iv) there has not occurred any event or condition, individually or
in the aggregate, that has had a Material Adverse Effect, (v) the Company has
not sustained any material loss or interference with respect to its business or
properties from fire, flood, hurricane, earthquake, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding; (vi) the Company has not received any notice from the
SEC in connection with any investigation or action by the SEC that seeks to, or
could reasonably be expected to result in, the restatement by the Company of any
of its current or previously disclosed financial statements; (vii) there has not
been any material change in compensation agreement or arrangement with any
executive officer or director of the Company; (viii) there has not been any loan
or guarantees made by the Company to or for the benefit of its employees,
officer or directors or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of business and
consistent with past practice; and (ix) the Company has not altered its method
of accounting or changed its auditors.  The Company has not taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact, which would
reasonably lead a creditor to do so.  Based on the financial condition of the
Company as of the Closing Date, after giving effect to transactions contemplated
hereby to occur on the Closing Date, the Company reasonably expects to have
sufficient cash on hand to pay all of its currently foreseeable expenses for at
least the next four months.
 
(q)           There are no material legal or governmental proceedings nor are
there any material contracts or other documents required by the Securities Act
to be described in a prospectus that are not described in the SEC
Documents.  The Company is not in default under any of the contracts described
in the SEC Documents, has not received a notice or claim of any such default and
does not have knowledge of any breach of such contracts by the other party or
parties thereto, except for such defaults or breaches as would not, individually
or in the aggregate, have a Material Adverse Effect.

 
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(r)           The Company has good and marketable title to all real property
described in the SEC Documents as being owned by it and good and marketable
title to the leasehold estate in the real property described therein as being
leased by it, free and clear of all liens, charges, encumbrances or
restrictions, except, in each case, as would not, individually or in the
aggregate, have a Material Adverse Effect.  All material leases, contracts and
agreements to which the Company is a party or by which it is bound are valid and
enforceable against the Company, are, to the knowledge of the Company, valid and
enforceable against the other party or parties thereto and are in full force and
effect.
 
(s)           The Company has filed all necessary federal, state and foreign
income and franchise tax returns, except where the failure to so file such
returns would not, individually or in the aggregate, have a Material Adverse
Effect, and has paid all taxes shown as due thereon; and other than tax
deficiencies which the Company is contesting in good faith and for which
adequate reserves have been provided in accordance with generally accepted
accounting  principles, there is no material tax deficiency that has been
asserted against the Company.
 
(t)           The Company is not, and immediately after the Closing Date will
not be, required to register as an “investment company” or a company “controlled
by” an “investment company” within the meaning of the Investment Company Act of
1940, as amended (the “Investment Company Act”).
 
(u)           None of the Company or, to the knowledge of the Company, any of
its directors, officers, employees, agents or controlling persons, has taken,
directly or indirectly, any action designed, or that might reasonably be
expected, to cause or result in the stabilization or manipulation of the price
of the Common Stock.
 
(v)           None of the Company or any of its affiliates (as defined in
Rule 501(b) of Regulation D under the Securities Act) directly, or through any
agent, engaged in any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) in connection
with the offering of the Securities or engaged in any other conduct that would
cause such offering to be constitute a public offering within the meaning of
Section 4(2) of the Securities Act.  Assuming the accuracy of the
representations and warranties of the Purchasers in Section 5 hereof, it is not
necessary in connection with the offer, sale and delivery of the Securities to
the Purchasers in the manner contemplated by this Agreement to register any of
the Securities under the Securities Act.
 
(w)           There is no strike, labor dispute, slowdown or work stoppage with
the employees of the Company which is pending or, to the knowledge of the
Company, threatened.

 
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(x)           The Company maintains insurance underwritten by insurers of
recognized financial responsibility covering its properties, operations,
personnel and businesses comparable to other companies of its size and similar
business, including, without limitation, appropriate general business,
environmental and directors’ and officers’ liability insurance.  All such
insurance is in full force and effect.
 
(y)           The Company maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance with
management’s authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for its
assets, (C) access to its material assets is permitted only in accordance with
management’s authorization and (D) the values and amounts reported for its
material assets are compared with its existing assets at reasonable intervals.
 
(z)           Except as disclosed in the SEC Documents, the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of
the Exchange Act) that comply with the requirements of the Exchange Act; such
disclosure controls and procedures have been designed to ensure that material
information relating to the Company is made known to the Company’s principal
executive officer and principal financial officer by others within those
entities; and such disclosure controls and procedures are effective.
 
(aa)           No Person has or will have a claim for services, either in the
nature of a finder’s fee or financial advisory fee, with respect to the offering
of the Securities and the transactions contemplated by the Transaction
Documents.
 
(bb)           The Common Stock is traded on the National Association of
Securities Dealers OTC Bulletin Board (the “OTC Bulletin Board”).  The Company
currently is not in violation of, and the consummation of the transactions
contemplated by the Transaction Documents will not violate, any rule of the OTC
Bulletin Board.
 
(cc)           The Company is eligible to use Form S-1 for the resale of the
Conversion Shares by Purchasers or their transferees.  The Company has no reason
to believe that it is not capable of satisfying the registration or
qualification requirements (or an exemption therefrom) necessary to permit the
resale of the Conversion Shares under the securities or “blue sky” laws of any
jurisdiction within the United States.
 
(dd)           None of the Company, any of its affiliates, or 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 require registration of any of the Securities under the Securities Act or
cause this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any applicable stockholder
approval provisions, including without limitation, under the rules and
regulations of the OTC Bulletin Board.
 
(ee)           The Company and its Board of Directors have taken all necessary
action, if any, to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s charter documents
or the laws of its state of incorporation that is applicable to any of the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company’s issuance of the
Securities and the Purchasers’ ownership of the Securities.
 

 
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(ff)           The Company has described in, or filed as an exhibit to, the SEC
Documents filed prior to the date of this Agreement all of the following types
of documents, agreements, plans or arrangements that are required by federal
securities laws to be described in, or filed as an exhibit to, the SEC
Documents:  employment agreements, consulting agreements, deferred compensation,
pension or retirement agreements or arrangements (including all “employee
pension benefit plans” as defined in Section 3(2) of ERISA, bonus, incentive or
profit-sharing plans or arrangements, or labor or collective bargaining
agreements in effect by the Company) (the “ERISA Documents”).  Except for any
compliance failures that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect, (a) the Company is in compliance in
all material respects with all applicable laws and regulations relating to
labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours, and with the terms of the ERISA Documents; and
(b) each such ERISA Document is in compliance in all material respects with all
applicable requirements of ERISA.  To the Company’s knowledge, none of the
Company’s employees are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her employment obligations to the Company or
that would conflict with the Company’s business as now conducted or proposed to
be conducted, except for such contracts and other agreements, judgments, decrees
and orders that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
 
(gg)           Except as disclosed in the SEC Documents, no transaction has
occurred: (A) between or among the Company and any of its officers or directors,
stockholders or any affiliate of any such officer or director or stockholder;
and (B) to the Company’s knowledge, between or among any stockholders of the
Company.
 
3.           Certain Covenants of the Company.  The Company covenants and agrees
with each Purchaser as follows:
 
(a)           Use of Proceeds.  The proceeds of the issuance of the Securities
as described in this Agreement shall be used to fund the ordinary course working
capital needs of the Company.  None of the proceeds of the Loans will be used to
reduce or retire any existing debt of the Company (other than for trade
payables), except to the extent any such notes or debt are being cancelled as
consideration for purchase of Securities by a Purchaser hereunder and as
specifically set forth on Schedule I hereto.
 
(b)           No Integrated Offering.  None of the Company or any of its
affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any “security” (as defined in the Securities Act) that
could be integrated with the sale of the Securities in a manner which would
require the registration under the Securities Act of the Securities.
 

 
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(c)           Investment Company Act Status.  The Company will not become, at
any time prior to the expiration of three years after the Closing Date, an
open-end investment company, unit investment trust, closed-end investment
company or face-amount certificate company that is or is required to be
registered under the Investment Company Act.
 
(d)           Voting Rights.  The Company shall file the Series C Certificate of
Designations with the Delaware Secretary of State no later than January 9, 2009;
provided, however, that upon the request of Peninsula prior to such date, the
Company shall negotiate in good faith with Peninsula to revise the Series C
Certificate of Designations as Peninsula may request, shall thereafter promptly
obtain all necessary board and stockholder approvals necessary in order to file
the Series C Certificate of Designations as so revised, and shall thereafter
promptly file the same with the Delaware Secretary of State. The Company shall
file the amendment to the Certificate of Incorporation of the Company referenced
in Section 2(c) hereof no later than January 9, 2009.  Until such time that the
Loans have been paid in full, the Company shall not, without the prior written
consent of the holders of at least 70% of the aggregate principal amount of the
Notes then outstanding, and notwithstanding the absence of any issuances of
Series C Preferred Stock to the Purchasers, amend the Series C Certificate of
Designations as initially filed by the Company, nor engage in any action that
would, pursuant to the terms of the Series C Certificate of Designations,
require the affirmative vote of a majority or more of the then outstanding
shares of Series C Preferred Stock.  For so long as the Notes to Peninsula are
outstanding, or Peninsula is still the holder of at least fifty percent (50%) of
any shares of Series C Preferred Stock originally issued to Peninsula, Peninsula
shall have the right to elect one (1) director to the Company’s Board of
Directors.  The individual elected to such seat shall not be removed absent
gross misconduct.  In the case of any vacancy in the office of a director
elected by Peninsula to the Board of Directors, Peninsula may elect a successor
to hold office for the unexpired term of the director whose place shall be
vacant.  Additionally, for so long as the Notes to Peninsula are outstanding, or
Peninsula is still the holder of at least fifty percent (50%) of any shares of
Series C Preferred Stock originally issued to Peninsula, the Company shall
establish an Operations Committee of the Board of Directors, and Peninsula shall
have the right to elect its one (1) director to such Operations
Committee.    The individual elected to such seat shall not be removed absent
gross misconduct.  In the case of any vacancy in the office of a director
elected by Peninsula to the Operations Committee, Peninsula may elect a
successor to hold office for the unexpired term of the director whose place
shall be vacant.
 
(e)           Further Action.  The Company will use its best efforts to do and
perform all things required to be done and performed by it under this Agreement
and the other Transaction Documents and to satisfy all conditions precedent on
its part to the obligations of the Purchasers to purchase and accept delivery of
the Securities.
 
(f)           Investor Rights Agreement.  The Purchasers shall be entitled, with
respect to any shares of the Company’s capital stock issued upon exercise of the
Warrants and upon conversion of the Notes, as the case may be, to all of the
registration and other rights set forth in the Company’s Investor Rights
Agreement dated as of June 4, 2008, as amended September 15, 2008 (the “Rights
Agreement”), to the same extent and on the same terms and conditions as
possessed by the investors thereunder and as if such were included in the
definition of “Registrable Securities” in the Rights Agreement.  Peninsula shall
also be entitled to all of the rights of a “Major Holder” under the Rights
Agreement as if its Note had been converted into equity in the Company (and
notwithstanding the absence of such conversion). No later than January 9, 2009,
the Company shall take such action as may be reasonably necessary to assure that
the granting of such rights to the Purchasers does not violate the provisions of
the Rights Agreement or any of the Company’s charter documents or rights of
prior grantees of registration rights.

 
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(g)           Further Indebtedness.  The Company hereby covenants and agrees
that so long as any principal amount and accrued interest remains outstanding
under the Notes issued pursuant to the terms of this Agreement, that it shall
not, without the written consent of Purchasers holding Notes representing at
least 70% of the principal amount of all Notes then outstanding, incur,
guaranty, assume or otherwise become obligated to pay indebtedness, other than
amounts under equipment leases existing as of the Initial Closing Date, accounts
payable and other obligations incurred in the ordinary course of business, other
than pursuant to this Agreement.
 
4.           Conditions of the Purchasers’ Obligations.  The obligation of each
Purchaser to purchase and pay for the Securities at each Closing Date is subject
to the following conditions unless waived by the Purchaser:
 
(a)           The representations and warranties of the Company contained in
this Agreement shall be true and correct on and as of the Closing Date. The
Company shall have complied in all material respects with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to the Closing Date.
 
(b)           None of the issuance and sale of the Securities pursuant to this
Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company’s knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser’s activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the SEC Documents.
 
(c)           The Purchasers shall have received certificates, dated the Closing
Date and signed by the Chief Executive Officer and the Chief Financial Officer
of the Company, to the effect of Sections 4(a) and 4(b).
 
(d)           The Purchasers shall have received the Notes in the forms attached
hereto as Exhibit A.
 
(e)           The Purchasers shall have received the Warrants in the forms
attached hereto as Exhibit B.
 
(f)           The Purchasers shall have received an opinion of legal counsel to
the Company, with respect to the Securities and other customary matters in the
form attached hereto as Exhibit D.

 
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(g)           The Purchasers shall have received the Security Agreements in the
forms attached hereto as Exhibit E-1 and Exhibit E-2.
 
(h)           The Purchasers shall have received the Subordination Agreement in
the form attached hereto as Exhibit F.
 
(i)            The Purchasers shall be satisfied, in their sole discretion, with
the results of their due diligence investigation with respect to the Company.
 
(j)           The Company shall have received all necessary governmental and
third party waivers, consents and approvals.
 
(k)           The Company shall have complied with all applicable securities
laws.
 
(l)           As soon as reasonably practicable following the Initial Closing,
the Company shall receive a fairness opinion with regard to valuation matters.
 
(m)           On or prior to the date of the Initial Closing, the Company shall
have filed (or authorized the filing of) all UCC and similar financing
statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreements).
 
(n)           On or prior to the Closing Date, the Company shall have furnished
to the Purchasers such additional information, certificates and documents as
they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as contemplated herein, or to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained, or otherwise in connection with the
transaction contemplated hereby; and all opinions and certificates mentioned
above or elsewhere in this Agreement shall be reasonably satisfactory in form
and substance to the Purchasers.
 
5.           Representations and Warranties of the Purchasers.
 
(a)           Each Purchaser represents and warrants to the Company that the
Securities to be acquired by it hereunder (including the Conversion Shares that
it may acquire upon conversion thereof) are being acquired for its own account
for investment and with no present intention of distributing or reselling such
Securities (including the Conversion Shares that it may acquire upon conversion
thereof) or any part thereof or interest therein in any transaction which would
be in violation of the securities laws of the United States of America or any
State.  Nothing in this Agreement, however, shall prejudice or otherwise limit a
Purchaser’s right to sell or otherwise dispose of all or any part of such
Conversion Shares under an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.

 
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(b)           Each Purchaser understands that the Securities and Conversion
Shares have not been registered under the Securities Act and may not be offered,
resold, pledged or otherwise transferred except (a) pursuant to an exemption
from registration under the Securities Act (and, if requested by the Company,
based upon an opinion of counsel acceptable to the Company) or pursuant to an
effective registration statement under the Securities Act and (b) in accordance
with all applicable securities laws of the states of the United States and other
jurisdictions.
 
Each Purchaser agrees to the imprinting, so long as appropriate, of the
following legend on the Securities (including the Conversion Shares that it may
acquire upon conversion thereof):
 
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 
The legend set forth above may be removed if and when the Securities or
Conversion Shares are disposed of pursuant to an effective registration
statement under the Securities Act or, in the opinion of counsel to the Company
experienced in the area of United States Federal securities laws, such legends
are no longer required under applicable requirements of the Securities Act.  The
Company agrees that it will provide each Purchaser, upon request, with a
substitute certificate, not bearing such legend at such time as such legend is
no longer applicable.
 
(c)           Each Purchaser is an “accredited investor” within the meaning of
Rule 501(a) of Regulation D under the Securities Act.  None of the Purchasers
learned of the opportunity to acquire Securities or any other security issuable
by the Company through any form of general advertising or public solicitation.
 
(d)           Each Purchaser represents and warrants to the Company that it has
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, having been represented by counsel, and has so
evaluated the merits and risks of such investment and is able to bear the
economic risk of such investment and, at the present time, is able to afford a
complete loss of such investment.
 
(e)           Each Purchaser represents and warrants to the Company that the
purchase of the Securities to be purchased by it has been duly and properly
authorized and this Agreement has been duly executed and delivered by it or on
its behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors’ rights generally and to general principles of equity.

 
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(f)           Each Purchaser represents and warrants to the Company that neither
it nor any of its directors, officers, employees, agents, partners, members, or
controlling persons has taken, or will take, directly or indirectly, any actions
designed, or that might reasonably be expected to cause or result in, the
destabilization or manipulation of the price of the Common Stock.
 
(g)           Each Purchaser acknowledges it or its representatives have
reviewed the SEC Documents and further acknowledges that it or its
representatives have been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; and (ii) access to
information about the Company and the Company’s financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Securities.
 
(h)           Each Purchaser represents and warrants to the Company that it has
based its investment decision solely upon the information contained in the SEC
Documents and such other information as may have been provided to it or its
representatives by the Company in response to its inquiries, and has not based
its investment decision on any research or other report regarding the Company
prepared by any third party (“Third Party Reports”).  Each Purchaser understands
and acknowledges that (i) the Company does not endorse any Third Party Reports
and (ii) its actual results may differ materially from those projected in any
Third Party Report.
 
(i)           Each Purchaser understands and acknowledges that (i) any
forward-looking information included in the SEC Documents is subject to risks
and uncertainties, including those risks and uncertainties set forth in the SEC
Documents; and (ii) the Company’s actual results may differ materially from
those projected by the Company or its management in such forward-looking
information.
 
(j)           Each Purchaser understands and acknowledges that (i) the
Securities are offered and sold without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.  Each Purchaser also understands that there is no assurance that
any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow Purchaser to transfer all
or any portion of the Securities or Conversion Shares under the circumstances,
in the amounts or at the times Purchaser might propose.

 
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(k)           None of the Purchasers is a broker or dealer registered pursuant
to Section 15 of the Exchange Act (a “registered broker-dealer”) or is
affiliated with a registered broker-dealer.
 
6.            Covenants of Purchasers.
 
(a)           No Short Sale.  Purchasers, on behalf of themselves and their
affiliates and the permitted assignee of any Conversion Shares, hereby covenant
and agree not to, directly or indirectly, offer to “short sell”, contract to
“short sell” or otherwise “short sell” any securities of the Company prior to
the Closing Date.

(b)           Agreement to Convert or Subordinate Notes.  All Notes may be
converted or subordinated at any time upon approval of the same by holders of at
least 70% of the principal amount of the Notes then outstanding.  In the event
of such conversion of the Notes pursuant to this Section 6(b), the Notes shall
immediately accrue the full amount of interest that would otherwise be payable
as of the Maturity Date (as defined in such Notes), as if such Notes were
outstanding on such date, notwithstanding the fact such Notes would have been
converted prior to that date.

7.           No Original Issue Discount.  The Company and the Purchasers hereby
acknowledge and agree that each Warrant is part of an investment unit within the
meaning of Section 1273(c)(2) of the Internal Revenue Code, which includes the
Note issued to each respective Purchaser. The Company and the Purchasers further
agree as between the Company and each Purchaser, that the fair market value of
the Warrant issued to such Purchaser is equal to 0.1% of the principal amount of
the Notes purchased by such Purchaser, as more specifically set forth opposite
such Purchaser’s name under the column heading, “Warrant Shares Purchase Price”
on Schedule I attached hereto.  The Company and the Purchaser agree to prepare
their federal income tax returns in a manner consistent with the foregoing
agreement and, pursuant to Treas. Reg. §1.1273, the original issue discount on
the Notes shall be considered to be zero.
 
8.           Indemnification.  The Company agrees to indemnify and hold harmless
each of the Purchasers, any affiliates of the Purchasers, and each Person, if
any, who controls, is controlled by or under common control with any Purchaser
within the meaning of the Securities Act (each, an “Indemnified Party”), against
any losses, claims, actions, damages, liabilities or expenses (collectively,
“Losses”), joint or several, to which such Indemnified Party may become subject
under the Securities Act, the Exchange Act, or any other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such Losses (or actions in respect thereof
as contemplated below) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained in
this Agreement or any failure of the Company to perform its obligations
hereunder, and will reimburse each Indemnified Party for any legal and other
expenses reasonably incurred as such expenses are incurred by such Indemnified
Party in connection with investigating, defending, settling, compromising or
paying any such Loss; provided, however, that the Company will not be liable in
any such case to the extent that any such Loss arises out of or is based upon
the inaccuracy of any representations made by such Indemnified Party herein.

 
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9.           Termination.
 
(a)           This Agreement may be terminated by Peninsula or the Trident
Lenders by notice to the Company given in the event that (i) the Company shall
have failed, refused or been unable to satisfy all material conditions on its
part to be performed or satisfied hereunder on or prior to the Closing Date or
(ii) if after the date of this Agreement but prior to the Closing Date, trading
in securities of the Company on the OTC Bulletin Board shall have been suspended
and the Company ceases to be publicly traded.
 
(b)           This Agreement may be terminated by mutual written consent of the
Company and the Purchasers.
 
10.           Notices.  All communications hereunder shall be in writing and
shall be hand delivered, mailed by first-class mail, couriered by next-day air
courier or by facsimile and confirmed in writing (i) if to the Company, at the
addresses set forth below, or (ii) if to a Purchaser, to the address set forth
for such party on the signature pages hereto.
 
If to the Company:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, California 94107

Attention:  Chief Executive Officer
Telephone: 415-829-6000
Facsimile:  415-829-6001

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, Washington 98101
Attn:  David Otto
Telephone:  206-838-9731
Facsimile:  206-262-9513

All such notices and communications shall be deemed to have been duly
given:  (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 5:00 pm in the time zone
of the recipient on a business day, with confirmation of successful transmission
or (v) the business day following the date of transmission if sent via facsimile
at a facsimile number set forth in this Section or on the signature page hereof
after 5:00 p.m. in the time zone of the recipient or on a date that is not a
business day.  Change of a party’s address or facsimile number may be designated
hereunder by giving notice to all of the other parties hereto in accordance with
this Section.

 
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11.           Survival Clause.  The respective representations, warranties,
agreements and covenants of the Company and the Purchasers set forth in this
Agreement shall survive until the first anniversary of the Closing.
 
12.           Enforcement.  If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or the Certificates of
Designations, the prevailing party or parties shall be entitled to receive from
the other party or parties reasonable attorneys’ fees, costs and necessary
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.
 
13.           Successors and Assigns.  This Agreement shall inure to the benefit
of and be binding upon Purchasers and the Company and their respective
successors and legal representatives.  Neither the Company nor any Purchaser may
assign this Agreement or any rights or obligation hereunder without the prior
written consent of the other parties; provided, that Peninsula may assign this
Agreement to an Affiliate without such consent.  For purposes of this Agreement,
“Affiliate” means any other party that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under control with, such
party.
 
14.           Amendment and Waiver.   Except as otherwise expressly provided
herein, this Agreement may be amended or modified, and any obligations of the
Company and rights of the Purchasers hereunder may waived, in each case only
upon the written consent of (i) the Company and (ii) the holders of at least 70%
of the principal amount of then outstanding Notes; provided, however, that no
amendment of this Agreement shall materially and adversely affect the rights of
a Purchaser in a manner that materially and disproportionately discriminates
against such Purchaser by its express terms in relation to the other Purchasers
without such Purchaser's written consent.  Notwithstanding anything to the
contrary herein, Schedule I hereto may be amended and revised by the Company in
connection with Additional Closings (as defined in Section 1(e) above) without
requiring the consent of any of the other parties hereto.  Any amendment or
waiver effected in accordance with this Section 14 shall be binding upon each
Purchaser, each future Purchaser, and the Company.  The Purchasers and their
respective successors and assigns acknowledge that by the operation of this
Section 14, the holders of at least 70% of the Notes then outstanding, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights pursuant to this Agreement.
 
15.           Entire Agreement; No Third Party Beneficiary.  This Agreement,
together with the other Transaction Documents, constitutes the entire agreement
among the parties hereto and supersedes all prior agreements, understandings and
arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof and thereof.  Disclosure by the Company in any Schedule to
this Agreement shall be deemed applicable to all applicable provisions
hereof.  This Agreement is not intended to confer upon any Person not a party
hereto (or their successors and permitted assigns) any rights or remedies
hereunder, except as provided in Section 8 hereof.

 
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16.           Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
 
17.           APPLICABLE LAW.  THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.  THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN
STATE OR FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA AND HEREBY SUBMIT TO
THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
 
18.           Waiver of Participation Rights.  By execution of this Agreement,
each Purchaser expressly waives any right of first refusal, pre-emptive right,
right of first offer or other participation right (and any related document
delivery and notice rights) with respect to the issuance of the Notes, the
Warrants and any shares of the Company’s capital stock issuable upon conversion
or exercise thereof, including without limitation, all rights under Section 7 of
the Rights Agreement to the extent the Purchaser is a party thereto and
qualifies as a “Major Holder” thereunder.
 
19.           Default.  Notwithstanding anything to the contrary contained in
this Agreement or the Notes, upon a default by the Company of Section 3(d) or
3(f) hereof, which default, if curable, is not cured within ten (10) days
following written notice from Peninsula to the Company specifying the default in
reasonable detail, Peninsula shall have the right, without the affirmative vote
of 70% of the holders of the aggregate principal amount of the Notes then
outstanding, to call an Event of Default under its Note and exercise all
remedies provided therein.
 
20.           No Novation.  The Nov08 Notes shall be amended and restated
pursuant to this Agreement, but nothing herein shall discharge the obligations
of, nor constitute a novation with respect to, the indebtedness of the Company
pursuant to the Nov08 Notes.
 
21.           Subordination Agreement.  Each Purchaser obtaining Notes or
Warrants in connection with an Additional Closing and executing a counterpart
signature to this Agreement hereby agrees to be bound by the Subordination
Agreement as a “Senior Lender” thereunder without further action required on the
part of such Purchaser or any other party.
 
22.           Counterparts.  This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
 
[signature pages follow]

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.
 
ECO2 PLASTICS, INC.
   
By:  
   
Name:  Rodney S. Rougelot
 
Title:    Chief Executive Officer

Signature Pages to Purchase Agreement
 
 

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Trident Capital Fund-VI, L.P.
Trident Capital Fund-VI Principals Fund, L.L.C.
   
Executed by the undersigned as an authorized signatory of the General Partner of
Trident Capital Fund-VI, L.P. and of the Managing Member of Trident Capital
Fund-VI Principals Fund, L.L.C.
           
(signature)
           
(print name)
       
Address:   505 Hamilton Avenue, Suite 200
 
Palo Alto, CA 94301
 
Attn:  Howard S. Zeprun
 
Chief Administrative Officer and General Counsel
 
Fax:           (650) 289-4444
       
Hutton Living Trust Dated 12/10/1996
       
By:
   
G. Thompson Hutton, Trustee
       
Address:   Two Santiago Avenue
 
Atherton, CA 94027
 
Fax:           (650) 326-6373

 
Signature Pages to Purchase Agreement
 
 

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Peninsula Packaging, LLC
   
By:
 
Name: Alex Millar
Title: Managing Director
    Address:  c/o Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn: Todd C. Vanett, Esquire
Fax:           (215) 564-8120

Signature Pages to Purchase Agreement
 
 

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ADDITIONAL LENDERS:

If an entity:
     
(Company name)
   
By:
 
Name:
 
Title:
     
Address:
             
Fax:
     
Amount of Note: $ _________________________________
   
If an individual:
     
(Signature of individual)
   
Printed Name: ____________________________________
   
Address:
             
Fax:
     
Amount of Note: $ _________________________________

 
Signature Pages to Purchase Agreement
 
 

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Schedule I
 
Schedule of Purchasers

December 17, 2008

Purchaser
 

 
Delivery
Amount
   

 
Aggregate
Loan Amount
   

 
Warrant
Shares
   

Warrant
Shares
Purchase
Price
 
Peninsula Packaging, LLC
  $ 900,000.00     $ 1,503,024.66       50,100,822     $ 1,503.02  
Trident Capital Fund-VI, L.P.
  $ 866,398.15     $ 1,399,007.52       46,633,583     $ 1,399.01  
Trident Capital Fund-VI Principals Fund, L.L.C.
  $ 33,601.85     $ 54,258.23       1,808,608     $ 54.26  
Hutton Living Trust dated 12/10/1996
  $ 0     $ 50,328.77       1,677,626     $ 50.33  

 
Schedule I
 
 

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Disclosure Schedule
 
This Disclosure Schedule is being furnished by ECO2 Plastics, Inc., a Delaware
corporation, (the “Company”), to the Purchasers listed on Schedule I to that
certain Convertible Note and Warrant Purchase Agreement of even date herewith by
and among the Company and such Purchasers (the “Agreement”) in connection with
the execution and delivery of the Agreement, pursuant to Section 2 of the
Agreement.  Unless the context otherwise requires, all capitalized terms used in
this Disclosure Schedule shall have the respective meanings ascribed to such
terms in the Agreement.

This Disclosure Schedule and the information, descriptions and disclosures
included herein is intended to set forth exceptions to the representations and
warranties of the Company contained in the Agreement.  The contents of all
agreements and other documents referred to in a particular section of this
Disclosure Schedule is incorporated by reference into such particular section as
though fully set forth in such section.
 
[Attached separately]
 
Disclosure Schedule
 
 

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Exhibit A
 
Forms of Notes

 

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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 
AMENDED AND RESTATED PROMISSORY NOTE

San Francisco, California
Date of Issuance: December 17, 2008

FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware corporation (the “Promisor”)
hereby promises to pay to the order of PENINSULA PACKAGING, LLC, a California
limited liability company (the “Promisee” or the “Holder”), in lawful money of
the United States at the address of the Holder set forth herein, the principal
amount of one million five hundred and three thousand, twenty-four dollars and
sixty-six cents ($1,503,024.66) (the “Note Amount”), together with Interest, as
defined below.  This Amended and Restated Promissory Note (“Note”) has been
executed by the Promisor on the date set forth above (the “Effective Date”).

This Note is one of a series of promissory notes issued by the Promisor pursuant
to that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Promisor and the parties named therein (the
“Purchase Agreement”).  This Note and such other promissory notes issued by the
Promisor pursuant to the Purchase Agreement are herein collectively referred to
as the “Notes.”  This Note is secured by a security interest in certain
collateral of the Promisor pursuant to the Amended and Restated Security
Agreement, dated as of December 17, 2008, as amended, supplemented, restated or
otherwise modified from time to time, by and between the Promisor and the
Promisee (the “Security Agreement”) and is entitled to all the benefits and
obligations provided therein.  All payments of interest and principal shall be
in lawful money of the United States of America and shall be made pro rata among
all holders of the Notes.  The following is a statement of the rights of the
Holder of this Note and the terms and conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of the Note agrees:

1.             Interest.  Interest shall accrue at eight percent (8%) per annum
on the outstanding principal amount of this Note (the “Interest”).  Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
eight percent (8%) per annum (the “Default Interest Rate”).

 

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

 

2.             Maturity Date.  The Note Amount, any accrued Interest thereon and
all other sums due hereunder, shall be due and payable three (3) years from the
Effective Date (the “Maturity Date”).

3.             Security.  This Note is secured pursuant to the terms of the
Security Agreement by a security interest in the Collateral (as such term is
defined in the Security Agreement).  This Note is subject to the provisions of
the Security Agreement. It is agreed that all Promisor’s indebtedness, whether
outstanding on the date hereof or subsequently incurred or assumed, except all
indebtedness secured by perfected security interests granted by Promisor in
connection with the Senior Debt (as such term is defined in the Security
Agreement) shall be junior in right of payment to the indebtedness and other
obligations of Promisor pursuant to the Notes.

4.             Application of Payments.

4.1.          Except as otherwise expressly provided herein, payments under this
Note shall be applied, (i) first to the repayment of any sums incurred by the
Holder for the payment of any expenses in enforcing the terms of this Note, (ii)
then to the payment of any accrued but unpaid Interest under this Note, and
(iii) then to the reduction of the Note Amount.

4.2.          The Promisor may only prepay principal upon the written consent of
holders of 70% or more of the aggregate principal amount of the Notes then
outstanding.

4.3.          Upon payment in full of the Note Amount, any applicable accrued
and unpaid Interest thereon, and any other sums due hereunder, this Note shall
be marked “Paid in Full” and returned to the Promisor.

5.             Waiver of Notice.  The Promisor hereby waives presentment for
payment, demand, notice of nonpayment, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
the liability of the Promisor shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Promisee.

6.             Events of Default.  The occurrence of any of the following events
(each an “Event of Default”) shall constitute an Event of Default of the
Promisor:

6.1.          the failure of the Promisor to make any payment due hereunder
within three (3) days after the due date thereof;
 
6.2.          a material default by the Promisor under the Purchase Agreement or
any other document or agreement executed by the Promisor pursuant thereto, which
default, if curable, is not cured within thirty (30) days following written
notice by the Promisee to the Promisor specifying the default in reasonable
detail; and

 

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

 

6.3.          (i) the application for the appointment of a receiver or custodian
for the Promisor or the property of the Promisor, (ii) the entry of an order for
relief or the filing of a petition by or against the Promisor under the
provisions of any bankruptcy or insolvency law, (iii) any assignment for the
benefit of creditors by or against the Promisor, or (iv) the Promisor’s
insolvency (which term is defined for purposes of this paragraph as the failure
or inability of the Promisor to meet its obligations as the same fall due).

Upon the occurrence of any Event of Default that is not cured within any
applicable cure period, if any, the Holder may, upon the consent of holders of
at least 70% of the aggregate principal amount of the Notes then outstanding
(except in the case of an Event of Default pursuant to Section 6.3(i), (ii) or
(iii), in which case no such consent shall be necessary), elect to take at any
time any or all of the following actions: (i) declare this Note to be forthwith
due and payable, whereupon the entire unpaid Note Amount, together with all
accrued and unpaid Interest thereon (including the Default Interest Rate), and
all other cash obligations hereunder, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Promisor, anything contained herein to
the contrary notwithstanding, (ii) set-off any amounts owed by the Promisee or
any Affiliate of the Promisee (each of which is an intended third party
beneficiary hereunder), to the Promisor whatsoever against any amounts owed by
the Promisor to the Promisee hereunder; and (iii) exercise any and all other
remedies provided hereunder or available at law or in equity.  For purposes of
this Note, “Affiliate” means any other party that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
control with, such party.

If an Event of Default occurs by the Promisor, the Promisor agrees to pay, in
addition to the Note Amount, reasonable attorneys' fees and any other reasonable
costs incurred by the Holder in connection with its pursuit of its remedies
under this Note.

7.             Conversion.

7.1           At any time upon written notice by the Promisee to the Promisor,
the principal amount and all Interest due under this Note shall be converted
into shares of Series C Convertible Preferred Stock of the Promisor
(“Securities”) at a price per share equal to $0.015 (subject to appropriate
adjustment for all stock splits, subdivisions, combinations, recapitalizations
and the like).  No fractional shares of Securities will be issued upon such
conversion of this Note.  In lieu thereof, the number of Securities to be issued
to the Holder shall be rounded to the nearest whole share.  Upon conversion of
this Note pursuant to this Section 7, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Promisor or any transfer agent of the
Promisor.  At its expense, the Promisor will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described herein.  Upon
conversion of this Note, the Promisor will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.

7.2           At any time upon the written election at their discretion of
holders of 70% or more of the aggregate principal amount of Notes then
outstanding, the principal amount and all Interest due under each Note shall be
converted into shares of Securities in the same manner described in Section 7.1
above.

 

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

 

8.            Miscellaneous.

8.1           Successors and Assigns.  The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors and permitted assigns of the parties.  This
Note (or a portion hereof) may be assigned by the Holder without the consent of
the Promisor.  This Note may not be assigned by the Promisor without the prior
written consent of the Promisee.

8.2           Loss or Mutilation of Note.  Upon receipt by the Promisor of
evidence reasonably satisfactory to the Promisor of the loss, theft, destruction
or mutilation of this Note, together with indemnity reasonably satisfactory to
the Promisor, in the case of loss, theft or destruction, or the surrender and
cancellation of this Note, in the case of mutilation, the Promisor shall execute
and deliver to the Holder a new promissory note of like tenor and denomination
as this Note.

8.3           Notices.  Any notice or other communication required or permitted
to be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), or (iv) one (1) business day after being
deposited with an overnight courier service, and addressed to the recipient at
the addresses set forth below unless another address is provided to the other
party in writing:

If to Promisee, to:

Peninsula Packaging, LLC
c/o Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn:        Todd C. Vanett
Fax:         (215) 564-8120

If to the Promisor, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA  94107
Attn:        Rodney S. Rougelot
Fax:         (415) 829-6001 

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:        David M. Otto
Fax:         (206) 262-9513

 

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

 

 
8.4           Governing Law.  This Note shall be governed in all respects by the
laws of the State of California as applied to agreements entered into and
performed entirely within the State of California by residents thereof, without
regard to any provisions thereof relating to conflicts of laws among different
jurisdictions.

8.5           Waiver and Amendment.  Any term of this Note may be amended,
waived or modified with the written consent of the Promisor and the Holder;
provided however, that (a) the terms of this Note may be amended or modified,
and any obligations of Promisor and the rights of Holder may be waived, in each
case upon the written consent of Promisor and the holders of at least 70% of the
aggregate principal amount of Notes then outstanding, and (b) this Note may be
converted as set forth herein or subordinated without any action of Holder upon
approval by holders of at least 70% of the aggregate principal amount of Notes
then outstanding.

8.6           Remedies.  No delay or omission by the Holder in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and
no course of dealing between the Holder and the undersigned or any other person
shall be deemed a waiver by the Holder of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Holder or the exercise of any other
right, remedy, power or privilege by the Holder.  The rights and remedies of the
Holder described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity
provided that such rights or remedies are not inconsistent with the express
provisions hereof.

8.7           Usury Savings Clause.  In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.
 
8.8           Severability.  If any provision hereof is found by a court of
competent jurisdiction to be prohibited or unenforceable, it shall be
ineffective only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable, nor invalidate
the other provisions hereof, all of which shall be liberally construed in favor
of the Promisee in order to effect the provisions of this Note.
 
8.9           Setoff.  Notwithstanding the absence of an Event of Default, the
Promisee shall have the right to set-off any amounts owed by the Promisee or any
Affiliate of the Promisee (each of which is an intended third party beneficiary
hereunder) to the Promisor whatsoever against any amounts owed by the Promisor
to the Promisee hereunder.
 
8.10         Amendment and Restatement.  This Note amends, restates and
supersedes, but does not discharge the obligations of, nor constitute a novation
with respect to, the indebtedness of the Promisor to J. Charles Buff pursuant to
that certain Promissory Note in the principal amount of $600,000 dated November
21, 2008, which such document was assigned by J. Charles Buff to the Promisee on
the date hereof.

 

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

 
 
IN WITNESS WHEREOF, the Promisor has caused this Note to be signed on the
Effective Date.

ECO2 PLASTICS, INC.
         
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer
 

STATE OF _______________________                                :
:ss
COUNTY OF _____________________                               :

On the ____ day of December, 2008 before me personally came Rodney S. Rougelot
who, being by me duly sworn, did depose and say that he is the Chief Executive
Officer of ECO2 Plastics, Inc., and being authorized so to do, executed the
foregoing instrument for the purpose of binding said entity and that he
acknowledged said instrument to be his act and deed.
 

 
Notary Public

 

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

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 

 
AMENDED AND RESTATED PROMISSORY NOTE
 

San Francisco, California
Date of Issuance: December 17, 2008

FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware corporation (the “Promisor”)
hereby promises to pay to the order of TRIDENT CAPITAL FUND-VI, L.P. (the
“Promisee” or the “Holder”), in lawful money of the United States at the address
of the Holder set forth herein, the principal amount of one million three
hundred ninety-nine thousand seven dollars and fifty-two cents ($1,399,007.52)
(the “Note Amount”), together with Interest, as defined below.  This Amended and
Restated Promissory Note (“Note”) has been executed by the Promisor on the date
set forth above (the “Effective Date”).

This Note is one of a series of promissory notes issued by the Promisor pursuant
to that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Promisor and the parties named therein (the
“Purchase Agreement”).  This Note and such other promissory notes issued by the
Promisor pursuant to the Purchase Agreement are herein collectively referred to
as the “Notes.”  This Note is secured by a security interest in certain
collateral of the Promisor pursuant to the Amended and Restated Security
Agreement, dated as of December 17, 2008, as amended, supplemented, restated or
otherwise modified from time to time, by and between the Promisor and the
Promisee (the “Security Agreement”) and is entitled to all the benefits and
obligations provided therein.  All payments of interest and principal shall be
in lawful money of the United States of America and shall be made pro rata among
all holders of the Notes.  The following is a statement of the rights of the
Holder of this Note and the terms and conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of the Note agrees:

7.             Interest.  Interest shall accrue at eight percent (8%) per annum
on the outstanding principal amount of this Note (the “Interest”).  Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
eight percent (8%) per annum (the “Default Interest Rate”).

8.             Maturity Date.  The Note Amount, any accrued Interest thereon and
all other sums due hereunder, shall be due and payable three (3) years from the
Effective Date (the “Maturity Date”).
 

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

 
9.             Security.  This Note is secured pursuant to the terms of the
Security Agreement by a security interest in the Collateral (as such term is
defined in the Security Agreement).  This Note is subject to the provisions of
the Security Agreement. It is agreed that all Promisor’s indebtedness, whether
outstanding on the date hereof or subsequently incurred or assumed, except all
indebtedness secured by perfected security interests granted by Promisor in
connection with the Senior Debt (as such term is defined in the Security
Agreement) shall be junior in right of payment to the indebtedness and other
obligations of Promisor pursuant to the Notes.

10.           Application of Payments.

10.1.                Except as otherwise expressly provided herein, payments
under this Note shall be applied, (i) first to the repayment of any sums
incurred by the Holder for the payment of any expenses in enforcing the terms of
this Note, (ii) then to the payment of any accrued but unpaid Interest under
this Note, and (iii) then to the reduction of the Note Amount.

10.2.                The Promisor may only prepay principal upon the written
consent of holders of 70% or more of the aggregate principal amount of the Notes
then outstanding.

10.3.                Upon payment in full of the Note Amount, any applicable
accrued and unpaid Interest thereon, and any other sums due hereunder, this Note
shall be marked “Paid in Full” and returned to the Promisor.

11.           Waiver of Notice.  The Promisor hereby waives presentment for
payment, demand, notice of nonpayment, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
the liability of the Promisor shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Promisee.

12.           Events of Default.  The occurrence of any of the following events
(each an “Event of Default”) shall constitute an Event of Default of the
Promisor:

12.1.                the failure of the Promisor to make any payment due
hereunder within three (3) days after the due date thereof;
 
12.2.                a material default by the Promisor under the Purchase
Agreement or any other document or agreement executed by the Promisor pursuant
thereto, which default, if curable, is not cured within thirty (30) days
following written notice by the Promisee to the Promisor specifying the default
in reasonable detail; and

12.3.                (i) the application for the appointment of a receiver or
custodian for the Promisor or the property of the Promisor, (ii) the entry of an
order for relief or the filing of a petition by or against the Promisor under
the provisions of any bankruptcy or insolvency law, (iii) any assignment for the
benefit of creditors by or against the Promisor, or (iv) the Promisor’s
insolvency (which term is defined for purposes of this paragraph as the failure
or inability of the Promisor to meet its obligations as the same fall due).

 

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

 

Upon the occurrence of any Event of Default that is not cured within any
applicable cure period, if any, the Holder may, upon the consent of holders of
at least 70% of the aggregate principal amount of the Notes then outstanding
(except in the case of an Event of Default pursuant to Section 6.3(i), (ii) or
(iii), in which case no such consent shall be necessary), elect to take at any
time any or all of the following actions: (i) declare this Note to be forthwith
due and payable, whereupon the entire unpaid Note Amount, together with all
accrued and unpaid Interest thereon (including the Default Interest Rate), and
all other cash obligations hereunder, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Promisor, anything contained herein to
the contrary notwithstanding, (ii) set-off any amounts owed by the Promisee or
any Affiliate of the Promisee (each of which is an intended third party
beneficiary hereunder), to the Promisor whatsoever against any amounts owed by
the Promisor to the Promisee hereunder; and (iii) exercise any and all other
remedies provided hereunder or available at law or in equity.  For purposes of
this Note, “Affiliate” means any other party that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
control with, such party.

If an Event of Default occurs by the Promisor, the Promisor agrees to pay, in
addition to the Note Amount, reasonable attorneys' fees and any other reasonable
costs incurred by the Holder in connection with its pursuit of its remedies
under this Note.

7.           Conversion.

7.1           At any time upon written notice by the Promisee to the Promisor,
the principal amount and all Interest due under this Note shall be converted
into shares of Series C Convertible Preferred Stock of the Promisor
(“Securities”) at a price per share equal to $0.015 (subject to appropriate
adjustment for all stock splits, subdivisions, combinations, recapitalizations
and the like).  No fractional shares of Securities will be issued upon such
conversion of this Note.  In lieu thereof, the number of Securities to be issued
to the Holder shall be rounded to the nearest whole share.  Upon conversion of
this Note pursuant to this Section 7, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Promisor or any transfer agent of the
Promisor.  At its expense, the Promisor will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described herein.  Upon
conversion of this Note, the Promisor will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.

7.2           At any time upon the written election at their discretion of
holders of 70% or more of the aggregate principal amount of Notes then
outstanding, the principal amount and all Interest due under each Note shall be
converted into shares of Securities in the same manner described in Section 7.1
above.

 
 

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

 

8.           Miscellaneous.

8.1           Successors and Assigns.  The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors and permitted assigns of the parties.  This
Note (or a portion hereof) may be assigned by the Holder without the consent of
the Promisor.  This Note may not be assigned by the Promisor without the prior
written consent of the Promisee.

8.2           Loss or Mutilation of Note.  Upon receipt by the Promisor of
evidence reasonably satisfactory to the Promisor of the loss, theft, destruction
or mutilation of this Note, together with indemnity reasonably satisfactory to
the Promisor, in the case of loss, theft or destruction, or the surrender and
cancellation of this Note, in the case of mutilation, the Promisor shall execute
and deliver to the Holder a new promissory note of like tenor and denomination
as this Note.

8.3           Notices.  Any notice or other communication required or permitted
to be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), or (iv) one (1) business day after being
deposited with an overnight courier service, and addressed to the recipient at
the addresses set forth below unless another address is provided to the other
party in writing:

If to Promisee, to:

Trident Capital Fund-VI, L.P.
505 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Attn:
Fax:         (650) 289-4444

If to the Promisor, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA  94107
Attn :      Rodney S. Rougelot
Fax:        (415) 829-6001 

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:      David M. Otto
Fax:       (206) 262-9513

 
 

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

 
 
8.4           Governing Law.  This Note shall be governed in all respects by the
laws of the State of California as applied to agreements entered into and
performed entirely within the State of California by residents thereof, without
regard to any provisions thereof relating to conflicts of laws among different
jurisdictions.

8.5           Waiver and Amendment.  Any term of this Note may be amended,
waived or modified with the written consent of the Promisor and the Holder;
provided however, that (a) the terms of this Note may be amended or modified,
and any obligations of Promisor and the rights of Holder may be waived, in each
case upon the written consent of Promisor and the holders of at least 70% of the
aggregate principal amount of Notes then outstanding, and (b) this Note may be
converted as set forth herein or subordinated without any action of Holder upon
approval by holders of at least 70% of the aggregate principal amount of Notes
then outstanding.

8.6           Remedies.  No delay or omission by the Holder in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and
no course of dealing between the Holder and the undersigned or any other person
shall be deemed a waiver by the Holder of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Holder or the exercise of any other
right, remedy, power or privilege by the Holder.  The rights and remedies of the
Holder described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity
provided that such rights or remedies are not inconsistent with the express
provisions hereof.

8.7           Usury Savings Clause.  In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.
 
8.8           Severability.  If any provision hereof is found by a court of
competent jurisdiction to be prohibited or unenforceable, it shall be
ineffective only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable, nor invalidate
the other provisions hereof, all of which shall be liberally construed in favor
of the Promisee in order to effect the provisions of this Note.
 
8.9           Setoff.  Notwithstanding the absence of an Event of Default, the
Promisee shall have the right to set-off any amounts owed by the Promisee or any
Affiliate of the Promisee (each of which is an intended third party beneficiary
hereunder) to the Promisor whatsoever against any amounts owed by the Promisor
to the Promisee hereunder.
 
8.10         Amendment and Restatement.  This Note amends, restates and
supersedes, but does not discharge the obligations of, nor constitute a novation
with respect to, the indebtedness of the Promisor to Promisee pursuant to that
certain Promissory Note in the principal amount of $144,399.69 dated November
17, 2008, and that certain Promissory Note in the principal amount of
$385,065.85 dated November 21, 2008.
 

 
 

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

 

IN WITNESS WHEREOF, the Promisor has caused this Note to be signed on the
Effective Date.

ECO2 PLASTICS, INC.
 
 
Name: Rodney S. Rougelot
Title: Chief Executive Officer

STATE OF _______________________                                         :
:ss
COUNTY OF _____________________                                          :

On the ____ day of December, 2008 before me personally came Rodney S. Rougelot
who, being by me duly sworn, did depose and say that he is the Chief Executive
Officer of ECO2 Plastics, Inc., and being authorized so to do, executed the
foregoing instrument for the purpose of binding said entity and that he
acknowledged said instrument to be his act and deed.

 
Notary Public

 
 

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

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 
AMENDED AND RESTATED PROMISSORY NOTE
 
San Francisco, California
Date of Issuance: December 17, 2008

FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware corporation (the “Promisor”)
hereby promises to pay to the order of HUTTON LIVING TRUST DATED 12/10/1996 (the
“Promisee” or the “Holder”), in lawful money of the United States at the address
of the Holder set forth herein, the principal amount of fifty thousand three
hundred twenty-eight dollars and seventy-seven cents ($50,328.77) which includes
the total principal plus interest from the current November 17, 2008 note (the
“Note Amount”), together with Interest, as defined below.  This Amended and
Restated Promissory Note (“Note”) has been executed by the Promisor on the date
set forth above (the “Effective Date”).

This Note is one of a series of promissory notes issued by the Promisor pursuant
to that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Promisor and the parties named therein (the
“Purchase Agreement”).  This Note and such other promissory notes issued by the
Promisor pursuant to the Purchase Agreement are herein collectively referred to
as the “Notes.”  This Note is secured by a security interest in certain
collateral of the Promisor pursuant to the Amended and Restated Security
Agreement, dated as of December 17, 2008, as amended, supplemented, restated or
otherwise modified from time to time, by and between the Promisor and the
Promisee (the “Security Agreement”) and is entitled to all the benefits and
obligations provided therein.  All payments of interest and principal shall be
in lawful money of the United States of America and shall be made pro rata among
all holders of the Notes.  The following is a statement of the rights of the
Holder of this Note and the terms and conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of the Note agrees:

13.           Interest.  Interest shall accrue at eight percent (8%) per annum
on the outstanding principal amount of this Note (the “Interest”).  Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
eight percent (8%) per annum (the “Default Interest Rate”).

 
 

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

 

14.          Maturity Date.  The Note Amount, any accrued Interest thereon and
all other sums due hereunder, shall be due and payable three (3) years from the
Effective Date (the “Maturity Date”).

15.          Security.  This Note is secured pursuant to the terms of the
Security Agreement by a security interest in the Collateral (as such term is
defined in the Security Agreement).  This Note is subject to the provisions of
the Security Agreement. It is agreed that all Promisor’s indebtedness, whether
outstanding on the date hereof or subsequently incurred or assumed, except all
indebtedness secured by perfected security interests granted by Promisor in
connection with the Senior Debt (as such term is defined in the Security
Agreement) shall be junior in right of payment to the indebtedness and other
obligations of Promisor pursuant to the Notes.

16.          Application of Payments.

16.1.        Except as otherwise expressly provided herein, payments under this
Note shall be applied, (i) first to the repayment of any sums incurred by the
Holder for the payment of any expenses in enforcing the terms of this Note, (ii)
then to the payment of any accrued but unpaid Interest under this Note, and
(iii) then to the reduction of the Note Amount.

16.2.        The Promisor may only prepay principal upon the written consent of
holders of 70% or more of the aggregate principal amount of the Notes then
outstanding.

16.3.        Upon payment in full of the Note Amount, any applicable accrued and
unpaid Interest thereon, and any other sums due hereunder, this Note shall be
marked “Paid in Full” and returned to the Promisor.

17.          Waiver of Notice.  The Promisor hereby waives presentment for
payment, demand, notice of nonpayment, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
the liability of the Promisor shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Promisee.

18.          Events of Default.  The occurrence of any of the following events
(each an “Event of Default”) shall constitute an Event of Default of the
Promisor:

18.1.        the failure of the Promisor to make any payment due hereunder
within three (3) days after the due date thereof;
 
18.2.        a material default by the Promisor under the Purchase Agreement or
any other document or agreement executed by the Promisor pursuant thereto, which
default, if curable, is not cured within thirty (30) days following written
notice by the Promisee to the Promisor specifying the default in reasonable
detail; and
 
18.3.        (i) the application for the appointment of a receiver or custodian
for the Promisor or the property of the Promisor, (ii) the entry of an order for
relief or the filing of a petition by or against the Promisor under the
provisions of any bankruptcy or insolvency law, (iii) any assignment for the
benefit of creditors by or against the Promisor, or (iv) the Promisor’s
insolvency (which term is defined for purposes of this paragraph as the failure
or inability of the Promisor to meet its obligations as the same fall due).

 
 

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

 

Upon the occurrence of any Event of Default that is not cured within any
applicable cure period, if any, the Holder may, upon the consent of holders of
at least 70% of the aggregate principal amount of the Notes then outstanding
(except in the case of an Event of Default pursuant to Section 6.3(i), (ii) or
(iii), in which case no such consent shall be necessary), elect to take at any
time any or all of the following actions: (i) declare this Note to be forthwith
due and payable, whereupon the entire unpaid Note Amount, together with all
accrued and unpaid Interest thereon (including the Default Interest Rate), and
all other cash obligations hereunder, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Promisor, anything contained herein to
the contrary notwithstanding, (ii) set-off any amounts owed by the Promisee or
any Affiliate of the Promisee (each of which is an intended third party
beneficiary hereunder), to the Promisor whatsoever against any amounts owed by
the Promisor to the Promisee hereunder; and (iii) exercise any and all other
remedies provided hereunder or available at law or in equity.  For purposes of
this Note, “Affiliate” means any other party that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
control with, such party.

If an Event of Default occurs by the Promisor, the Promisor agrees to pay, in
addition to the Note Amount, reasonable attorneys' fees and any other reasonable
costs incurred by the Holder in connection with its pursuit of its remedies
under this Note.

7.           Conversion.

7.1           At any time upon written notice by the Promisee to the Promisor,
the principal amount and all Interest due under this Note shall be converted
into shares of Series C Convertible Preferred Stock of the Promisor
(“Securities”) at a price per share equal to $0.015 (subject to appropriate
adjustment for all stock splits, subdivisions, combinations, recapitalizations
and the like).  No fractional shares of Securities will be issued upon such
conversion of this Note.  In lieu thereof, the number of Securities to be issued
to the Holder shall be rounded to the nearest whole share.  Upon conversion of
this Note pursuant to this Section 7, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Promisor or any transfer agent of the
Promisor.  At its expense, the Promisor will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described herein.  Upon
conversion of this Note, the Promisor will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.

7.2           At any time upon the written election at their discretion of
holders of 70% or more of the aggregate principal amount of Notes then
outstanding, the principal amount and all Interest due under each Note shall be
converted into shares of Securities in the same manner described in Section 7.1
above.

 
 

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

 

8.             Miscellaneous.

8.1           Successors and Assigns.  The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors and permitted assigns of the parties.  This
Note (or a portion hereof) may be assigned by the Holder without the consent of
the Promisor.  This Note may not be assigned by the Promisor without the prior
written consent of the Promisee.

8.2           Loss or Mutilation of Note.  Upon receipt by the Promisor of
evidence reasonably satisfactory to the Promisor of the loss, theft, destruction
or mutilation of this Note, together with indemnity reasonably satisfactory to
the Promisor, in the case of loss, theft or destruction, or the surrender and
cancellation of this Note, in the case of mutilation, the Promisor shall execute
and deliver to the Holder a new promissory note of like tenor and denomination
as this Note.

8.3           Notices.  Any notice or other communication required or permitted
to be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), or (iv) one (1) business day after being
deposited with an overnight courier service, and addressed to the recipient at
the addresses set forth below unless another address is provided to the other
party in writing:
 
If to Promisee, to:

Hutton Living Trust Dated 12/10/1996
Two Santiago Avenue
               Atherton, CA 94027
Fax:           (650) 326-6273

If to the Promisor, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA  94107
Attn:      Rodney S. Rougelot
Fax:       (415) 829-6001 

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:    David M. Otto
Fax:       (206) 262-9513
 
 
 

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

 
 
8.4           Governing Law.  This Note shall be governed in all respects by the
laws of the State of California as applied to agreements entered into and
performed entirely within the State of California by residents thereof, without
regard to any provisions thereof relating to conflicts of laws among different
jurisdictions.

8.5           Waiver and Amendment.  Any term of this Note may be amended,
waived or modified with the written consent of the Promisor and the Holder;
provided however, that (a) the terms of this Note may be amended or modified,
and any obligations of Promisor and the rights of Holder may be waived, in each
case upon the written consent of Promisor and the holders of at least 70% of the
aggregate principal amount of Notes then outstanding, and (b) this Note may be
converted as set forth herein or subordinated without any action of Holder upon
approval by holders of at least 70% of the aggregate principal amount of Notes
then outstanding.

8.6           Remedies.  No delay or omission by the Holder in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and
no course of dealing between the Holder and the undersigned or any other person
shall be deemed a waiver by the Holder of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Holder or the exercise of any other
right, remedy, power or privilege by the Holder.  The rights and remedies of the
Holder described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity
provided that such rights or remedies are not inconsistent with the express
provisions hereof.

8.7           Usury Savings Clause.  In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.
 
8.8           Severability.  If any provision hereof is found by a court of
competent jurisdiction to be prohibited or unenforceable, it shall be
ineffective only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable, nor invalidate
the other provisions hereof, all of which shall be liberally construed in favor
of the Promisee in order to effect the provisions of this Note.
 
8.9           Setoff.  Notwithstanding the absence of an Event of Default, the
Promisee shall have the right to set-off any amounts owed by the Promisee or any
Affiliate of the Promisee (each of which is an intended third party beneficiary
hereunder) to the Promisor whatsoever against any amounts owed by the Promisor
to the Promisee hereunder.
 
8.10           Amendment and Restatement.  This Note amends, restates and
supersedes, but does not discharge the obligations of, nor constitute a novation
with respect to, the indebtedness of the Promisor to Promisee pursuant to that
certain Promissory Note in the principal amount of $50,000 dated November 17,
2008.

 
 

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

 

IN WITNESS WHEREOF, the Promisor has caused this Note to be signed on the
Effective Date.

ECO2 PLASTICS, INC.
 
 
Name: Rodney S. Rougelot
Title: Chief Executive Officer

STATE OF _______________________                                         :
:ss
COUNTY OF _____________________                                          :

On the ____ day of December, 2008 before me personally came Rodney S. Rougelot
who, being by me duly sworn, did depose and say that he is the Chief Executive
Officer of ECO2 Plastics, Inc., and being authorized so to do, executed the
foregoing instrument for the purpose of binding said entity and that he
acknowledged said instrument to be his act and deed.
 
 
Notary Public

 
 

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

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 
AMENDED AND RESTATED PROMISSORY NOTE
 
San Francisco, California
Date of Issuance: December 17, 2008

FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware corporation (the “Promisor”)
hereby promises to pay to the order of TRIDENT CAPITAL FUND-VI PRINCIPALS FUND,
LLC (the “Promisee” or the “Holder”), in lawful money of the United States at
the address of the Holder set forth herein, the principal amount of fifty-four
thousand two hundred fifty-eight dollars and twenty-three cents ($54,258.23)
(the “Note Amount”), together with Interest, as defined below.  This Amended and
Restated Promissory Note (“Note”) has been executed by the Promisor on the date
set forth above (the “Effective Date”).

This Note is one of a series of promissory notes issued by the Promisor pursuant
to that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Promisor and the parties named therein (the
“Purchase Agreement”).  This Note and such other promissory notes issued by the
Promisor pursuant to the Purchase Agreement are herein collectively referred to
as the “Notes.”  This Note is secured by a security interest in certain
collateral of the Promisor pursuant to the Amended and Restated Security
Agreement, dated as of December 17, 2008, as amended, supplemented, restated or
otherwise modified from time to time, by and between the Promisor and the
Promisee (the “Security Agreement”) and is entitled to all the benefits and
obligations provided therein.  All payments of interest and principal shall be
in lawful money of the United States of America and shall be made pro rata among
all holders of the Notes.  The following is a statement of the rights of the
Holder of this Note and the terms and conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of the Note agrees:

19.           Interest.  Interest shall accrue at eight percent (8%) per annum
on the outstanding principal amount of this Note (the “Interest”).  Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
eight percent (8%) per annum (the “Default Interest Rate”).

20.           Maturity Date.  The Note Amount, any accrued Interest thereon and
all other sums due hereunder, shall be due and payable three (3) years from the
Effective Date (the “Maturity Date”).

 
 

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

 

21.         Security.  This Note is secured pursuant to the terms of the
Security Agreement by a security interest in the Collateral (as such term is
defined in the Security Agreement).  This Note is subject to the provisions of
the Security Agreement. It is agreed that all Promisor’s indebtedness, whether
outstanding on the date hereof or subsequently incurred or assumed, except all
indebtedness secured by perfected security interests granted by Promisor in
connection with the Senior Debt (as such term is defined in the Security
Agreement) shall be junior in right of payment to the indebtedness and other
obligations of Promisor pursuant to the Notes.

22.         Application of Payments.

22.1.        Except as otherwise expressly provided herein, payments under this
Note shall be applied, (i) first to the repayment of any sums incurred by the
Holder for the payment of any expenses in enforcing the terms of this Note, (ii)
then to the payment of any accrued but unpaid Interest under this Note, and
(iii) then to the reduction of the Note Amount.

22.2.        The Promisor may only prepay principal upon the written consent of
holders of 70% or more of the aggregate principal amount of the Notes then
outstanding.

22.3.        Upon payment in full of the Note Amount, any applicable accrued and
unpaid Interest thereon, and any other sums due hereunder, this Note shall be
marked “Paid in Full” and returned to the Promisor.

23.         Waiver of Notice.  The Promisor hereby waives presentment for
payment, demand, notice of nonpayment, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
the liability of the Promisor shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Promisee.

24.         Events of Default.  The occurrence of any of the following events
(each an “Event of Default”) shall constitute an Event of Default of the
Promisor:

24.1.        the failure of the Promisor to make any payment due hereunder
within three (3) days after the due date thereof;
 
24.2.        a material default by the Promisor under the Purchase Agreement or
any other document or agreement executed by the Promisor pursuant thereto, which
default, if curable, is not cured within thirty (30) days following written
notice by the Promisee to the Promisor specifying the default in reasonable
detail; and
 
24.3.        (i) the application for the appointment of a receiver or custodian
for the Promisor or the property of the Promisor, (ii) the entry of an order for
relief or the filing of a petition by or against the Promisor under the
provisions of any bankruptcy or insolvency law, (iii) any assignment for the
benefit of creditors by or against the Promisor, or (iv) the Promisor’s
insolvency (which term is defined for purposes of this paragraph as the failure
or inability of the Promisor to meet its obligations as the same fall due).

 
 

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

 

Upon the occurrence of any Event of Default that is not cured within any
applicable cure period, if any, the Holder may, upon the consent of holders of
at least 70% of the aggregate principal amount of the Notes then outstanding
(except in the case of an Event of Default pursuant to Section 6.3(i), (ii) or
(iii), in which case no such consent shall be necessary), elect to take at any
time any or all of the following actions: (i) declare this Note to be forthwith
due and payable, whereupon the entire unpaid Note Amount, together with all
accrued and unpaid Interest thereon (including the Default Interest Rate), and
all other cash obligations hereunder, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Promisor, anything contained herein to
the contrary notwithstanding, (ii) set-off any amounts owed by the Promisee or
any Affiliate of the Promisee (each of which is an intended third party
beneficiary hereunder), to the Promisor whatsoever against any amounts owed by
the Promisor to the Promisee hereunder; and (iii) exercise any and all other
remedies provided hereunder or available at law or in equity.  For purposes of
this Note, “Affiliate” means any other party that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
control with, such party.

If an Event of Default occurs by the Promisor, the Promisor agrees to pay, in
addition to the Note Amount, reasonable attorneys' fees and any other reasonable
costs incurred by the Holder in connection with its pursuit of its remedies
under this Note.

7.           Conversion.

7.1           At any time upon written notice by the Promisee to the Promisor,
the principal amount and all Interest due under this Note shall be converted
into shares of Series C Convertible Preferred Stock of the Promisor
(“Securities”) at a price per share equal to $0.015 (subject to appropriate
adjustment for all stock splits, subdivisions, combinations, recapitalizations
and the like).  No fractional shares of Securities will be issued upon such
conversion of this Note.  In lieu thereof, the number of Securities to be issued
to the Holder shall be rounded to the nearest whole share.  Upon conversion of
this Note pursuant to this Section 7, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Promisor or any transfer agent of the
Promisor.  At its expense, the Promisor will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described herein.  Upon
conversion of this Note, the Promisor will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.

7.2           At any time upon the written election at their discretion of
holders of 70% or more of the aggregate principal amount of Notes then
outstanding, the principal amount and all Interest due under each Note shall be
converted into shares of Securities in the same manner described in Section 7.1
above.

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

8.           Miscellaneous.

8.1           Successors and Assigns.  The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors and permitted assigns of the parties.  This
Note (or a portion hereof) may be assigned by the Holder without the consent of
the Promisor.  This Note may not be assigned by the Promisor without the prior
written consent of the Promisee.

8.2           Loss or Mutilation of Note.  Upon receipt by the Promisor of
evidence reasonably satisfactory to the Promisor of the loss, theft, destruction
or mutilation of this Note, together with indemnity reasonably satisfactory to
the Promisor, in the case of loss, theft or destruction, or the surrender and
cancellation of this Note, in the case of mutilation, the Promisor shall execute
and deliver to the Holder a new promissory note of like tenor and denomination
as this Note.

8.3           Notices.  Any notice or other communication required or permitted
to be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), or (iv) one (1) business day after being
deposited with an overnight courier service, and addressed to the recipient at
the addresses set forth below unless another address is provided to the other
party in writing:

If to Promisee, to:

Trident Capital Fund-VI Principals Fund, LLC
505 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Attn:
Fax:       (650) 289-4444

If to the Promisor, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA  94107
Attn:      Rodney S. Rougelot

Fax:       (415) 829-6001 

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:      David M. Otto
Fax:       (206) 262-9513
 

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

 
8.4           Governing Law.  This Note shall be governed in all respects by the
laws of the State of California as applied to agreements entered into and
performed entirely within the State of California by residents thereof, without
regard to any provisions thereof relating to conflicts of laws among different
jurisdictions.

8.5           Waiver and Amendment.  Any term of this Note may be amended,
waived or modified with the written consent of the Promisor and the Holder;
provided however, that (a) the terms of this Note may be amended or modified,
and any obligations of Promisor and the rights of Holder may be waived, in each
case upon the written consent of Promisor and the holders of at least 70% of the
aggregate principal amount of Notes then outstanding, and (b) this Note may be
converted as set forth herein or subordinated without any action of Holder upon
approval by holders of at least 70% of the aggregate principal amount of Notes
then outstanding.

8.6           Remedies.  No delay or omission by the Holder in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and
no course of dealing between the Holder and the undersigned or any other person
shall be deemed a waiver by the Holder of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Holder or the exercise of any other
right, remedy, power or privilege by the Holder.  The rights and remedies of the
Holder described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity
provided that such rights or remedies are not inconsistent with the express
provisions hereof.

8.7           Usury Savings Clause.  In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.
 
8.8           Severability.  If any provision hereof is found by a court of
competent jurisdiction to be prohibited or unenforceable, it shall be
ineffective only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable, nor invalidate
the other provisions hereof, all of which shall be liberally construed in favor
of the Promisee in order to effect the provisions of this Note.
 
8.9           Setoff.  Notwithstanding the absence of an Event of Default, the
Promisee shall have the right to set-off any amounts owed by the Promisee or any
Affiliate of the Promisee (each of which is an intended third party beneficiary
hereunder) to the Promisor whatsoever against any amounts owed by the Promisor
to the Promisee hereunder.
 
8.10           Amendment and Restatement.  This Note amends, restates and
supersedes, but does not discharge the obligations of, nor constitute a novation
with respect to, the indebtedness of the Promisor to Promisee pursuant to that
certain Promissory Note in the principal amount of $5,600.31 dated November 17,
2008, and that certain Promissory Note in the principal amount of $14,934.15
dated November 21, 2008.
 

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

 
IN WITNESS WHEREOF, the Promisor has caused this Note to be signed on the
Effective Date.

ECO2 PLASTICS, INC.
 
 
Name: Rodney S. Rougelot
Title: Chief Executive Officer

STATE OF _______________________                                         :
:ss
COUNTY OF _____________________                                          :

On the ____ day of December, 2008 before me personally came Rodney S. Rougelot
who, being by me duly sworn, did depose and say that he is the Chief Executive
Officer of ECO2 Plastics, Inc., and being authorized so to do, executed the
foregoing instrument for the purpose of binding said entity and that he
acknowledged said instrument to be his act and deed.
 
 
Notary Public

 
 

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

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.
 
CONVERTIBLE PROMISSORY NOTE

San Francisco, California
Date of Issuance: December 17, 2008

FOR VALUE RECEIVED, ECO2 PLASTICS, INC., a Delaware corporation (the “Promisor”)
hereby promises to pay to the order of __________________ (the “Promisee” or the
“Holder”), in lawful money of the United States at the address of the Holder set
forth herein, the principal amount of [_____________________] (the “Note
Amount”), together with Interest, as defined below.  This Convertible Promissory
Note (“Note”) has been executed by the Promisor on the date set forth above (the
“Effective Date”).

This Note is one of a series of promissory notes issued by the Promisor pursuant
to that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Promisor and the parties named therein (the
“Purchase Agreement”).  This Note and such other promissory notes issued by the
Promisor pursuant to the Purchase Agreement are herein collectively referred to
as the “Notes.”  This Note is secured by a security interest in certain
collateral of the Promisor pursuant to the Amended and Restated Security
Agreement, dated as of December 17, 2008, as amended, supplemented, restated or
otherwise modified from time to time, by and between the Promisor and the
Promisee (the “Security Agreement”) and is entitled to all the benefits and
obligations provided therein.  All payments of interest and principal shall be
in lawful money of the United States of America and shall be made pro rata among
all holders of the Notes.  The following is a statement of the rights of the
Holder of this Note and the terms and conditions to which this Note is subject,
and to which the Holder hereof, by the acceptance of the Note agrees:

25.           Interest.  Interest shall accrue at eight percent (8%) per annum
on the outstanding principal amount of this Note (the “Interest”).  Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, Interest shall accrue on the outstanding Note Amount at the rate of
eight percent (8%) per annum (the “Default Interest Rate”).

26.           Maturity Date.  The Note Amount, any accrued Interest thereon and
all other sums due hereunder, shall be due and payable three (3) years from the
Effective Date (the “Maturity Date”).
 

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

 
27.          Security.  This Note is secured pursuant to the terms of the
Security Agreement by a security interest in the Collateral (as such term is
defined in the Security Agreement).  This Note is subject to the provisions of
the Security Agreement. It is agreed that all Promisor’s indebtedness, whether
outstanding on the date hereof or subsequently incurred or assumed, except all
indebtedness secured by perfected security interests granted by Promisor in
connection with the Senior Debt (as such term is defined in the Security
Agreement) shall be junior in right of payment to the indebtedness and other
obligations of Promisor pursuant to the Notes.

28.          Application of Payments.

28.1.        Except as otherwise expressly provided herein, payments under this
Note shall be applied, (i) first to the repayment of any sums incurred by the
Holder for the payment of any expenses in enforcing the terms of this Note, (ii)
then to the payment of any accrued but unpaid Interest under this Note, and
(iii) then to the reduction of the Note Amount.

28.2.        The Promisor may only prepay principal upon the written consent of
holders of 70% or more of the aggregate principal amount of the Notes then
outstanding.

28.3.        Upon payment in full of the Note Amount, any applicable accrued and
unpaid Interest thereon, and any other sums due hereunder, this Note shall be
marked “Paid in Full” and returned to the Promisor.

29.          Waiver of Notice.  The Promisor hereby waives presentment for
payment, demand, notice of nonpayment, notice of protest and protest of this
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
the liability of the Promisor shall be unconditional without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by the Promisee.

30.          Events of Default.  The occurrence of any of the following events
(each an “Event of Default”) shall constitute an Event of Default of the
Promisor:

30.1.        the failure of the Promisor to make any payment due hereunder
within three (3) days after the due date thereof;
 
30.2.        a material default by the Promisor under the Purchase Agreement or
any other document or agreement executed by the Promisor pursuant thereto, which
default, if curable, is not cured within thirty (30) days following written
notice by the Promisee to the Promisor specifying the default in reasonable
detail; and
 
30.3.        (i) the application for the appointment of a receiver or custodian
for the Promisor or the property of the Promisor, (ii) the entry of an order for
relief or the filing of a petition by or against the Promisor under the
provisions of any bankruptcy or insolvency law, (iii) any assignment for the
benefit of creditors by or against the Promisor, or (iv) the Promisor’s
insolvency (which term is defined for purposes of this paragraph as the failure
or inability of the Promisor to meet its obligations as the same fall due).
 

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

 
Upon the occurrence of any Event of Default that is not cured within any
applicable cure period, if any, the Holder may, upon the consent of holders of
at least 70% of the aggregate principal amount of the Notes then outstanding
(except in the case of an Event of Default pursuant to Section 6.3(i), (ii) or
(iii), in which case no such consent shall be necessary), elect to take at any
time any or all of the following actions: (i) declare this Note to be forthwith
due and payable, whereupon the entire unpaid Note Amount, together with all
accrued and unpaid Interest thereon (including the Default Interest Rate), and
all other cash obligations hereunder, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Promisor, anything contained herein to
the contrary notwithstanding, (ii) set-off any amounts owed by the Promisee or
any Affiliate of the Promisee (each of which is an intended third party
beneficiary hereunder), to the Promisor whatsoever against any amounts owed by
the Promisor to the Promisee hereunder; and (iii) exercise any and all other
remedies provided hereunder or available at law or in equity.  For purposes of
this Note, “Affiliate” means any other party that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
control with, such party.

If an Event of Default occurs by the Promisor, the Promisor agrees to pay, in
addition to the Note Amount, reasonable attorneys' fees and any other reasonable
costs incurred by the Holder in connection with its pursuit of its remedies
under this Note.

7.           Conversion.

7.1           At any time upon written notice by the Promisee to the Promisor,
the principal amount and all Interest due under this Note shall be converted
into shares of Series C Convertible Preferred Stock of the Promisor
(“Securities”) at a price per share equal to $0.015 (subject to appropriate
adjustment for all stock splits, subdivisions, combinations, recapitalizations
and the like).  No fractional shares of Securities will be issued upon such
conversion of this Note.  In lieu thereof, the number of Securities to be issued
to the Holder shall be rounded to the nearest whole share.  Upon conversion of
this Note pursuant to this Section 7, the Holder shall surrender this Note, duly
endorsed, at the principal offices of the Promisor or any transfer agent of the
Promisor.  At its expense, the Promisor will, as soon as practicable thereafter,
issue and deliver to such Holder, at such principal office, a certificate or
certificates for the number of shares to which such Holder is entitled upon such
conversion, together with any other securities and property to which the Holder
is entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described herein.  Upon
conversion of this Note, the Promisor will be forever released from all of its
obligations and liabilities under this Note with regard to that portion of the
principal amount and accrued interest being converted including without
limitation the obligation to pay such portion of the principal amount and
accrued interest.

7.2           At any time upon the written election at their discretion of
holders of 70% or more of the aggregate principal amount of Notes then
outstanding, the principal amount and all Interest due under each Note shall be
converted into shares of Securities in the same manner described in Section 7.1
above.
 

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

 
8.           Miscellaneous.

8.1           Successors and Assigns.  The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective executors,
administrators, heirs, successors and permitted assigns of the parties.  This
Note (or a portion hereof) may be assigned by the Holder without the consent of
the Promisor.  This Note may not be assigned by the Promisor without the prior
written consent of the Promisee.

8.2           Loss or Mutilation of Note.  Upon receipt by the Promisor of
evidence reasonably satisfactory to the Promisor of the loss, theft, destruction
or mutilation of this Note, together with indemnity reasonably satisfactory to
the Promisor, in the case of loss, theft or destruction, or the surrender and
cancellation of this Note, in the case of mutilation, the Promisor shall execute
and deliver to the Holder a new promissory note of like tenor and denomination
as this Note.

8.3           Notices.  Any notice or other communication required or permitted
to be given pursuant to the terms of this Note shall be in writing and shall be
deemed effectively given the earlier of, (i) when received, (ii) when delivered
personally, (iii) one business day after being delivered by facsimile (with
receipt of appropriate confirmation), or (iv) one (1) business day after being
deposited with an overnight courier service, and addressed to the recipient at
the addresses set forth below unless another address is provided to the other
party in writing:

If to Promisee, to:
 
____________________
____________________
____________________
Attn:       ____________________
Fax:         ____________________

If to the Promisor, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA  94107
Attn:       Rodney S. Rougelot
Fax:       (415) 829-6001 

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:      David M. Otto
Fax:       (206) 262-9513

8.4           Governing Law.  This Note shall be governed in all respects by the
laws of the State of California as applied to agreements entered into and
performed entirely within the State of California by residents thereof, without
regard to any provisions thereof relating to conflicts of laws among different
jurisdictions.
 

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8.5           Waiver and Amendment.  Any term of this Note may be amended,
waived or modified with the written consent of the Promisor and the Holder;
provided however, that (a) the terms of this Note may be amended or modified,
and any obligations of Promisor and the rights of Holder may be waived, in each
case upon the written consent of Promisor and the holders of at least 70% of the
aggregate principal amount of Notes then outstanding, and (b) this Note may be
converted as set forth herein or subordinated without any action of Holder upon
approval by holders of at least 70% of the aggregate principal amount of Notes
then outstanding.

8.6           Remedies.  No delay or omission by the Holder in exercising any of
its rights, remedies, powers or privileges hereunder or at law or in equity and
no course of dealing between the Holder and the undersigned or any other person
shall be deemed a waiver by the Holder of any such rights, remedies, powers or
privileges, even if such delay or omission is continuous or repeated, nor shall
any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise thereof by the Holder or the exercise of any other
right, remedy, power or privilege by the Holder.  The rights and remedies of the
Holder described herein shall be cumulative and not restrictive of any other
rights or remedies available under any other instrument, at law or in equity
provided that such rights or remedies are not inconsistent with the express
provisions hereof.

8.7           Usury Savings Clause.  In the event any interest is paid on this
Note which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.
 
8.8           Severability.  If any provision hereof is found by a court of
competent jurisdiction to be prohibited or unenforceable, it shall be
ineffective only to the extent of such prohibition or unenforceability, and such
prohibition or unenforceability shall not invalidate the balance of such
provision to the extent it is not prohibited or unenforceable, nor invalidate
the other provisions hereof, all of which shall be liberally construed in favor
of the Promisee in order to effect the provisions of this Note.
 
8.9           Setoff.  Notwithstanding the absence of an Event of Default, the
Promisee shall have the right to set-off any amounts owed by the Promisee or any
Affiliate of the Promisee (each of which is an intended third party beneficiary
hereunder) to the Promisor whatsoever against any amounts owed by the Promisor
to the Promisee hereunder.

 
 

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IN WITNESS WHEREOF, the Promisor has caused this Note to be signed on the
Effective Date.

ECO2 PLASTICS, INC.
 
 
Name: Rodney S. Rougelot
Title: Chief Executive Officer

STATE OF _______________________                                         :
:ss
COUNTY OF _____________________                                          :

On the ______ day of December, 2008 before me personally came Rodney S. Rougelot
who, being by me duly sworn, did depose and say that he is the Chief Executive
Officer of ECO2 Plastics, Inc., and being authorized so to do, executed the
foregoing instrument for the purpose of binding said entity and that he
acknowledged said instrument to be his act and deed.
 
 
Notary Public

 
 

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Exhibit B
 
Forms of Warrants
 

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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.

Warrant To Purchase 50,100,822 Shares of Common Stock

Void after April 14, 2015

ECO2 PLASTICS, INC.
(f.k.a., Itec Environmental Group, inc.)

Date of Issuance: December 17, 2008

No.  394

THIS CERTIFIES that, for value received, Peninsula Packaging, LLC, a California
limited liability company or its assigns (in either case, the “Holder”) is
entitled to purchase, subject to the provisions of this Warrant, from ECO2
Plastics, Inc., a Delaware corporation (the “Company”), at the price per share
set forth in Section 9 hereof, that number of shares of the Company’s common
stock (the “Common Stock”) set forth in Section 8 hereof.  This Warrant is
referred to herein as the “Warrant” and the shares of Common Stock issuable
pursuant to the terms hereof are sometimes referred to herein as “Warrant
Shares.”

This Warrant is one of a series of warrants issued by the Company pursuant to
that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Company and the parties named therein (the
“Purchase Agreement”).  This Warrant and such other warrants issued by the
Company pursuant to the Purchase Agreement are herein collectively referred to
as the “Warrants.”  Capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Purchase Agreement.

1.           Holder Exercise of Warrant.  This Warrant shall be exercisable in
whole or in part.  To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of
the Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice.  Each certificate representing Warrant Shares shall bear the legend or
legends required by applicable securities laws as well as such other legend(s)
the Company requires to be included on certificates for its Common Stock.  The
Company shall pay all expenses and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice.  All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  If this Warrant
is exercised in part, the Company shall, upon surrender of this Warrant, execute
and deliver, within 20 days of the date of exercise, a new Warrant evidencing
the rights of the Holder, or such other person as shall be designated in the
Notice of Exercise, to purchase the balance of the Warrant Shares purchasable
hereunder.
 

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

 
The Warrant shall expire on April 14, 2015 (the “Expiration Date”).  The
Investor may exercise the warrant in whole or in part at any time prior to the
Expiration Date.  The Company has no restriction on the sale or transfer of the
Warrant or Warrant Shares; however, the Investor is required to comply with all
state and U.S. laws and regulations relating to security sales and
transfers.  This Warrant shall automatically be exercised in full as of
immediately prior to termination of the Warrant on the Expiration Date, on a net
issue basis pursuant to Section 9(b), to the extent the Warrant shall not have
previously been exercised in full.

2.           Reservation of Shares. The Company hereby covenants that at all
times during the term of this Warrant there shall be reserved for issuance such
number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.

3.           Fractional Shares.  This Warrant may be exercised only for a whole
number of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.           Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Warrant Shares pursuant
hereto and the performance of the Company's obligations hereunder were taken
prior to and are effective as of the effective date of this Warrant.

5.           Transfer of Warrant and Warrant Shares.  The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole, in accordance
with and subject to the terms and conditions set forth in this Warrant and then
only if such sale, pledge, hypothecation, or transfer is made in compliance with
the 1933 Act or pursuant to an available exemption from registration under the
1933 Act relating to the disposition of securities.

6.           Loss of Warrant.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new warrant of
like tenor.

7.           Rights of the Holder.  No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein.  Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

8.           Number of Warrant Shares.  This Warrant shall be exercisable for
50,100,822 shares (as originally determined pursuant to the Purchase Agreement)
of the Company’s Common Stock, as adjusted in accordance with this Warrant.

9.           Exercise Price; Adjustment of Warrants.

a.           Determination of Exercise Price.  The per share purchase price (the
“Exercise Price”) for each of the Warrant Shares purchasable under this Warrant
shall be equal to $0.015, as adjusted in accordance with this Warrant.

b.           Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1 above, the Holder may elect to receive a number of Warrant Shares
equal to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
 

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

X = Y (A-B)
A

Where X
=
the number of Warrant Shares to be issued to the Holder.
     
Y
=
the number of Warrant Shares purchasable under this Warrant.
     
A
=
the fair market value of one Warrant Share on the date of determination.
     
B
=
the per share Exercise Price (as adjusted to the date of such calculation).

 
Fair Market Value. For purposes of this section, the per share fair market value
of the Warrant Shares shall mean:

(i)           If the Company's Common Stock is publicly traded, the per share
fair market value of the Warrant Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
fifteen (15) trading days ending five (5) trading days prior to the date of
determination of fair market value;

(ii)           If the Company's Common Stock is not so publicly traded, the per
share fair market value of the Warrant Shares shall be such fair market value as
is determined in good faith by the Board of Directors of the Company after
taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.

c.           Reclassification. In the case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance reasonably satisfactory to the holder of this Warrant), or the Company
shall make appropriate provision without the issuance of a new Warrant, so that
the holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (c) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
 
d.  Stock Splits, Dividends and Combinations. In the event that the Company
shall at any time subdivide the outstanding shares of Common Stock or shall
issue a stock dividend on its outstanding shares of Common Stock the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
subdivision or to the issuance of such stock dividend shall be proportionately
increased, and the Exercise Price shall be proportionately decreased, and in the
event that the Company shall at any time combine the outstanding shares of
Common Stock the number of Warrant Shares issuable upon exercise of this Warrant
immediately prior to such combination shall be proportionately decreased, and
the Exercise Price shall be proportionately increased, effective at the close of
business on the date of such subdivision, stock dividend or combination, as the
case may be.
 

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

 
e.           NO IMPAIRMENT.  THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.

f.           Issue Taxes.  The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.

g.           Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.

h.           Stock Fully Paid.  All of the shares issuable upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.

i.           Reservation of Stock Issuable Upon Conversion.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

10.           Certain Distributions.  In case the Company shall, at any time,
prior to the Expiration Date, declare any distribution of its assets to holders
of its Common Stock as a partial liquidation, distribution or by way of return
of capital, other than as a dividend payable out of earnings or any surplus
legally available for dividends, then the Holder shall be entitled, upon the
proper exercise of this Warrant in whole prior to the effecting of such
declaration, to receive, in addition to the shares of Common Stock issuable on
such exercise, the amount of such assets (or at the option of the Company a sum
equal to the value thereof at the time of such distribution to holders of Common
Stock as such value is determined by the Board of Directors of the Company in
good faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

11.           Dissolution or Liquidation.  In case the Company shall, at any
time prior to the Expiration Date, dissolve, liquidate or wind up its affairs,
the Holder shall be entitled, upon the proper exercise of this Warrant in whole
and prior to any distribution associated with such dissolution, liquidation, or
winding up, to receive on such exercise, in lieu of the shares of Common Stock
to which the Holder would have been entitled, the same kind and amount of assets
as would have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

12.           Notice of Adjustments. Whenever the number of Warrant Shares
purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant
to Section 9 hereof, the Company shall provide notice to the Holder setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and class of shares which may be purchased thereafter and the Exercise
Price therefor after giving effect to such adjustment.
 

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

 
13.          Registration Rights. The Holder hereof shall be entitled, with
respect to the Warrant Shares issued upon exercise hereof, to all of the
registration rights set forth in the Company’s Investor Rights Agreement, dated
as of June 4, 2008, as amended September 15, 2008 (the “Rights Agreement”), to
the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement.  The Company
shall take such action as may be reasonably necessary to (a) amend the Rights
Agreement to effect the foregoing and (b) assure that the granting of such
registration rights to the Holder does not violate the provisions of the Rights
Agreement or any of the Company’s charter documents or rights of prior grantees
of registration rights.

14.          Miscellaneous.

a.           Successors and Assigns.  The terms and conditions of this Warrant
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided
herein.  Nothing in this Warrant, express or implied, is intended to confer upon
any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant, except as expressly provided in this Warrant.

b.           Governing Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c.           Counterparts; Delivery by Facsimile.  This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of
this Warrant may be effected by facsimile.

d.           Titles and Subtitles.  The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting this Warrant.

e.           Notices.  Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified by certified mail, return receipt requested and: (i) if to the Company,
addressed to ECO2 Plastics, Inc., 680 Second Street, Suite 200, San Francisco,
California 94107, or at such other address as the Company may designate by
notice to each of the Investors in accordance with the provisions of this
Section; and (ii) if to the Warrant holder, at the address indicated in the
Purchase Agreement, or at such other addresses as such Holder may designate by
notice to the Company in accordance with the provisions of this Section.

f.           Amendments and Waivers.  Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and the Holder; provided,
however,   that the terms of this Warrant may also be amended, modified or
terminated upon the written consent of the Company and the initial holders of at
least 70% in interest of the Warrants issued pursuant to the Purchase Agreement
(based on the number of Warrant Shares initially exercisable thereunder) if at
the same time all such Warrants issued to the Purchase Agreement are so amended,
modified or terminated in a similar manner.

g.           Entire Agreement.  This Warrant and the Purchase Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.

[Signature Page Follows]
 

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IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal on the date
set forth above.
 
ECO2 Plastics, Inc.

By:
   
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer

 

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

To:  ECO2 Plastics, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on December 17, 2008 and
to purchase thereunder __________* shares of Common Stock of ECO2 Plastics, Inc.
(the “Company”).

NET ISSUE EXERCISE ELECTION:  If applicable, the undersigned elects to purchase
the Warrant Shares by net issue exercise pursuant to Section 9(b) of the
Warrant, by initialing in the following space (please initial only if net issue
exercise chosen):
 
Net issue exercise election chosen (INITIAL): ________

Dated: ________________

 
 

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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.

Warrant To Purchase 1,808,608 Shares of Common Stock

Void after April 14, 2015

ECO2 PLASTICS, INC.
(f.k.a., Itec Environmental Group, inc.)

Date of Issuance: December 17, 2008

No.  395

THIS CERTIFIES that, for value received, Trident Capital Fund-VI Principals
Fund, LLC or its assigns (in either case, the “Holder”) is entitled to purchase,
subject to the provisions of this Warrant, from ECO2 Plastics, Inc., a Delaware
corporation (the “Company”), at the price per share set forth in Section 9
hereof, that number of shares of the Company’s common stock (the “Common Stock”)
set forth in Section 8 hereof.  This Warrant is referred to herein as the
“Warrant” and the shares of Common Stock issuable pursuant to the terms hereof
are sometimes referred to herein as “Warrant Shares.”

This Warrant is one of a series of warrants issued by the Company pursuant to
that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Company and the parties named therein (the
“Purchase Agreement”).  This Warrant and such other warrants issued by the
Company pursuant to the Purchase Agreement are herein collectively referred to
as the “Warrants.”  Capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Purchase Agreement.

1.           Holder Exercise of Warrant.  This Warrant shall be exercisable in
whole or in part.  To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of
the Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice.  Each certificate representing Warrant Shares shall bear the legend or
legends required by applicable securities laws as well as such other legend(s)
the Company requires to be included on certificates for its Common Stock.  The
Company shall pay all expenses and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice.  All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  If this Warrant
is exercised in part, the Company shall, upon surrender of this Warrant, execute
and deliver, within 20 days of the date of exercise, a new Warrant evidencing
the rights of the Holder, or such other person as shall be designated in the
Notice of Exercise, to purchase the balance of the Warrant Shares purchasable
hereunder.
 

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

 
The Warrant shall expire on April 14, 2015 (the “Expiration Date”).  The
Investor may exercise the warrant in whole or in part at any time prior to the
Expiration Date.  The Company has no restriction on the sale or transfer of the
Warrant or Warrant Shares; however, the Investor is required to comply with all
state and U.S. laws and regulations relating to security sales and
transfers.  This Warrant shall automatically be exercised in full as of
immediately prior to termination of the Warrant on the Expiration Date, on a net
issue basis pursuant to Section 9(b), to the extent the Warrant shall not have
previously been exercised in full.

2.           Reservation of Shares. The Company hereby covenants that at all
times during the term of this Warrant there shall be reserved for issuance such
number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.

3.           Fractional Shares.  This Warrant may be exercised only for a whole
number of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.           Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Warrant Shares pursuant
hereto and the performance of the Company's obligations hereunder were taken
prior to and are effective as of the effective date of this Warrant.

5.           Transfer of Warrant and Warrant Shares.  The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole, in accordance
with and subject to the terms and conditions set forth in this Warrant and then
only if such sale, pledge, hypothecation, or transfer is made in compliance with
the 1933 Act or pursuant to an available exemption from registration under the
1933 Act relating to the disposition of securities.

6.           Loss of Warrant.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new warrant of
like tenor.

7.           Rights of the Holder.  No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein.  Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

8.           Number of Warrant Shares.  This Warrant shall be exercisable for
1,808,608 shares (as originally determined pursuant to the Purchase Agreement)
of the Company’s Common Stock, as adjusted in accordance with this Warrant.

9.           Exercise Price; Adjustment of Warrants.

a.           Determination of Exercise Price.  The per share purchase price (the
“Exercise Price”) for each of the Warrant Shares purchasable under this Warrant
shall be equal to $0.015, as adjusted in accordance with this Warrant.

b.           Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1 above, the Holder may elect to receive a number of Warrant Shares
equal to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
 

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

 
X = Y (A-B)
    -------
        A
 
Where X
=
the number of Warrant Shares to be issued to the Holder.
     
Y
=
the number of Warrant Shares purchasable under this Warrant.
     
A
=
the fair market value of one Warrant Share on the date of determination.
     
B
=
the per share Exercise Price (as adjusted to the date of such calculation).

Fair Market Value. For purposes of this section, the per share fair market value
of the Warrant Shares shall mean:

(i)           If the Company's Common Stock is publicly traded, the per share
fair market value of the Warrant Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
fifteen (15) trading days ending five (5) trading days prior to the date of
determination of fair market value;

(ii)           If the Company's Common Stock is not so publicly traded, the per
share fair market value of the Warrant Shares shall be such fair market value as
is determined in good faith by the Board of Directors of the Company after
taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.

c.           Reclassification. In the case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance reasonably satisfactory to the holder of this Warrant), or the Company
shall make appropriate provision without the issuance of a new Warrant, so that
the holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (c) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
 
d.           Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding shares of Common Stock the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased, and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such subdivision,
stock dividend or combination, as the case may be.
 

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

 
e.           NO IMPAIRMENT.  THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.

f.           Issue Taxes.  The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.

g.           Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.

h.           Stock Fully Paid.  All of the shares issuable upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.

i.           Reservation of Stock Issuable Upon Conversion.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

10.           Certain Distributions.  In case the Company shall, at any time,
prior to the Expiration Date, declare any distribution of its assets to holders
of its Common Stock as a partial liquidation, distribution or by way of return
of capital, other than as a dividend payable out of earnings or any surplus
legally available for dividends, then the Holder shall be entitled, upon the
proper exercise of this Warrant in whole prior to the effecting of such
declaration, to receive, in addition to the shares of Common Stock issuable on
such exercise, the amount of such assets (or at the option of the Company a sum
equal to the value thereof at the time of such distribution to holders of Common
Stock as such value is determined by the Board of Directors of the Company in
good faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

11.           Dissolution or Liquidation.  In case the Company shall, at any
time prior to the Expiration Date, dissolve, liquidate or wind up its affairs,
the Holder shall be entitled, upon the proper exercise of this Warrant in whole
and prior to any distribution associated with such dissolution, liquidation, or
winding up, to receive on such exercise, in lieu of the shares of Common Stock
to which the Holder would have been entitled, the same kind and amount of assets
as would have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

12.           Notice of Adjustments. Whenever the number of Warrant Shares
purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant
to Section 9 hereof, the Company shall provide notice to the Holder setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and class of shares which may be purchased thereafter and the Exercise
Price therefor after giving effect to such adjustment.
 

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

 
13.           Registration Rights. The Holder hereof shall be entitled, with
respect to the Warrant Shares issued upon exercise hereof, to all of the
registration rights set forth in the Company’s Investor Rights Agreement, dated
as of June 4, 2008, as amended September 15, 2008 (the “Rights Agreement”), to
the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement.  The Company
shall take such action as may be reasonably necessary to (a) amend the Rights
Agreement to effect the foregoing and (b) assure that the granting of such
registration rights to the Holder does not violate the provisions of the Rights
Agreement or any of the Company’s charter documents or rights of prior grantees
of registration rights.

14.           Miscellaneous.

a.           Successors and Assigns.  The terms and conditions of this Warrant
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided
herein.  Nothing in this Warrant, express or implied, is intended to confer upon
any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant, except as expressly provided in this Warrant.

b.          Governing Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c.          Counterparts; Delivery by Facsimile.  This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of
this Warrant may be effected by facsimile.

d.          Titles and Subtitles.  The titles and subtitles used in this Warrant
are used for convenience only and are not to be considered in construing or
interpreting this Warrant.

e.          Notices.  Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified by certified mail, return receipt requested and: (i) if to the Company,
addressed to ECO2 Plastics, Inc., 680 Second Street, Suite 200, San Francisco,
California 94107, or at such other address as the Company may designate by
notice to each of the Investors in accordance with the provisions of this
Section; and (ii) if to the Warrant holder, at the address indicated in the
Purchase Agreement, or at such other addresses as such Holder may designate by
notice to the Company in accordance with the provisions of this Section.

f.           Amendments and Waivers.  Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and the Holder; provided,
however,   that the terms of this Warrant may also be amended, modified or
terminated upon the written consent of the Company and the initial holders of at
least 70% in interest of the Warrants issued pursuant to the Purchase Agreement
(based on the number of Warrant Shares initially exercisable thereunder) if at
the same time all such Warrants issued to the Purchase Agreement are so amended,
modified or terminated in a similar manner.

h.          Entire Agreement.  This Warrant and the Purchase Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.

[Signature Page Follows]

 
 

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

 

IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal on the date
set forth above.

ECO2 Plastics, Inc.
   
By:
       
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer

 
 

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

 

EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

To:  ECO2 Plastics, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on December [__], 2008 and
to purchase thereunder __________* shares of Common Stock of ECO2 Plastics, Inc.
(the “Company”).

NET ISSUE EXERCISE ELECTION:  If applicable, the undersigned elects to purchase
the Warrant Shares by net issue exercise pursuant to Section 9(b) of the
Warrant, by initialing in the following space (please initial only if net issue
exercise chosen):
 
Net issue exercise election chosen (INITIAL): ________

Dated: ________________________________

 
 

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

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.

Warrant To Purchase 46,633,583 Shares of Common Stock

Void after April 14, 2015

ECO2 PLASTICS, INC.
(f.k.a., Itec Environmental Group, inc.)

Date of Issuance: December 17, 2008

No.  396

THIS CERTIFIES that, for value received, Trident Capital Fund-VI, L.P. or its
assigns (in either case, the “Holder”) is entitled to purchase, subject to the
provisions of this Warrant, from ECO2 Plastics, Inc., a Delaware corporation
(the “Company”), at the price per share set forth in Section 9 hereof, that
number of shares of the Company’s common stock (the “Common Stock”) set forth in
Section 8 hereof.  This Warrant is referred to herein as the “Warrant” and the
shares of Common Stock issuable pursuant to the terms hereof are sometimes
referred to herein as “Warrant Shares.”

This Warrant is one of a series of warrants issued by the Company pursuant to
that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Company and the parties named therein (the
“Purchase Agreement”).  This Warrant and such other warrants issued by the
Company pursuant to the Purchase Agreement are herein collectively referred to
as the “Warrants.”  Capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Purchase Agreement.

1.           Holder Exercise of Warrant.  This Warrant shall be exercisable in
whole or in part.  To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of
the Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice.  Each certificate representing Warrant Shares shall bear the legend or
legends required by applicable securities laws as well as such other legend(s)
the Company requires to be included on certificates for its Common Stock.  The
Company shall pay all expenses and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice.  All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  If this Warrant
is exercised in part, the Company shall, upon surrender of this Warrant, execute
and deliver, within 20 days of the date of exercise, a new Warrant evidencing
the rights of the Holder, or such other person as shall be designated in the
Notice of Exercise, to purchase the balance of the Warrant Shares purchasable
hereunder.
 

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

 
The Warrant shall expire on April 14, 2015 (the “Expiration Date”).  The
Investor may exercise the warrant in whole or in part at any time prior to the
Expiration Date.  The Company has no restriction on the sale or transfer of the
Warrant or Warrant Shares; however, the Investor is required to comply with all
state and U.S. laws and regulations relating to security sales and
transfers.  This Warrant shall automatically be exercised in full as of
immediately prior to termination of the Warrant on the Expiration Date, on a net
issue basis pursuant to Section 9(b), to the extent the Warrant shall not have
previously been exercised in full.

2.           Reservation of Shares. The Company hereby covenants that at all
times during the term of this Warrant there shall be reserved for issuance such
number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.

3.           Fractional Shares.  This Warrant may be exercised only for a whole
number of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.           Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Warrant Shares pursuant
hereto and the performance of the Company's obligations hereunder were taken
prior to and are effective as of the effective date of this Warrant.

5.           Transfer of Warrant and Warrant Shares.  The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole, in accordance
with and subject to the terms and conditions set forth in this Warrant and then
only if such sale, pledge, hypothecation, or transfer is made in compliance with
the 1933 Act or pursuant to an available exemption from registration under the
1933 Act relating to the disposition of securities.

6.           Loss of Warrant.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new warrant of
like tenor.

7.           Rights of the Holder.  No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein.  Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

8.           Number of Warrant Shares.  This Warrant shall be exercisable for
46,633,583 shares (as originally determined pursuant to the Purchase Agreement)
of the Company’s Common Stock, as adjusted in accordance with this Warrant.

9.           Exercise Price; Adjustment of Warrants.

a.           Determination of Exercise Price.  The per share purchase price (the
“Exercise Price”) for each of the Warrant Shares purchasable under this Warrant
shall be equal to $0.015, as adjusted in accordance with this Warrant.

b.           Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1 above, the Holder may elect to receive a number of Warrant Shares
equal to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
 

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

 
X = Y (A-B)
    -------
        A

Where X
=
the number of Warrant Shares to be issued to the Holder.
     
Y
=
the number of Warrant Shares purchasable under this Warrant.
     
A
=
the fair market value of one Warrant Share on the date of determination.
     
B
=
the per share Exercise Price (as adjusted to the date of such calculation).

 
Fair Market Value. For purposes of this section, the per share fair market value
of the Warrant Shares shall mean:

(i)           If the Company's Common Stock is publicly traded, the per share
fair market value of the Warrant Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
fifteen (15) trading days ending five (5) trading days prior to the date of
determination of fair market value;

(ii)           If the Company's Common Stock is not so publicly traded, the per
share fair market value of the Warrant Shares shall be such fair market value as
is determined in good faith by the Board of Directors of the Company after
taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.

c.           Reclassification. In the case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance reasonably satisfactory to the holder of this Warrant), or the Company
shall make appropriate provision without the issuance of a new Warrant, so that
the holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (c) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
 
d.           Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding shares of Common Stock the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased, and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such subdivision,
stock dividend or combination, as the case may be.
 

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e.           NO IMPAIRMENT.  THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.

f.           Issue Taxes.  The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.

g.          Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.

h.          Stock Fully Paid.  All of the shares issuable upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.

i.           Reservation of Stock Issuable Upon Conversion.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

10.           Certain Distributions.  In case the Company shall, at any time,
prior to the Expiration Date, declare any distribution of its assets to holders
of its Common Stock as a partial liquidation, distribution or by way of return
of capital, other than as a dividend payable out of earnings or any surplus
legally available for dividends, then the Holder shall be entitled, upon the
proper exercise of this Warrant in whole prior to the effecting of such
declaration, to receive, in addition to the shares of Common Stock issuable on
such exercise, the amount of such assets (or at the option of the Company a sum
equal to the value thereof at the time of such distribution to holders of Common
Stock as such value is determined by the Board of Directors of the Company in
good faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

11.           Dissolution or Liquidation.  In case the Company shall, at any
time prior to the Expiration Date, dissolve, liquidate or wind up its affairs,
the Holder shall be entitled, upon the proper exercise of this Warrant in whole
and prior to any distribution associated with such dissolution, liquidation, or
winding up, to receive on such exercise, in lieu of the shares of Common Stock
to which the Holder would have been entitled, the same kind and amount of assets
as would have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

12.           Notice of Adjustments. Whenever the number of Warrant Shares
purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant
to Section 9 hereof, the Company shall provide notice to the Holder setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and class of shares which may be purchased thereafter and the Exercise
Price therefor after giving effect to such adjustment.
 

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13.           Registration Rights. The Holder hereof shall be entitled, with
respect to the Warrant Shares issued upon exercise hereof, to all of the
registration rights set forth in the Company’s Investor Rights Agreement, dated
as of June 4, 2008, as amended September 15, 2008 (the “Rights Agreement”), to
the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement.  The Company
shall take such action as may be reasonably necessary to (a) amend the Rights
Agreement to effect the foregoing and (b) assure that the granting of such
registration rights to the Holder does not violate the provisions of the Rights
Agreement or any of the Company’s charter documents or rights of prior grantees
of registration rights.

14.           Miscellaneous.

a.           Successors and Assigns.  The terms and conditions of this Warrant
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided
herein.  Nothing in this Warrant, express or implied, is intended to confer upon
any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant, except as expressly provided in this Warrant.

b.           Governing Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c.           Counterparts; Delivery by Facsimile.  This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of
this Warrant may be effected by facsimile.

d.           Titles and Subtitles.  The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting this Warrant.

e.           Notices.  Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified by certified mail, return receipt requested and: (i) if to the Company,
addressed to ECO2 Plastics, Inc., 680 Second Street, Suite 200, San Francisco,
California 94107, or at such other address as the Company may designate by
notice to each of the Investors in accordance with the provisions of this
Section; and (ii) if to the Warrant holder, at the address indicated in the
Purchase Agreement, or at such other addresses as such Holder may designate by
notice to the Company in accordance with the provisions of this Section.

f.           Amendments and Waivers.  Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and the Holder; provided,
however,   that the terms of this Warrant may also be amended, modified or
terminated upon the written consent of the Company and the initial holders of at
least 70% in interest of the Warrants issued pursuant to the Purchase Agreement
(based on the number of Warrant Shares initially exercisable thereunder) if at
the same time all such Warrants issued to the Purchase Agreement are so amended,
modified or terminated in a similar manner.

i.           Entire Agreement.  This Warrant and the Purchase Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.

[Signature Page Follows]

 
 

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IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal on the date
set forth above.

ECO2 Plastics, Inc.
   
By:
        
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer

 
 

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

To:  ECO2 Plastics, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on December [__], 2008 and
to purchase thereunder __________* shares of Common Stock of ECO2 Plastics, Inc.
(the “Company”).

NET ISSUE EXERCISE ELECTION:  If applicable, the undersigned elects to purchase
the Warrant Shares by net issue exercise pursuant to Section 9(b) of the
Warrant, by initialing in the following space (please initial only if net issue
exercise chosen):
 
Net issue exercise election chosen (INITIAL): ________

Dated: ________________________________

 
 

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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.

Warrant To Purchase 1,677,626 Shares of Common Stock

Void after April 14, 2015

ECO2 PLASTICS, INC.
(f.k.a., Itec Environmental Group, inc.)

Date of Issuance: December 17, 2008

No.  397

THIS CERTIFIES that, for value received, Hutton Living Trust dated 12/10/1996 or
its assigns (in either case, the “Holder”) is entitled to purchase, subject to
the provisions of this Warrant, from ECO2 Plastics, Inc., a Delaware corporation
(the “Company”), at the price per share set forth in Section 9 hereof, that
number of shares of the Company’s common stock (the “Common Stock”) set forth in
Section 8 hereof.  This Warrant is referred to herein as the “Warrant” and the
shares of Common Stock issuable pursuant to the terms hereof are sometimes
referred to herein as “Warrant Shares.”

This Warrant is one of a series of warrants issued by the Company pursuant to
that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Company and the parties named therein (the
“Purchase Agreement”).  This Warrant and such other warrants issued by the
Company pursuant to the Purchase Agreement are herein collectively referred to
as the “Warrants.”  Capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Purchase Agreement.

1.           Holder Exercise of Warrant.  This Warrant shall be exercisable in
whole or in part.  To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of
the Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice.  Each certificate representing Warrant Shares shall bear the legend or
legends required by applicable securities laws as well as such other legend(s)
the Company requires to be included on certificates for its Common Stock.  The
Company shall pay all expenses and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice.  All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  If this Warrant
is exercised in part, the Company shall, upon surrender of this Warrant, execute
and deliver, within 20 days of the date of exercise, a new Warrant evidencing
the rights of the Holder, or such other person as shall be designated in the
Notice of Exercise, to purchase the balance of the Warrant Shares purchasable
hereunder.
 

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The Warrant shall expire on April 14, 2015 (the “Expiration Date”).  The
Investor may exercise the warrant in whole or in part at any time prior to the
Expiration Date.  The Company has no restriction on the sale or transfer of the
Warrant or Warrant Shares; however, the Investor is required to comply with all
state and U.S. laws and regulations relating to security sales and
transfers.  This Warrant shall automatically be exercised in full as of
immediately prior to termination of the Warrant on the Expiration Date, on a net
issue basis pursuant to Section 9(b), to the extent the Warrant shall not have
previously been exercised in full.

2.           Reservation of Shares. The Company hereby covenants that at all
times during the term of this Warrant there shall be reserved for issuance such
number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.

3.           Fractional Shares.  This Warrant may be exercised only for a whole
number of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.           Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Warrant Shares pursuant
hereto and the performance of the Company's obligations hereunder were taken
prior to and are effective as of the effective date of this Warrant.

5.           Transfer of Warrant and Warrant Shares.  The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole, in accordance
with and subject to the terms and conditions set forth in this Warrant and then
only if such sale, pledge, hypothecation, or transfer is made in compliance with
the 1933 Act or pursuant to an available exemption from registration under the
1933 Act relating to the disposition of securities.

6.           Loss of Warrant.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new warrant of
like tenor.

7.           Rights of the Holder.  No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein.  Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

8.           Number of Warrant Shares.  This Warrant shall be exercisable for
1,677,626 shares (as originally determined pursuant to the Purchase Agreement)
of the Company’s Common Stock, as adjusted in accordance with this Warrant.

9.           Exercise Price; Adjustment of Warrants.

a.           Determination of Exercise Price.  The per share purchase price (the
“Exercise Price”) for each of the Warrant Shares purchasable under this Warrant
shall be equal to $0.015, as adjusted in accordance with this Warrant.

b.           Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1 above, the Holder may elect to receive a number of Warrant Shares
equal to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
 

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

 
X = Y (A-B)
    -------
        A

Where X
=
the number of Warrant Shares to be issued to the Holder.
     
Y
=
the number of Warrant Shares purchasable under this Warrant.
     
A
=
the fair market value of one Warrant Share on the date of determination.
     
B
=
the per share Exercise Price (as adjusted to the date of such calculation).

 
Fair Market Value. For purposes of this section, the per share fair market value
of the Warrant Shares shall mean:

(i)           If the Company's Common Stock is publicly traded, the per share
fair market value of the Warrant Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
fifteen (15) trading days ending five (5) trading days prior to the date of
determination of fair market value;

(ii)          If the Company's Common Stock is not so publicly traded, the per
share fair market value of the Warrant Shares shall be such fair market value as
is determined in good faith by the Board of Directors of the Company after
taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.

c.           Reclassification. In the case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance reasonably satisfactory to the holder of this Warrant), or the Company
shall make appropriate provision without the issuance of a new Warrant, so that
the holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (c) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
 
d.           Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding shares of Common Stock the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased, and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such subdivision,
stock dividend or combination, as the case may be.
 

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e.           NO IMPAIRMENT.  THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.

f.           Issue Taxes.  The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.

g.          Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.

h.          Stock Fully Paid.  All of the shares issuable upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.

i.           Reservation of Stock Issuable Upon Conversion.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

10.           Certain Distributions.  In case the Company shall, at any time,
prior to the Expiration Date, declare any distribution of its assets to holders
of its Common Stock as a partial liquidation, distribution or by way of return
of capital, other than as a dividend payable out of earnings or any surplus
legally available for dividends, then the Holder shall be entitled, upon the
proper exercise of this Warrant in whole prior to the effecting of such
declaration, to receive, in addition to the shares of Common Stock issuable on
such exercise, the amount of such assets (or at the option of the Company a sum
equal to the value thereof at the time of such distribution to holders of Common
Stock as such value is determined by the Board of Directors of the Company in
good faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

11.           Dissolution or Liquidation.  In case the Company shall, at any
time prior to the Expiration Date, dissolve, liquidate or wind up its affairs,
the Holder shall be entitled, upon the proper exercise of this Warrant in whole
and prior to any distribution associated with such dissolution, liquidation, or
winding up, to receive on such exercise, in lieu of the shares of Common Stock
to which the Holder would have been entitled, the same kind and amount of assets
as would have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

12.           Notice of Adjustments. Whenever the number of Warrant Shares
purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant
to Section 9 hereof, the Company shall provide notice to the Holder setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and class of shares which may be purchased thereafter and the Exercise
Price therefor after giving effect to such adjustment.
 

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

 
13.           Registration Rights. The Holder hereof shall be entitled, with
respect to the Warrant Shares issued upon exercise hereof, to all of the
registration rights set forth in the Company’s Investor Rights Agreement, dated
as of June 4, 2008, as amended September 15, 2008 (the “Rights Agreement”), to
the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement.  The Company
shall take such action as may be reasonably necessary to (a) amend the Rights
Agreement to effect the foregoing and (b) assure that the granting of such
registration rights to the Holder does not violate the provisions of the Rights
Agreement or any of the Company’s charter documents or rights of prior grantees
of registration rights.

14.           Miscellaneous.

a.           Successors and Assigns.  The terms and conditions of this Warrant
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided
herein.  Nothing in this Warrant, express or implied, is intended to confer upon
any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant, except as expressly provided in this Warrant.

b.           Governing Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c.           Counterparts; Delivery by Facsimile.  This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of
this Warrant may be effected by facsimile.

d.           Titles and Subtitles.  The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting this Warrant.

e.           Notices.  Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified by certified mail, return receipt requested and: (i) if to the Company,
addressed to ECO2 Plastics, Inc., 680 Second Street, Suite 200, San Francisco,
California 94107, or at such other address as the Company may designate by
notice to each of the Investors in accordance with the provisions of this
Section; and (ii) if to the Warrant holder, at the address indicated in the
Purchase Agreement, or at such other addresses as such Holder may designate by
notice to the Company in accordance with the provisions of this Section.

f.           Amendments and Waivers.  Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and the Holder; provided,
however,   that the terms of this Warrant may also be amended, modified or
terminated upon the written consent of the Company and the initial holders of at
least 70% in interest of the Warrants issued pursuant to the Purchase Agreement
(based on the number of Warrant Shares initially exercisable thereunder) if at
the same time all such Warrants issued to the Purchase Agreement are so amended,
modified or terminated in a similar manner.

j.           Entire Agreement.  This Warrant and the Purchase Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.

[Signature Page Follows]

 
 

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

 

IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal on the date
set forth above.

ECO2 Plastics, Inc.
   
By:
       
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer

 
 

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

To:  ECO2 Plastics, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on December 17, 2008 and
to purchase thereunder __________* shares of Common Stock of ECO2 Plastics, Inc.
(the “Company”).

NET ISSUE EXERCISE ELECTION:  If applicable, the undersigned elects to purchase
the Warrant Shares by net issue exercise pursuant to Section 9(b) of the
Warrant, by initialing in the following space (please initial only if net issue
exercise chosen):
 
Net issue exercise election chosen (INITIAL): ________

Dated: ________________________________

 
 

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THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE PROVISIONS OF
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS
UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE SECURITIES LAWS.  THESE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT.

Warrant To Purchase ______________ Shares of Common Stock

Void after April 14, 2015

ECO2 PLASTICS, INC.
(f.k.a., Itec Environmental Group, inc.)

Date of Issuance: December ____, 2008

No.  _______

THIS CERTIFIES that, for value received, _______________________ or its assigns
(in either case, the “Holder”) is entitled to purchase, subject to the
provisions of this Warrant, from ECO2 Plastics, Inc., a Delaware corporation
(the “Company”), at the price per share set forth in Section 9 hereof, that
number of shares of the Company’s common stock (the “Common Stock”) set forth in
Section 8 hereof.  This Warrant is referred to herein as the “Warrant” and the
shares of Common Stock issuable pursuant to the terms hereof are sometimes
referred to herein as “Warrant Shares.”

This Warrant is one of a series of warrants issued by the Company pursuant to
that certain Convertible Note and Warrant Purchase Agreement, dated as of
December 17, 2008, by and among the Company and the parties named therein (the
“Purchase Agreement”).  This Warrant and such other warrants issued by the
Company pursuant to the Purchase Agreement are herein collectively referred to
as the “Warrants.”  Capitalized terms used herein but not defined shall have the
meanings ascribed to them in the Purchase Agreement.

1.           Holder Exercise of Warrant.  This Warrant shall be exercisable in
whole or in part.  To exercise this Warrant, the Holder shall deliver to the
Company at its principal office, (a) a written notice, in substantially the form
of the exercise notice attached hereto as Exhibit A (the “Exercise Notice”), of
the Holder’s election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (b) this Warrant and (c)
(except in the case of exercise on a net issue basis pursuant to Section 9(b) of
this Warrant) the payment to the Company, by check or wire, of an amount equal
to the then applicable Exercise Price (as defined below) per share multiplied by
the number of Warrant Shares then being purchased. The Company shall as promptly
as practicable, and in any event within twenty (20) days after delivery to the
Company of (a), (b) and (c) above, execute and deliver or cause to be executed
and delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice.  Each certificate representing Warrant Shares shall bear the legend or
legends required by applicable securities laws as well as such other legend(s)
the Company requires to be included on certificates for its Common Stock.  The
Company shall pay all expenses and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice.  All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares.  If this Warrant
is exercised in part, the Company shall, upon surrender of this Warrant, execute
and deliver, within 20 days of the date of exercise, a new Warrant evidencing
the rights of the Holder, or such other person as shall be designated in the
Notice of Exercise, to purchase the balance of the Warrant Shares purchasable
hereunder.
 

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The Warrant shall expire on April 14, 2015 (the “Expiration Date”).  The
Investor may exercise the warrant in whole or in part at any time prior to the
Expiration Date.  The Company has no restriction on the sale or transfer of the
Warrant or Warrant Shares; however, the Investor is required to comply with all
state and U.S. laws and regulations relating to security sales and
transfers.  This Warrant shall automatically be exercised in full as of
immediately prior to termination of the Warrant on the Expiration Date, on a net
issue basis pursuant to Section 9(b), to the extent the Warrant shall not have
previously been exercised in full.

2.           Reservation of Shares. The Company hereby covenants that at all
times during the term of this Warrant there shall be reserved for issuance such
number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.

3.           Fractional Shares.  This Warrant may be exercised only for a whole
number of shares of Common Stock, and no fractional shares or scrip representing
fractional shares shall be issuable upon the exercise of this Warrant.

4.           Representations of the Company. The Company represents that all
corporate actions on the part of the Company, its officers, directors and
shareholders necessary for the sale and issuance of the Warrant Shares pursuant
hereto and the performance of the Company's obligations hereunder were taken
prior to and are effective as of the effective date of this Warrant.

5.           Transfer of Warrant and Warrant Shares.  The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole, in accordance
with and subject to the terms and conditions set forth in this Warrant and then
only if such sale, pledge, hypothecation, or transfer is made in compliance with
the 1933 Act or pursuant to an available exemption from registration under the
1933 Act relating to the disposition of securities.

6.           Loss of Warrant.  Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new warrant of
like tenor.

7.           Rights of the Holder.  No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein.  Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.

8.           Number of Warrant Shares.  This Warrant shall be exercisable for
____________________ shares (as originally determined pursuant to the Purchase
Agreement) of the Company’s Common Stock, as adjusted in accordance with this
Warrant.

9.           Exercise Price; Adjustment of Warrants.

a.           Determination of Exercise Price.  The per share purchase price (the
“Exercise Price”) for each of the Warrant Shares purchasable under this Warrant
shall be equal to $0.015, as adjusted in accordance with this Warrant.

b.           Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1 above, the Holder may elect to receive a number of Warrant Shares
equal to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election, in which event the Company shall issue to the Holder a
number of Warrant Shares computed using the following formula:
 

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

 
X = Y (A-B)
    -------
        A
 
Where X
=
the number of Warrant Shares to be issued to the Holder.
     
Y
=
the number of Warrant Shares purchasable under this Warrant.
     
A
=
the fair market value of one Warrant Share on the date of determination.
     
B
=
the per share Exercise Price (as adjusted to the date of such calculation).

 
Fair Market Value. For purposes of this section, the per share fair market value
of the Warrant Shares shall mean:

(i)           If the Company's Common Stock is publicly traded, the per share
fair market value of the Warrant Shares shall be the average of the closing
prices of the Common Stock as quoted on the Nasdaq National Market or the
principal exchange on which the Common Stock is listed, or if not so listed then
the fair market value shall be the average of the closing bid prices of the
Common Stock as published in The Wall Street Journal, in each case for the
fifteen (15) trading days ending five (5) trading days prior to the date of
determination of fair market value;

(ii)           If the Company's Common Stock is not so publicly traded, the per
share fair market value of the Warrant Shares shall be such fair market value as
is determined in good faith by the Board of Directors of the Company after
taking into consideration factors it deems appropriate, including, without
limitation, recent sale and offer prices of the capital stock of the Company in
private transactions negotiated at arm's length.

c.           Reclassification. In the case of any reclassification or change of
securities of the class issuable upon exercise of this Warrant (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in case of any
merger of the Company with or into another corporation (other than a merger with
another corporation in which the Company is the acquiring and the surviving
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), or in case of
any sale of all or substantially all of the assets of the Company, the Company,
or such successor or purchasing corporation, as the case may be, shall duly
execute and deliver to the holder of this Warrant a new Warrant (in form and
substance reasonably satisfactory to the holder of this Warrant), or the Company
shall make appropriate provision without the issuance of a new Warrant, so that
the holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Common Stock theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Common Stock then
purchasable under this Warrant, or (ii) in the case of such a merger or sale in
which the consideration paid consists all or in part of assets other than
securities of the successor or purchasing corporation, at the option of the
Holder of this Warrant, the securities of the successor or purchasing
corporation having a value at the time of the transaction equivalent to the fair
market value of the Common Stock at the time of the transaction. The provisions
of this subparagraph (c) shall similarly apply to successive reclassifications,
changes, mergers and transfers.
 
d.           Stock Splits, Dividends and Combinations. In the event that the
Company shall at any time subdivide the outstanding shares of Common Stock or
shall issue a stock dividend on its outstanding shares of Common Stock the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such subdivision or to the issuance of such stock dividend shall be
proportionately increased, and the Exercise Price shall be proportionately
decreased, and in the event that the Company shall at any time combine the
outstanding shares of Common Stock the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such combination shall be
proportionately decreased, and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such subdivision,
stock dividend or combination, as the case may be.
 

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

 
e.           NO IMPAIRMENT.  THE COMPANY WILL NOT, THROUGH ANY REORGANIZATION,
TRANSFER OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ISSUE OR SALE OF
SECURITIES OR ANY OTHER VOLUNTARY ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE
OR PERFORMANCE OF ANY OF THE TERMS TO BE OBSERVED OR PERFORMED HEREUNDER BY THE
COMPANY, BUT WILL AT ALL TIMES IN GOOD FAITH ASSIST IN THE CARRYING OUT OF ALL
THE PROVISIONS OF THIS SECTION AND IN THE TAKING OF ALL SUCH ACTION AS MAY BE
NECESSARY OR APPROPRIATE IN ORDER TO PROTECT THE EXERCISE RIGHTS OF THE HOLDER
OF THIS WARRANT AGAINST IMPAIRMENT.

f.           Issue Taxes.  The Company shall pay issue taxes that may be payable
in respect of any issue or delivery of shares of Common Stock on exercise of
this Warrant, in whole; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.

g.          Stock Certificates.  In the event of any exercise of the rights
represented by this Warrant, certificates for the shares so purchased shall be
delivered to the Holder within a reasonable time and, unless this Warrant has
been fully exercised or has expired, a new Warrant representing the shares with
respect to which this Warrant shall not have been exercised shall also be issued
to the Holder within such time.

h.          Stock Fully Paid.  All of the shares issuable upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt of the
Exercise Price therefore, be fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof.

i.           Reservation of Stock Issuable Upon Conversion.  The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.

10.           Certain Distributions.  In case the Company shall, at any time,
prior to the Expiration Date, declare any distribution of its assets to holders
of its Common Stock as a partial liquidation, distribution or by way of return
of capital, other than as a dividend payable out of earnings or any surplus
legally available for dividends, then the Holder shall be entitled, upon the
proper exercise of this Warrant in whole prior to the effecting of such
declaration, to receive, in addition to the shares of Common Stock issuable on
such exercise, the amount of such assets (or at the option of the Company a sum
equal to the value thereof at the time of such distribution to holders of Common
Stock as such value is determined by the Board of Directors of the Company in
good faith), which would have been payable to the Holder had it been a holder of
record of such shares of Common Stock on the record date for the determination
of those holders of Common Stock entitled to such distribution.

11.           Dissolution or Liquidation.  In case the Company shall, at any
time prior to the Expiration Date, dissolve, liquidate or wind up its affairs,
the Holder shall be entitled, upon the proper exercise of this Warrant in whole
and prior to any distribution associated with such dissolution, liquidation, or
winding up, to receive on such exercise, in lieu of the shares of Common Stock
to which the Holder would have been entitled, the same kind and amount of assets
as would have been distributed or paid to the Holder upon any such dissolution,
liquidation or winding up, with respect to such shares of Common Stock had the
Holder been a holder of record of such share of Common Stock on the record date
for the determination of those holders of Common Stock entitled to receive any
such dissolution, liquidation, or winding up distribution.

12.           Notice of Adjustments. Whenever the number of Warrant Shares
purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant
to Section 9 hereof, the Company shall provide notice to the Holder setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and class of shares which may be purchased thereafter and the Exercise
Price therefor after giving effect to such adjustment.
 

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

 
13.           Registration Rights. The Holder hereof shall be entitled, with
respect to the Warrant Shares issued upon exercise hereof, to all of the
registration rights set forth in the Company’s Investor Rights Agreement, dated
as of June 4, 2008, as amended September 15, 2008 (the “Rights Agreement”), to
the same extent and on the same terms and conditions as possessed by the
investors thereunder and as if the Warrant Shares were included in the
definition of “Registrable Securities” in the Rights Agreement.  The Company
shall take such action as may be reasonably necessary to (a) amend the Rights
Agreement to effect the foregoing and (b) assure that the granting of such
registration rights to the Holder does not violate the provisions of the Rights
Agreement or any of the Company’s charter documents or rights of prior grantees
of registration rights.

14.           Miscellaneous.

a.           Successors and Assigns.  The terms and conditions of this Warrant
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided
herein.  Nothing in this Warrant, express or implied, is intended to confer upon
any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Warrant, except as expressly provided in this Warrant.

b.           Governing Law.  This Warrant shall be governed by and construed in
accordance with the laws of the State of California without regard to the
principles of conflict of laws thereof.

c.           Counterparts; Delivery by Facsimile.  This Warrant may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.  Delivery of
this Warrant may be effected by facsimile.

d.           Titles and Subtitles.  The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in construing
or interpreting this Warrant.

e.           Notices.  Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified by certified mail, return receipt requested and: (i) if to the Company,
addressed to ECO2 Plastics, Inc., 680 Second Street, Suite 200, San Francisco,
California 94107, or at such other address as the Company may designate by
notice to each of the Investors in accordance with the provisions of this
Section; and (ii) if to the Warrant holder, at the address indicated in the
Purchase Agreement, or at such other addresses as such Holder may designate by
notice to the Company in accordance with the provisions of this Section.

f.           Amendments and Waivers.  Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and the Holder; provided,
however,   that the terms of this Warrant may also be amended, modified or
terminated upon the written consent of the Company and the initial holders of at
least 70% in interest of the Warrants issued pursuant to the Purchase Agreement
(based on the number of Warrant Shares initially exercisable thereunder) if at
the same time all such Warrants issued to the Purchase Agreement are so amended,
modified or terminated in a similar manner.

k.           Entire Agreement.  This Warrant and the Purchase Agreement
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.

[Signature Page Follows]

 
 

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

 

IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal on the date
set forth above.

ECO2 Plastics, Inc.
   
By:
        
Name: Rodney S. Rougelot
 
Title: Chief Executive Officer

 
 

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EXHIBIT A

NOTICE OF EXERCISE

(To be signed only upon exercise of the Warrant)

To:  ECO2 Plastics, Inc.

The undersigned, hereby irrevocably elects to exercise the purchase rights
represented by the Warrant granted to the undersigned on December [__], 2008 and
to purchase thereunder __________* shares of Common Stock of ECO2 Plastics, Inc.
(the “Company”).

NET ISSUE EXERCISE ELECTION:  If applicable, the undersigned elects to purchase
the Warrant Shares by net issue exercise pursuant to Section 9(b) of the
Warrant, by initialing in the following space (please initial only if net issue
exercise chosen):
 
Net issue exercise election chosen (INITIAL): ________

Dated: ________________________________

 
 

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Exhibit C
 
Form of Certificate of Designations setting forth the Rights, Preferences and
Privileges of
Series C Convertible Preferred Stock
of
ECO2 Plastics, Inc.
 
[Incorporated by Reference with the Form 8-K filed by the Company on 09/19/08]

 
 

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Exhibit D
 
Form of Legal Opinion
 
(To be Delivered to Purchasers at the Closing)
 
1.           The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware, with corporate
power to own its properties and to conduct its business.  The Company is
qualified to do business and is in good standing in the State of California.
 
2.           The Company has the corporate power to execute, deliver and perform
each of the Agreement, the Notes, the Warrants, the Security Agreements and the
Subordination Agreement (collectively, the “Transaction Documents”).  Each of
the Transaction Documents has been duly authorized by all requisite corporate
action of the Company and has been duly executed and delivered by the
Company.  Each of the Transaction Documents constitutes the legally valid and
binding obligation of the Company, enforceable in accordance with its terms
(subject to bankruptcy, equitable principles and other customary exceptions).
 
(a)           As of the date hereof, in accordance with its certificate of
incorporation on file with the Secretary of State of Delaware, the authorized
capital stock of the Company consists of 1,500,000,000 shares of Common
Stock and 700,000,000 shares of Preferred Stock, of which 152,843,414 shares are
Series A Stock, 336,240,039 shares are Series B-1 Stock and 10,916,547 shares
are Series B-2 Stock.
 
(b)           The shares of the Company’s Series C Convertible Preferred Stock
(and the shares of the Company’s Common Stock issuable upon conversion thereof
(the “Series C Conversion Shares”)) initially issuable upon conversion of the
Notes shall be duly authorized and reserved for issuance and, upon issuance and
delivery upon conversion of the Notes in accordance with the terms of the Notes
and the Agreement, shall be validly issued, fully paid and nonassessable and
issued free of preemptive rights or similar contractual rights against the
Company.
 
(c)           The shares of the Company’s Common Stock initially issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance
and, upon issuance, delivery and payment therefor in accordance with the
Warrants (the “Warrant Conversion Shares,” and together with the Series C
Conversion Shares, the “Conversion Shares”), will be validly issued, fully paid
and nonassessable and issued free of preemptive rights or similar contractual
rights against the Company.
 
3.           The execution and delivery of each of the Transaction Documents,
the issuance and sale of the Notes and the Warrants by the Company to the
Purchasers pursuant to the Agreement and the performance of the Company’s
obligations under the Transaction Documents will not:  (a) violate the Company’s
certificate of incorporation or bylaws; (b) violate any federal or California
statute, rule or regulation applicable to the Company, or the Delaware General
Corporation Law (“the DGCL”); (c) require any consents, approvals, or
authorizations to be obtained by the Company from, or any registrations,
declarations or filings to be made by the Company with, any governmental
authority under any federal or California statute, rule or regulation applicable
to the Company or the DGCL; or (d) result in the breach of or a default under
any of the Company’s material agreements (which agreements shall include,
without limitation, all instruments, documents and agreements filed as exhibits
to the Company’s most recently filed Form 10-K, as well as any subsequently
filed Exchange Act reports).
 

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4.           No consent, approval, order or authorization of, and no notice to
or filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issuance and sale of the Notes and the
Warrants pursuant to the Transaction Documents, except such as have been
obtained or made and such as may be required under applicable securities laws.
 
5.           On the assumption that the representations of the Company and the
Purchasers in the Agreement are correct and complete, (a) the offer and sale of
the Notes and the Warrants pursuant to the terms of the Agreement are exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended, (b) the issuance of the Company’s Series C Convertible Preferred
Stock, when designated, upon conversion of the Notes would also be exempt from
such registration, and (c) the issuance of the Conversion Shares would also be
exempt from such registration.
 
6.           To such counsel’s knowledge, there is no action, suit, proceeding
or governmental investigation pending, or threatened in writing, against the
Company with respect to the transactions contemplated by the Transaction
Documents or which questions the right of the Company to enter into the
Transaction Documents.
 
7.           The Series C Certificate of Designations will be duly filed in the
State of Delaware and, when filed, will be in full force and effect.
 
8.           The rights, preferences, privileges, designations powers and
limitations of the Series C Convertible Preferred Stock included in the Series C
Certificate of Designations, when filed with the State of Delaware, and the
Company’s certificate of incorporation are permitted by, and will be made in
accordance with, the DGCL.
 
9.           The Company is not, and immediately after giving effect to the
issuance and sale of the Notes and the Warrants in accordance with Agreement,
will not be, required to register as an “investment company” or a company
“controlled by” an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

 
 

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Exhibit E-1
 
Amended and Restated Security Agreement
 
ECO2 PLASTICS, INC.

AMENDED AND RESTATED SECURITY AGREEMENT

December 17, 2008

This Amended and Restated Security Agreement is dated as of December 17, 2008
(the “Effective Date”), by and between ECO2 Plastics Inc., a Delaware
corporation (the “Company”) and Peninsula Packaging, LLC, a California limited
liability company (“Peninsula”).
 
WHEREAS, the Company borrowed from J. Charles Buff (“Buff”) six hundred thousand
dollars ($600,000) together with interest thereon pursuant to a certain
Promissory Note dated as of November 21, 2008 (the “Original Note”); and
 
WHEREAS, on the date hereof, Buff assigned all of his right, title and interest
in, under and to the Original Note and certain documents related thereto to
Peninsula; and
 
WHEREAS, on the date hereof, the Company intends to borrow an additional nine
hundred thousand dollars ($900,000) from Peninsula; and
 
WHEREAS, in connection with such additional loan, and as contemplated by the
Purchase Agreement (defined below), the Company and Peninsula intend to amend
and restate the Original Note (as so amended, the “Note”) in order to evidence
the entire approximately one million five hundred thousand ($1,500,000) loan
which shall be owed to Peninsula; and
 
WHEREAS, the Company has agreed to execute and deliver this Amended and Restated
Security Agreement to Peninsula.
 
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
 
1.           Defined Terms.  The following terms shall have the following
meanings, unless the context otherwise requires:
 
“Code” shall mean the Uniform Commercial Code as in effect in the State of
California on the Effective Date.

“Encumbrance” shall mean any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor’s interest under a
financing lease or any analogous arrangements in any of properties or assets of
the Company, intended as, or having the effect of, security.

“Event of Default” shall have the meaning assigned in the Note.

 
 

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“Financing Documents” shall mean the Note, the Purchase Agreement, the
Subordination Agreement, and all other documents, instruments or agreements
relating to the financing transactions contemplated by such documents.

“Obligations” shall mean the obligations of the Company to Peninsula under the
Note, this Security Agreement and the other Financing Documents, including all
costs of collection.

“Person” shall mean an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or other entity, whether public or private.

“Purchase Agreement” shall mean the Convertible Note and Warrant Purchase
Agreement dated as of the date hereof to which the Company and Peninsula are a
party.

“Security Agreement” means this Amended and Restated Security Agreement, as
amended, supplemented, restated or otherwise modified from time to time.

“Senior Debt” shall mean all indebtedness for all principal, fees, expenses,
interest, penalties, post bankruptcy petition interest, and all other amounts
payable for money borrowed in connection with the $2,000,000 loan from the
California Integrated Waste Management Board.

“Subordination Agreement” shall mean that certain Amended and Restated
Subordination and Intercreditor Agreement dated as of the date hereof to which
Peninsula is a party.

2.           Grant of Security Interest.  As collateral security for the prompt
and complete payment and performance when due of all the Obligations, the
Company grants to Peninsula a security interest in all of the Company's right,
title and interest in, to and under the following, whether now existing or
hereafter acquired (all of which collateral being hereinafter collectively
called the “Collateral”); provided, however, that the security interest
hereunder shall be subordinate to any perfected security interest granted by the
Company in connection with the Senior Debt.  Peninsula is entitled to a security
interest in the following:

ACCOUNTS
All present and future accounts owned by the Company, including accounts
receivable, including and together with any and all contract rights, security
deposits (where not otherwise prohibited by law or agreement), together with
agreements, customer lists, client lists, and accounts, invoices, agings,
verification reports and other records relating in any way to such accounts;

 
 

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CONTRACTS
All contracts, contract rights, royalties, license rights, leases, instruments,
undertakings, documents or other agreements in or under which the Company may
now or hereafter have any right, title or interest whether now existing or
hereinafter created and all forms of obligations owing to the Company arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by the Company, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefore, as well as all
merchandise returned to or reclaimed by the Company;

EQUIPMENT, FURNISHINGS AND MISCELLANEOUS PERSONAL PROPERTY
All presently owned and hereafter acquired furniture, furnishings, equipment,
machinery, inventory, vehicles (including motor vehicles and trailers) computer
hardware and software, accounting or bookkeeping systems, client or customer
lists and information, data sheets and other records of any kind, wherever
located, stored or inventoried, which are used or which may be used in the
Company’s business;

FIXTURES
All materials used by the Company in connection with its business operations,
including, but not limited to, supplies, trade equipment, appliances, apparatus
and any other items, now owned or hereafter acquired by the Company, and now or
hereafter attached to, or installed in (temporarily or permanently) any real
property now or in the future owned or leased by the Company;

GENERAL INTANGIBLES
All general intangibles and other personal property of the Company, now owned or
hereinafter acquired, including, without limitation, the following:  (a)
permits, authorizations and approvals presently and hereafter issued by any
federal, state, municipal or local governmental or regulatory authority in favor
of the Company; (b) all plans, specifications, renderings and other similar
materials presently owned or hereafter acquired by the Company; (c) all
presently existing and hereafter created contracts, leases, licenses and
agreements to which the Company is a party; (d) all presently and hereafter
existing policies and agreements of insurance in favor of the Company; (e) all
presently and hereafter existing equity contribution agreements and other equity
financing arrangements in favor of the Company; (f) all copyrights, chattel
paper, electronic chattel paper, licenses, money, insurance proceeds, contract
rights, subscription lists, mailing lists, licensing agreements, patents,
trademarks, service marks, trade styles, patents, patent applications, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kinds, trade names, refundable,
returnable or reimbursable fees, deposits or other funds or evidences of credit
or indebtedness deposited by or on behalf of the Company with any governmental
agencies, boards, corporations, providers of utility services, public or
private; (g) all presently existing and hereafter acquired computer programs,
computer software and other electronic systems and materials of any kind of the
Company; (h) goodwill; and (i) all other presently existing and hereafter
acquired documents, accounts, general intangibles and intangible personal
property of any kind;

 
 

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DOCUMENTS
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments, chattel paper, and electronic chattel
paper now owned or hereafter acquired and the Company’s books relating to the
foregoing;

INTELLECTUAL PROPERTY
All copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all rights in and to
issued patents and patents pending; all trade secret rights, including all
rights to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; all
mask work or similar rights available for the protection of semiconductor chips,
now owned or hereafter acquired; all trade marks and trade names and associated
goodwill; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and

PROCEEDS
All of the Company’s books and records relating to the foregoing and any and all
present and future accounts, general intangibles, chattel paper, electronic
chattel paper, products, accessions, replacements, betterments and substitutions
for any of the foregoing described property, and all proceeds arising from or by
virtue of, or from the sale or disposition of, or collections with respect to,
or insurance proceeds payable with respect to, or claims against any other
Person with respect to, all or any part of the foregoing described property and
interests.

3.           Rights of Peninsula; Limitations on Peninsula’s Obligations.  It is
expressly agreed by the Company that, anything herein to the contrary
notwithstanding, the Company shall remain liable under each of its contracts and
documents to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of its contracts and documents.  Peninsula shall have
no obligation or liability under any of the Company’s contracts and documents by
reason of or arising out of this Security Agreement or the granting to Peninsula
of a security interest therein or the receipt by Peninsula of any payment
relating to any of the Company’s contracts and documents pursuant hereto, nor
shall Peninsula be required or obligated in any manner to perform or fulfill any
of the obligations of the Company under or pursuant to any of its contracts and
documents, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any of its contracts and documents, or to present
or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.

6.           Representations and Warranties.  The Company hereby represents and
warrants that the chief executive office and chief place of business of the
Company is 680 Second Street, Suite 200, San Francisco, CA 94107, and the
Company will not change such chief executive office and chief place of business
or remove such records unless the Company shall have given Peninsula at least 10
days prior written notice thereof.  The Company hereby represents and warrants
that the execution, delivery and performance of this Agreement shall not
conflict with, constitute a breach or default under, or result in the
termination of, any agreement executed by the Company in connection with the
Senior Debt.

 
 

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7.           Covenants.  The Company covenants and agrees with Peninsula that
from and after the date of this Security Agreement and until the Obligations are
fully satisfied:

a.           Further Documentation.  At any time and from time to time, upon the
written request of Peninsula, and at the sole expense of the Company, the
Company will promptly and duly execute and deliver any and all such further
documents and take such further action as Peninsula may reasonably request in
carrying out the terms and conditions of this Security Agreement and the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the security interests granted hereby.  The
Company also hereby authorizes Peninsula to file a financing statement under the
Uniform Commercial Code in any jurisdiction with respect to the security
interests granted hereby.

b.           Continuous Perfection.  The Company will not change its name,
identity or corporate structure in any manner unless the Company shall have
given Peninsula at least 10 days' prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by Peninsula to amend any financing
statement or continuation statement filed with respect to the Collateral so that
it is not misleading.

c.           Insurance.  The Company will insure the Collateral against such
risks and hazards as other companies similarly situated insure against, in
amounts and under policies which it currently holds and under such additional or
substituted amounts or policies as it may from time to time determine, which
shall be reasonably acceptable to Peninsula (providing that no cancellation of
such insurance shall be effective without 30 days written notice to Peninsula
and containing loss payable clauses to Peninsula as its interest may appear) and
all premiums thereon shall be paid by the Company.

d.           Limitation on Encumbrances on Collateral. The Company will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any Encumbrance or claim on or
to the Collateral, other than the Encumbrances created hereby or otherwise
permitted pursuant to the Purchase Agreement, and will defend the right, title
and interest of Peninsula in and to any of the Collateral against other claims
and demands of all Persons whomsoever.

e.           Limitations on Dispositions of Collateral. The Company will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except for (x) sales of inventory in the ordinary
course of its business and (y) so long as no Event of Default has occurred, the
disposition in the ordinary course of business of property not material to the
conduct of its business.

 
 

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8.           Remedies, Event of Default. If any dissolution, liquidation,
winding up of the affairs of the Company or other Event of Default shall occur
and be continuing and subject to (a) the subordination provisions of the
preceding Section 2 and (b) the terms of the Subordination Agreement, Peninsula
may exercise in addition to all other rights and remedies granted in this
Security Agreement or in any other instrument or agreement securing, evidencing
or relating to the Obligations or at law or in equity, all rights and remedies
of Peninsula under the Code.  Peninsula shall be deemed not to have knowledge of
any Event of Default unless and until notice thereof is given to Peninsula by
the Company.  Without limiting the generality of the foregoing, the Company
expressly agrees that in any such event, Peninsula, without demand of
performance or other demand (except the notice specified below of time and place
of public or private sale) to or upon the Company or any other Person may
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange broker's board or at any of Peninsula’s
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk.  Peninsula shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of said Collateral so sold, free of any right or equity of redemption, which
equity of redemption the Company hereby releases.  The Company further agrees,
at Peninsula’s request, to assemble the Collateral, make it available to
Peninsula at places which Peninsula shall reasonably select, whether at the
Company's premises or elsewhere.  Peninsula shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safe keeping or otherwise of any or all of the
Collateral or in any way relating to the rights of Peninsula hereunder,
including reasonable attorneys' fees and legal expenses, to the payment in whole
or in part of the Obligations, the Company remaining liable for any deficiency
remaining unpaid after the application, and only after so paying over such net
proceeds and after the payment by Peninsula of any other amount required by any
provision of law.  To the extent permitted by applicable law, the Company waives
all claims, damages, and demands against Peninsula arising out of the
repossession, retention or sale of the Collateral.  The Company agrees that
Peninsula need not give more than 10 days notice of the time and place of any
public sale or of the time after which a private sale may take place and that
such notice is reasonable notification of such matters.  The Company shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all amounts to which Peninsula is
entitled.

The Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this Security
Agreement or any collateral.

9.           Application of Proceeds.  Subject to the subordination provisions
contained in the preceding Section 2, and subject to the terms of the
Subordination Agreement, the proceeds of all sales and collections in respect of
any Collateral shall be applied as follows:
 
First, to the payment of the costs and expenses of such sales and collections,
the expenses of Peninsula and the reasonable fees and expenses of counsel to
Peninsula;

 
 

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Second, any surplus then remaining to the payment of the Obligations in such
order and manner as Peninsula may in its sole discretion determine; and
 
Third, any surplus then remaining shall be paid to the Company.
 
10.           Limitation on Peninsula’s Duty in Respect of Collateral.  Beyond
the use of reasonable care in the custody thereof, Peninsula shall have no duty
as to any Collateral in its possession or control or in the possession or
control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior secured parties or any other rights
pertaining thereto.
 
11.           Notices.  Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be delivered personally or by
facsimile (receipt confirmed electronically) or shall be sent by a reputable
express delivery service or by certified mail, postage prepaid with return
receipt requested, addressed as follows:
 
if to the Company, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA 94107
Attn:     Rodney S. Rougelot
Fax:       (415) 829-6001

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:     David M. Otto
Fax:       (206) 262-9513

if to Peninsula, to:

Peninsula Packaging, LLC c/o
Stradley Ronon Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103
Attn:  Todd C. Vanett, Esquire
Fax:  (215) 564-8120

All such notices and communications shall be deemed to have been duly
given:  (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section prior to 5:00 pm in the time zone of the recipient on a business
day, with confirmation of successful transmission or (v) the business day
following the date of transmission if sent via facsimile to the facsimile number
as set forth in this Section after 5:00 p.m. in the time zone of the recipient
or on a date that is not a business day.  Change of a party’s address, facsimile
number or specified recipient may be designated hereunder by giving notice to
all of the other parties hereto in accordance with this Section.

 
 

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12.           Severability.  Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
 
13.           No Waiver; Cumulative Remedies.  Peninsula shall not, by any act,
delay, omission or otherwise, be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by
Peninsula, and then only to the extent therein set forth.  A waiver by Peninsula
shall not be construed as a bar to any right or remedy which Peninsula would
otherwise have had on any future occasion.  No failure to exercise nor any delay
by Peninsula in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or future exercise thereof or
the exercise or any other right, power or privilege.  The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law.
 
14.           Successors and Assigns.  This Security Agreement and all
obligations of the Company hereunder shall be binding upon the successors and
permitted assigns of the Company, and shall, together with the rights and
remedies of Peninsula hereunder, inure to the benefit of Peninsula and its
successors and permitted assigns; provided that the Company may not assign any
of its rights or obligations hereunder without the prior written consent of
Peninsula.
 
15.           Amendment.  None of the terms or provisions of this Security
Agreement may be altered, modified or amended except by an instrument in
writing, duly executed by the Company and the holders of at least 70% of the
aggregate principal amount of promissory notes then outstanding under the
Purchase Agreement.  This Agreement amends and restates the Security Agreement
by and between Buff and the Company dated as of November 21, 2008, as assigned
by Buff to Peninsula on the date hereof, but nothing herein shall discharge the
obligations of, nor constitute a novation with respect to, the indebtedness of
the Company to Buff pursuant to the Original Note, which such document was
assigned by Buff to Peninsula on the date hereof.
 
16.           Governing Law.  This Security Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
 
17.           Counterparts. This Security Agreement may be executed in separate
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.

 
 

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18           Facsimile.  This Security Agreement may be executed using
facsimiles of signatures, and a facsimile of a signature shall be deemed to be
the same, and equally enforceable, as an original of such signature.
 
19.           Termination.  At such time all Obligations have been fully
satisfied, the security interest created hereby shall automatically
terminate.  Peninsula shall take all such actions as may be requested by the
Company to evidence such termination and to release the liens created hereby, at
the Company's expense.
 
[Signature Page Follows]

 
 

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IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
Security Agreement to be duly executed and delivered as of the Effective Date.

ECO2 PLASTICS, INC.
   
By:
   
Rodney S. Rougelot
 
Chief Executive Officer

PENINSULA PACKAGING, LLC
   
By:
   
Alex Millar
 
Managing Director

 
 

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Exhibit E-2
 
Amended and Restated Security Agreement
 
ECO2 PLASTICS, INC.

AMENDED AND RESTATED SECURITY AGREEMENT

December 17, 2008

This Amended and Restated Security Agreement is dated as of December 17, 2008
(the “Effective Date”), by and between ECO2 Plastics Inc., a Delaware
corporation (the “Company”), Trident Capital Fund-VI, L.P. and Trident Capital
Fund-VI Principals, L.P. (collectively, “Trident”), Hutton Living Trust dated
12/10/1996 (”Hutton”) and the other Investors listed on Schedule A attached
hereto (collectively with Trident and Hutton, the “Investors”) and Trident
Capital, Inc. as collateral agent for the Investors (in such capacity as
collateral agent, the “Collateral Agent”).
 
WHEREAS, the Company (i) borrowed from Trident the aggregate principal amount of
five hundred fifty thousand dollars ($550,000) and (ii) borrowed from Hutton the
principal amount of fifty thousand dollars ($50,000), pursuant to certain
Promissory Notes dated as of November 17, 2008 and November 21, 2008
(collectively, the “Original Notes”); and
 
WHEREAS, on the date hereof, the Company is borrowing from Trident an additional
nine hundred thousand dollars ($900,000); and
 
WHEREAS, on the date hereof the Company is borrowing from Investors other than
Trident the additional amounts indicated on Schedule A hereto; and
 
WHEREAS, in connection with such additional loans from Trident and the other
Investors, and as contemplated by the Purchase Agreement (defined below), the
Company and Trident intend to amend and restate Trident’s Original Notes in
order to evidence the entire amount of the respective loans from Trident on
November 17, 2008 and November 21, 2008 (including principal and interest
accrued from the dates of Trident’s Original Notes) plus the amount of loans
from Trident on December 17, 2008 (such new notes evidencing Trident’s loans on
November 17, 2008 and November 21, 2008 as well as Trident’s additional loans on
the date hereof being referred to as the “New Trident Notes”); and
 
WHEREAS, the Company has agreed to execute and deliver this Amended and Restated
Security Agreement to the Investors and the Collateral Agent.
 
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
 
1.           Defined Terms.  The following terms shall have the following
meanings, unless the context otherwise requires:

 
 

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“Code” shall mean the Uniform Commercial Code as in effect in the State of
California on the Effective Date.

“Encumbrance” shall mean any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor’s interest under a
financing lease or any analogous arrangements in any of properties or assets of
the Company, intended as, or having the effect of, security.

“Event of Default” shall have the meaning assigned in the Notes.

“Financing Documents” shall mean the Notes, the Purchase Agreement, the
Subordination Agreement, this Security Agreement and all other documents,
instruments or agreements relating to the financing transactions contemplated by
such documents.

“Notes” shall mean (i) the New Trident Notes, (ii) the Hutton Original Note, and
(iii) the notes issued to the Investors other than Trident under the Purchase
Agreement.

“Obligations” shall mean the obligations of the Company to the Investors under
the Notes, this Security Agreement and the other Financing Documents, including
all costs of collection.

“Person” shall mean an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or other entity, whether public or private.

“Purchase Agreement” shall mean the Convertible Note and Warrant Purchase
Agreement dated as of the date hereof to which the Company and certain Investors
are parties.

“Security Agreement” means this Amended and Restated Security Agreement, as
amended, supplemented, restated or otherwise modified from time to time.

“Senior Debt” shall mean all indebtedness for all principal, fees, expenses,
interest, penalties, post bankruptcy petition interest, and all other amounts
payable for money borrowed in connection with the $2,000,000 loan from the
California Integrated Waste Management Board.

“Subordination Agreement” shall mean that certain Amended and Restated
Subordination and Intercreditor Agreement dated as of the date hereof to which
the Investors are party.

2.           Grant of Security Interest.  As collateral security for the prompt
and complete payment and performance when due of all the Obligations, the
Company grants to the Collateral Agent as collateral agent on behalf of the
Investors a security interest in all of the Company's right, title and interest
in, to and under the following, whether now existing or hereafter acquired (all
of which collateral being hereinafter collectively called the “Collateral”);
provided, however, that the security interest hereunder shall be subordinate to
any perfected security interest granted by the Company in connection with the
Senior Debt.  Collateral Agent is entitled to a security interest in the
following:

 
 

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ACCOUNTS
All present and future accounts owned by the Company, including accounts
receivable, including and together with any and all contract rights, security
deposits (where not otherwise prohibited by law or agreement), together with
agreements, customer lists, client lists, and accounts, invoices, agings,
verification reports and other records relating in any way to such accounts;

CONTRACTS
All contracts, contract rights, royalties, license rights, leases, instruments,
undertakings, documents or other agreements in or under which the Company may
now or hereafter have any right, title or interest whether now existing or
hereinafter created and all forms of obligations owing to the Company arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by the Company, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefore, as well as all
merchandise returned to or reclaimed by the Company;

EQUIPMENT, FURNISHINGS AND MISCELLANEOUS PERSONAL PROPERTY
All presently owned and hereafter acquired furniture, furnishings, equipment,
machinery, inventory, vehicles (including motor vehicles and trailers) computer
hardware and software, accounting or bookkeeping systems, client or customer
lists and information, data sheets and other records of any kind, wherever
located, stored or inventoried, which are used or which may be used in the
Company’s business;

FIXTURES
All materials used by the Company in connection with its business operations,
including, but not limited to, supplies, trade equipment, appliances, apparatus
and any other items, now owned or hereafter acquired by the Company, and now or
hereafter attached to, or installed in (temporarily or permanently) any real
property now or in the future owned or leased by the Company;

GENERAL INTANGIBLES
All general intangibles and other personal property of the Company, now owned or
hereinafter acquired, including, without limitation, the following:  (a)
permits, authorizations and approvals presently and hereafter issued by any
federal, state, municipal or local governmental or regulatory authority in favor
of the Company; (b) all plans, specifications, renderings and other similar
materials presently owned or hereafter acquired by the Company; (c) all
presently existing and hereafter created contracts, leases, licenses and
agreements to which the Company is a party; (d) all presently and hereafter
existing policies and agreements of insurance in favor of the Company; (e) all
presently and hereafter existing equity contribution agreements and other equity
financing arrangements in favor of the Company; (f) all copyrights, chattel
paper, electronic chattel paper, licenses, money, insurance proceeds, contract
rights, subscription lists, mailing lists, licensing agreements, patents,
trademarks, service marks, trade styles, patents, patent applications, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kinds, trade names, refundable,
returnable or reimbursable fees, deposits or other funds or evidences of credit
or indebtedness deposited by or on behalf of the Company with any governmental
agencies, boards, corporations, providers of utility services, public or
private; (g) all presently existing and hereafter acquired computer programs,
computer software and other electronic systems and materials of any kind of the
Company; (h) goodwill; and (i) all other presently existing and hereafter
acquired documents, accounts, general intangibles and intangible personal
property of any kind;

 
 

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DOCUMENTS
All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments, chattel paper, and electronic chattel
paper now owned or hereafter acquired and the Company’s books relating to the
foregoing;

INTELLECTUAL PROPERTY
All copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all rights in and to
issued patents and patents pending; all trade secret rights, including all
rights to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; all
mask work or similar rights available for the protection of semiconductor chips,
now owned or hereafter acquired; all trade marks and trade names and associated
goodwill; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and

PROCEEDS
All of the Company’s books and records relating to the foregoing and any and all
present and future accounts, general intangibles, chattel paper, electronic
chattel paper, products, accessions, replacements, betterments and substitutions
for any of the foregoing described property, and all proceeds arising from or by
virtue of, or from the sale or disposition of, or collections with respect to,
or insurance proceeds payable with respect to, or claims against any other
Person with respect to, all or any part of the foregoing described property and
interests.

3.           Pro Rata Distributions Among Investors.  It is expressly agreed by
each Investor that all payments received by the Company under or in connection
with the sale or liquidation of the Collateral, subject to any Senior Debt,
shall be divided pari passu among all holders of promissory notes issued under
the Purchase Agreement, consistent with the terms of the Subordination
Agreement. Each Investor further agrees that if any Investor shall obtain
payment in respect of any principal of or interest on any of its Notes resulting
in such Investor’s receiving payment greater than the pro rata share
contemplated by the Subordination Agreement, then the Investor receiving such
greater proportion shall (i) notify the Collateral Agent of such fact and (ii)
hold the amount exceeding its pro rata share and promptly pay such amount to the
Collateral Agent, or make such other adjustments as shall be equitable in order
to effectuate the terms of the Subordination Agreement.

4.           Collateral Agent.

a.           Appointment and Authority. Trident Capital, Inc. is hereby
appointed Collateral Agent hereunder, and each Investor hereby authorizes
Collateral Agent to act as its agent in accordance with the terms hereof.  Each
Investor authorizes Collateral Agent to take such actions on its behalf and to
exercise such powers as are delegated to Collateral Agent by the terms hereof,
together with such actions and powers as are reasonably incidental thereto.

 
 

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b.           Exculpatory Provisions.  Collateral Agent shall not have any duties
or obligations except those expressly set forth herein.  Without limiting the
generality of the foregoing, Collateral Agent:

 
i.
shall not be subject to any fiduciary or other implied duties, regardless of
whether an Event of Default has occurred and is continuing,

 
 
ii.
shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby that Collateral Agent is required to exercise as directed in
writing (as shall be expressly provided for herein); provided that Collateral
Agent shall not be required to take any action that, in its opinion or the
opinion of its counsel, may expose Collateral Agent to liability or that is
contrary to this Security Agreement, any Financing Document or applicable law,

 
 
iii.
shall not, except as expressly set forth herein, have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Company or any of its affiliates that is communicated to or obtained by
Collateral Agent or any of its affiliates in any capacity,

 
 
iv.
shall not be liable for any action taken or not taken by it with the consent or
at the request of the holders of at least 60% of the aggregate principal amount
of Notes then outstanding,

 
 
v.
shall not be liable for any action taken or not taken by it in accordance with
the advice of any legal counsel (who may be counsel for the Company),
independent accountants and other experts selected by it,

 
 
vi.
shall not be liable for any action taken or not taken by it in accordance with
an order from a court of competent jurisdiction,

 
 
vii.
shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with this
Security Agreement or any Financing Document, (ii) the contents of any
certificate, report or other document delivered hereunder or thereunder or in
connection herewith or therewith, (iii) the performance or observance of any of
the covenants, agreements or other terms or conditions set forth herein or
therein or the occurrence of any Event of Default, or (iv) the validity,
enforceability, effectiveness or genuineness of this Security Agreement, any
Financing Document or any other agreement, instrument or document, and

 
 
 

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

 
 
 
viii.
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing (including any electronic message, Internet or intranet website
posting or other distribution) believed by it to be genuine and to have been
signed, sent or otherwise authenticated by the proper Person.  Collateral Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to have been made by the proper Person, and shall not incur any liability
for relying thereon.

 
c.           Replacement of Collateral Agent.  With the consent or at the
request of the holders of at least 60% of the aggregate principal amount of
Notes then outstanding, Collateral Agent shall be replaced with a successor to
be appointed by such holders.  Upon the acceptance of a successor’s appointment
as Collateral Agent hereunder, such successor shall succeed to and become vested
with all of the rights, powers, privileges and duties of the retiring Collateral
Agent, and the retiring Collateral Agent shall be discharged from all of its
duties and obligations hereunder or under the Financing Documents.

5.           Rights of Investors; Limitations on Investor’s Obligations.  It is
expressly agreed by the Company that, anything herein to the contrary
notwithstanding, the Company shall remain liable under each of its contracts and
documents to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with and pursuant to
the terms and provisions of its contracts and documents.  Collateral Agent and
Investors shall have no obligation or liability under any of the Company’s
contracts and documents by reason of or arising out of this Security Agreement
or the granting to the Collateral Agent on behalf of the Investors of a security
interest therein or the receipt by Collateral Agent or any Investor of any
payment relating to any of the Company’s contracts and documents pursuant
hereto, nor shall Collateral Agent or any Investor be required or obligated in
any manner to perform or fulfill any of the obligations of the Company under or
pursuant to any of its contracts and documents, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it or the sufficiency of any performance by any party under any of its contracts
and documents, or to present or file any claim, or to take any action to collect
or enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

6.           Representations and Warranties.  The Company hereby represents and
warrants that the chief executive office and chief place of business of the
Company is 680 Second Street, Suite 200, San Francisco, CA 94107, and the
Company will not change such chief executive office and chief place of business
or remove such records unless the Company shall have given Investor at least 10
days prior written notice thereof.  The Company hereby represents and warrants
that the execution, delivery and performance of this Agreement shall not
conflict with, constitute a breach or default under, or result in the
termination of, any agreement executed by the Company in connection with the
Senior Debt.

7.           Covenants.  The Company covenants and agrees with Investors and
Collateral Agent that from and after the date of this Security Agreement and
until the Obligations are fully satisfied:

 
 

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a.           Further Documentation.  At any time and from time to time, upon the
written request of the Collateral Agent, and at the sole expense of the Company,
the Company will promptly and duly execute and deliver any and all such further
documents and take such further action as Collateral Agent may reasonably
request in carrying out the terms and conditions of this Security Agreement and
the rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted
hereby.  The Company also hereby authorizes Collateral Agent to file a financing
statement under the Uniform Commercial Code in any jurisdiction with respect to
the security interests granted hereby.

b.           Continuous Perfection.  The Company will not change its name,
identity or corporate structure in any manner unless the Company shall have
given Collateral Agent at least 10 days' prior written notice thereof and shall
have taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by Collateral Agent to amend any
financing statement or continuation statement filed with respect to the
Collateral so that it is not misleading.

c.           Insurance.  The Company will insure the Collateral against such
risks and hazards as other companies similarly situated insure against, in
amounts and under policies which it currently holds and under such additional or
substituted amounts or policies as it may from time to time determine, which
shall be reasonably acceptable to the Collateral Agent (providing that no
cancellation of such insurance shall be effective without 30 days written notice
to Collateral Agent containing loss payable clauses to Collateral Agent as its
interests may appear) and all premiums thereon shall be paid by the Company.

d.           Limitation on Encumbrances on Collateral. The Company will not
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any Encumbrance or claim on or
to the Collateral, other than the Encumbrances created hereby or otherwise
permitted pursuant to the Purchase Agreement, and will defend the right, title
and interest of Collateral Agent and Investors in and to any of the Collateral
against other claims and demands of all Persons whomsoever.

e.           Limitations on Dispositions of Collateral. The Company will not
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except for (x) sales of inventory in the ordinary
course of its business and (y) so long as no Event of Default has occurred, the
disposition in the ordinary course of business of property not material to the
conduct of its business.

 
 

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8.           Remedies, Event of Default. If any dissolution, liquidation,
winding up of the affairs of the Company or other Event of Default shall occur
and be continuing and subject to (a) the subordination provisions of the
preceding Section 2 and (b) the terms of the Subordination Agreement, Collateral
Agent may exercise in addition to all other rights and remedies granted in this
Security Agreement or in any other instrument or agreement securing, evidencing
or relating to the Obligations or at law or in equity, all rights and remedies
of Collateral Agent under the Code. Collateral Agent shall be deemed not to have
knowledge of any Event of Default unless and until notice thereof is given to
Collateral Agent by the Company.  Without limiting the generality of the
foregoing, the Company expressly agrees that in any such event, the Collateral
Agent, without demand of performance or other demand (except the notice
specified below of time and place of public or private sale) to or upon the
Company or any other Person may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or sell or otherwise dispose
of and deliver said Collateral (or contract to do so), or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange broker's
board or at any of the Collateral Agent’s offices or elsewhere at such prices as
it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. Collateral Agent shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption the
Company hereby releases.  The Company further agrees, at Collateral Agent’s
request, to assemble the Collateral, make it available to Collateral Agent at
places which Collateral Agent shall reasonably select, whether at the Company's
premises or elsewhere. Collateral Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care, safe keeping or otherwise of any or all of the
Collateral or in any way relating to the rights of the Collateral Agent or
Investors hereunder, including reasonable attorneys' fees and legal expenses, to
the payment in whole or in part of the Obligations, the Company remaining liable
for any deficiency remaining unpaid after the application, and only after so
paying over such net proceeds and after the payment by the Collateral Agent of
any other amount required by any provision of law.  To the extent permitted by
applicable law, the Company waives all claims, damages, and demands against
Collateral Agent arising out of the repossession, retention or sale of the
Collateral.  The Company agrees that the Collateral Agent need not give more
than 10 days notice of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is reasonable
notification of such matters.  The Company shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which the Collateral Agent and the Investors
are entitled.

The Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this Security
Agreement or any collateral.

9.           Application of Proceeds.  Subject to the subordination provisions
contained in the preceding Section 2, and subject to the terms of the
Subordination Agreement, the proceeds of all sales and collections in respect of
any Collateral shall be applied as follows:
 
First, to the payment of the costs and expenses of such sales and collections,
the expenses of Collateral Agent and the reasonable fees and expenses of counsel
to Collateral Agent;

 
 

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Second, any surplus then remaining to the payment of the Obligations in such
order and manner consistent with the provisions of Section 3 above as the
Collateral Agent may in its sole discretion determine; and
 
Third, any surplus then remaining shall be paid to the Company.
 
10.           Limitation on Collateral Agent’s and Investor’s Duty in Respect of
Collateral.  Beyond the use of reasonable care in the custody thereof,
Collateral Agent and Investors shall have no duty as to any Collateral in their
possession or control or in the possession or control of any agent or nominee of
them or any income thereon or as to the preservation of rights against prior
secured parties or any other rights pertaining thereto.
 
11.           Notices.  Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be delivered personally or by
facsimile (receipt confirmed electronically) or shall be sent by a reputable
express delivery service or by certified mail, postage prepaid with return
receipt requested, addressed as follows:
 
if to the Company, to:

ECO2 Plastics, Inc.
680 Second Street, Suite 200
San Francisco, CA 94107
Attn:      Rodney S. Rougelot
Fax:        (415) 829-6001

with a copy to:

The Otto Law Group, PLLC
601 Union Street, Suite 4500
Seattle, WA 98101
Attn:       David M. Otto
Fax:        (206) 262-9513

if to Collateral Agent, to:

Trident Capital, Inc.
505 Hamilton Avenue, Suite 200
Palo Alto, CA 94301
Attn:       Howard S. Zeprun, Chief Administrative Officer and General Counsel
Fax:        (650) 289-4444

if to the Investors, to:

The addresses of such Investors set forth on the signature pages hereto.

 
 

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

 

All such notices and communications shall be deemed to have been duly
given:  (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section prior to 5:00 pm in the time zone of the recipient on a business
day, with confirmation of successful transmission or (v) the business day
following the date of transmission if sent via facsimile to the facsimile number
as set forth in this Section after 5:00 p.m. in the time zone of the recipient
or on a date that is not a business day.  Change of a party’s address, facsimile
number or specified recipient may be designated hereunder by giving notice to
all of the other parties hereto in accordance with this Section.
 
12.           Severability.  Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
 
13.           No Waiver; Cumulative Remedies.  Neither Collateral Agent nor any
Investor shall, by any act, delay, omission or otherwise, be deemed to have
waived any of its rights or remedies hereunder and no waiver shall be valid
unless in writing, signed by Collateral Agent or such Investor, as the case may
be, and then only to the extent therein set forth.  A waiver by Collateral Agent
or an Investor shall not be construed as a bar to any right or remedy which
Collateral Agent or such Investor would otherwise have had on any future
occasion.  No failure to exercise nor any delay by Collateral Agent or an
Investor in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or future exercise thereof or the
exercise or any other right, power or privilege.  The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law.
 
14.           Successors and Assigns.  This Security Agreement and all
obligations of the Company hereunder shall be binding upon the successors and
permitted assigns of the Company, and shall, together with the rights and
remedies of Collateral Agent and Investors hereunder, inure to the benefit of
Collateral Agent and Investors and their successors and permitted assigns;
provided that the Company may not assign any of its rights or obligations
hereunder without the prior written consent of Collateral Agent.
 
15.           Amendment.  None of the terms or provisions of this Security
Agreement may be altered, modified or amended except by an instrument in
writing, duly executed by the Company and the holders of at least 70% of the
aggregate principal amount of promissory notes then outstanding under the
Purchase Agreement.  This Agreement amends and restates the Security Agreement
by and among Trident, Hutton and the Company dated as of November 21, 2008, but
nothing herein shall discharge the obligations of, nor constitute a novation
with respect to, the indebtedness of the Company to Trident and Hutton pursuant
to the Original Notes.
 
16.           Governing Law.  This Security Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
 

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17.           Counterparts. This Security Agreement may be executed in separate
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.
 
18           Facsimile.  This Security Agreement may be executed using
facsimiles of signatures, and a facsimile of a signature shall be deemed to be
the same, and equally enforceable, as an original of such signature.
 
19.           Termination.  At such time all Obligations have been fully
satisfied, the security interest created hereby shall automatically
terminate.  Collateral Agent shall take all such actions as may be requested by
the Company to evidence such termination and to release the liens created
hereby, at the Company's expense.
 
[Signature Page Follows]

 
 

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

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
Security Agreement to be duly executed and delivered as of the Effective Date.

ECO2 PLASTICS, INC.
   
By:
   
Rodney S. Rougelot
 
Chief Executive Officer

Trident Capital, Inc.,
as Collateral Agent
  Executed by the undersigned as an authorized signatory of Trident Capital,
Inc.          
(signature)
         
(print name)

 
 

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INVESTORS:

Trident Capital Fund-VI, L.P.
Trident Capital Fund-VI Principals Fund, L.L.C.
   
Executed by the undersigned as an authorized signatory of the General Partner of
Trident Capital Fund-VI, L.P. and of the Managing Member of Trident Capital
Fund-VI Principals Fund, L.L.C. 
         
(signature)
         
(print name)
     
Address:   505 Hamilton Avenue, Suite 200
 
Palo Alto, CA 94301
 
Attn:  Howard S. Zeprun
 
Chief Administrative Officer and General Counsel
 
Fax:           +1 (650) 289-4444

 
 

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INVESTORS:

 
Hutton Living Trust, dated 12-10-96
       
By:
 
   
G. Thompson Hutton, Trustee
       
Address:     2 Santiago Avenue
                    Atherton, CA  94027
     
E-Mail:    tom@thomspsonhutton.com

 
 

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INVESTORS:

 
By:
   
Name:
   
Title:
         
Address:
               
Fax:
   
E-Mail:
 

 
 

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Schedule A
Investors
 
 
- 28 -

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Exhibit F
 
Amended and Restated Subordination and Intercreditor Agreement
 
AMENDED AND RESTATED SUBORDINATION AND INTERCREDITOR AGREEMENT
 
This Amended and Restated Subordination and Intercreditor Agreement (this
“Agreement”) is made as of this 17th day of December, 2008, among certain
holders of promissory notes issued pursuant to the Prior Purchase Agreement
(defined below) that are signatories hereto (collectively, the “Investors”),
TRIDENT CAPITAL, INC., as collateral agent on behalf of the Investors (together
with the Investors, individually and collectively, the “Current Lender”),
TRIDENT CAPITAL FUND-VI, L.P. (“Trident Capital I”), TRIDENT CAPITAL FUND-VI
PRINCIPALS FUND, L.L.C. (“Trident Capital II”), HUTTON LIVING TRUST DATED
12/10/1996 (“Hutton”), each other party listed as an additional senior lender on
the signature page hereto and each other party who becomes bound by this
Agreement as a senior lender pursuant to Section 21 of the Purchase Agreement,
as defined below (each, an “Additional Investor” and, collectively with Trident
Capital I, Trident Capital II and Hutton, the “December Investors”), TRIDENT
CAPITAL, INC., as collateral agent on behalf of the December Investors (together
with the December Investors, individually and collectively, the “New Lender”),
and PENINSULA PACKAGING, LLC, a California limited liability company
(“Peninsula” and, each of Peninsula and New Lender, a “Senior Lender” and
collectively the “Senior Lenders”).
 
WITNESSETH
 
WHEREAS on November 21, 2008, J. Charles Buff (“Buff”) loaned Six Hundred
Thousand Dollars ($600,000) to ECO2 Plastics Inc., a Delaware corporation
(“Borrower”),  pursuant to a certain promissory note dated as of the date
thereof (the “Buff Note”).
 
WHEREAS, on November 17 and November 21, 2008, Trident Capital Fund-VI, L.P. and
Trident Capital Fund-VI Principals Fund, L.L.C. (collectively, the “Trident
Lenders”) loaned an aggregate of Five Hundred Fifty Thousand Dollars ($550,000)
to the Borrower pursuant to certain promissory notes dated as of November 17 or
November 21, 2008 (collectively, the “Trident Notes”).
 
WHEREAS, on November 17, 2008, the Hutton Living Trust Dated 12/10/1996 loaned
Fifty Thousand Dollars ($50,000) to the Borrower pursuant to a certain
promissory note dated as of such date (the “Hutton Note” and, collectively with
the Trident Notes and the Buff Note, the “Nov08 Notes”).

WHEREAS, the Investors are holders of certain indebtedness and liabilities owing
from Borrower to the Investors pursuant to (a) those certain Convertible Secured
Promissory Notes dated August 22, 2008, August 28, 2008, September 2, 2008 and
September 15, 2008 (the “Earlier Investor Notes”), and (b) that certain
Convertible Note and Warrant Purchase Agreement dated as of September 2, 2008
(the “Prior Purchase Agreement”; together with the Earlier Investor Notes, the
“Existing Subordinated Debt Documents”). The Existing Subordinated Debt
Documents and the Subordinated Security Agreement referenced below, together
with all other documents, agreements, instruments and/or certificates relating
thereto, are hereinafter collectively referred to as the “Subordinated Debt
Documents.”

 
- 29 -

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WHEREAS, all indebtedness, liabilities and obligations of Borrower to the
Investors under the Subordinated Debt Documents, together with all interest and
other monies due or to become due thereunder, and any fees, costs and expenses
in connection therewith, and any amounts payable by Borrower in connection with
any purchase rights, are hereinafter referred to as the “Subordinated Debt.”
 
WHEREAS, the payment and performance of all of the Subordinated Debt is secured
by a security interest in certain assets of the Borrower, some or all of which
constitute the Collateral, pursuant to an Amended and Restated Security
Agreement dated as of September 2, 2008, given by Borrower in favor of Trident
Capital, Inc., as collateral agent for the Investors (as amended, the
“Subordinated Security Agreement”).
 
WHEREAS, on November 21, 2008, the Current Lender, Buff and the Trident Lenders
entered into a Subordination and Intercreditor Agreement (the “Original
Subordination Agreement”) pursuant to which the parties agreed that the
Subordinated Debt would be subordinated to the indebtedness under the Nov08
Notes.
 
WHEREAS, on the date hereof, Buff assigned all of his right, title and interest
in, under and to the Buff Note, the Original Subordination Agreement and certain
documents related thereto to Peninsula.
 
WHEREAS, Peninsula, on the one hand, and the New Lender, on the other hand, each
intend to lend at least an additional Nine Hundred Thousand Dollars ($900,000)
to the Borrower, totaling at least One Million Eight Hundred Thousand Dollars
($1,800,000) in the aggregate.
 
WHEREAS, in connection with the foregoing additional loans and pursuant to a
certain Convertible Note and Warrant Purchase Agreement dated as of the date
hereof by and among the Borrower, Senior Lenders and certain other parties (the
“Purchase Agreement”), Borrower has executed and delivered to Senior Lenders
promissory notes in the aggregate amount of at least $3,000,000, including
amounts originally represented by the Nov08 Notes (individually, a “Senior Note”
and collectively the “Senior Notes”) evidencing certain of Borrower’s
obligations, liabilities and indebtedness to Senior Lenders and as secured by
Security Agreements dated as of the date hereof made by Borrower in favor of
Senior Lenders (each, a “Security Agreement” and collectively the “Security
Agreements”) (the Security Agreements, the Senior Notes and the Purchase
Agreement, together with the other documents, instruments and agreements
executed in connection therewith, as they may from time to time be modified,
amended, restated or replaced, are hereinafter collectively referred to as the
“Senior Loan Documents”), pursuant to which Senior Lenders have loaned to
Borrower the aggregate principal amount of at least $3,000,000 (collectively the
“Loans”), upon and subject to the terms of, the Senior Loan
Documents.  Capitalized terms used and not otherwise defined herein shall have
the meanings given to such terms in the Senior Loan Documents.

 
- 30 -

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WHEREAS, all of the indebtedness, liabilities and obligations of Borrower to
Senior Lenders in connection with the Senior Loan Documents, including all
extensions thereof and all debt issued to the Senior Lenders in respect thereof,
are hereinafter collectively called the “Senior Debt.”
 
WHEREAS, the payment and performance of the Senior Debt is secured by  security
interests in, among other things, all of the present and future goods,
equipment, inventory, investment property, instruments, chattel paper,
documents, letter-of-credit rights, accounts, deposit accounts, commercial tort
claims and general intangibles of Borrower, wherever located, and the products
and proceeds thereof (collectively, the “Collateral”).
 
WHEREAS, it is a condition precedent to the obligation of certain of the Senior
Lenders to make the Loans provided for in the Senior Loan Documents that Current
Lender and Borrower execute and deliver this Agreement to and with Senior
Lenders.
 
NOW, THEREFORE, in order to induce Senior Lenders to make the Loans provided for
in the Senior Loan Documents and in consideration therefor, and in consideration
of the mutual covenants set forth herein, the parties hereto hereby agree as
follows:

 
- 31 -

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

 
 
1.                     CONSENT.  CURRENT LENDER HEREBY CONSENTS TO AND APPROVES
OF THE EXECUTION, DELIVERY AND PERFORMANCE BY BORROWER OF THE SENIOR LOAN
DOCUMENTS AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OF THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS EXECUTED IN CONNECTION WITH THE SUBORDINATED
DEBT.  THE INVESTORS EXECUTING THIS AGREEMENT HEREBY REPRESENT AND WARRANT TO
SENIOR LENDERS THAT THEY HOLD AT LEAST SIXTY PERCENT (60%) OF THE PRINCIPAL
AMOUNT OF THE OUTSTANDING NOTES, AS SUCH TERM IS DEFINED IN THE PRIOR PURCHASE
AGREEMENT.

2.                     SUBORDINATION.

Section 2.01    Subordination of Payment.  Except as set forth in Section 2.2
below, the payment of any and all of the principal amount of, interest on and
any fees, costs and expenses on the Subordinated Debt is hereby expressly
subordinated and made junior to the payment of the principal amount, all
interest, all liquidated damages, fees, costs, expenses and any other amounts
due on the Senior Debt.
 
Section 2.02    Payments.  Anything in any other agreement, instrument or
document executed and delivered in connection with the Subordinated Debt to the
contrary notwithstanding, Borrower shall not make, and Current Lender shall not
receive, accept or retain, any direct or indirect payment, or prepayment on
account, or any reduction (whether by way of loan, set-off or otherwise) in
respect of the principal of, premium on, or interest on the Subordinated Debt
until the Termination Date (as defined in Section 6.11); provided, however, that
so long as at the time of and after giving effect to any such payment, no Event
of Default has occurred under the Senior Loan Documents, or would occur as a
result thereof, Borrower may make, and Current Lender may accept, regularly
scheduled payments of principal and interest on the Subordinated Debt, without
acceleration.

 
- 32 -

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Section 2.03    Subordination of Lien.  Notwithstanding the date, manner or
order of creation, attachment or perfection of (i) those security interests and
liens in favor of Senior Lenders now or hereafter existing in the Collateral or
(ii) those security interests and liens in favor of Current Lender now or
hereafter existing in the Collateral, and notwithstanding any provisions of the
Uniform Commercial Code or other applicable law or of any agreement(s) granting
such security interests or liens to Current Lender and Senior Lenders, Senior
Lenders and Current Lender hereby agree that: (a) any security interests and
liens in and/or on the Collateral securing the Subordinated Debt shall be, in
all respects, subject to and subordinate to the security interests and liens in
and/or on the Collateral securing the Senior Debt, to the full extent thereof;
and (b) any security interests and liens in and/or on the Collateral securing
Senior Debt shall be, in all respects, of equal lien priority to any security
interests and liens in and/or on the Collateral securing other Senior Debt, and
any payments or proceeds of Collateral received under the Senior Loan Documents
shall be made pro rata to the Senior Lenders on a pari passu basis until such
time as all obligations under the Senior Loan Documents have been paid in full;
provided, that each Senior Lender shall first be entitled to recover any
expenses or fees incurred in connection with the exercise of its rights and
remedies with respect to the Collateral under this Agreement.  Current Lender
will indicate in any financing statement filed (whether before or after the date
hereof, including if necessary by amendment) in connection with the Subordinated
Debt that its security interests and liens in the Collateral are subordinated to
the security interests and liens of Senior Lenders in the Collateral, subject to
the terms of this Agreement.
 
Section 2.04    Default/Remedies.  In the event of (a) the application for the
appointment of a receiver or custodian for Borrower or the property of Borrower,
(b) the entry of an order for relief or the filing of a petition by or against
Borrower under the provisions of the Bankrupcty Code (as defined below), (c) any
assignment for the benefit of creditors by or against Borrower, or (d)
Borrower’s insolvency (which term is defined for purposes of this paragraph as
the failure or inability of Borrower to meet its obligations as the same fall
due) (collectively, an “Insolvency Event”), then and in any such event:
 
 
(i)
All of the Senior Debt shall first be paid in full before any payment or
distribution of any character, whether in cash, securities, obligations or other
property, shall be made in respect of the Subordinated Debt;

 
 
(ii)
Any payment or distribution of any character, which would otherwise (but for the
terms hereof) be payable or deliverable in respect of the Subordinated Debt
(including any payment or distribution of any other indebtedness of Borrower
being subordinated to the Subordinated Debt), shall be paid or delivered
directly to Senior Lenders, or their representatives, until the Termination
Date, and Current Lender irrevocably authorizes, empowers and directs all
receivers, custodians, trustees, liquidators, conservators and others having
authority in the property and premises of Current Lender to effect all such
payments and deliveries; and

 
 
(iii)
Notwithstanding any statute, including, without limitation, the United States
Bankruptcy Code (the “Bankruptcy Code”), any rule of law or bankruptcy
procedures to the contrary, the right of Senior Lenders hereunder to have all of
the Senior Debt paid and satisfied in full prior to the payment of any of the
Subordinated Debt shall include, without limitation, the right of Senior Lenders
to be paid in full all interest accruing on the Senior Debt due to the Senior
Lenders after the filing of any petition by or against Borrower in connection
with any bankruptcy or similar proceeding or any other proceeding referred to in
this paragraph, hereof, prior to the payment of any amounts in respect to the
Subordinated Debt, including, without limitation, any interest due to Current
Lender accruing after such date.

 
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Section 2.05    Power of Attorney.  In the event of any Insolvency Event
involving Borrower prior to the Termination Date, the Senior Lenders are hereby
appointed as the attorney-in-fact for Current Lender with respect to the
Subordinated Debt to take the following actions if Senior Lenders choose to do
so and if the Current Lender has failed to take any such actions at least ten
(10) days in advance of any applicable bar date: (a) demand, sue for, collect
and receive any and all such cash or other assets, file any claim, proof of
claim or similar instrument, and institute such other proceedings which Senior
Lenders may in their sole and absolute discretion deem necessary, advisable or
appropriate to have the Subordinated Debt claim allowed in such Insolvency
Event, to collect the Subordinated Debt, and to enforce the terms of this
Agreement, and (b) to vote for Current Lender with respect to the Subordinated
Debt in connection with any matter before a bankruptcy court requiring approval
by Current Lender, provided that Senior Lenders shall have no right to
compromise the rights of Current Lender with respect to any creditor junior to
Current Lenders.
 
Section 2.06    Payments in Trust.  If, notwithstanding the provisions of this
Agreement, any payment or distribution of any character (whether in cash,
securities, or other property) or any security shall be received by any Senior
Lender or by Current Lender in contravention of the terms of this Agreement,
such payment, distribution or security shall not be commingled with any asset of
a Senior Lender or Current Lender, shall be held in trust for the benefit of,
and shall be paid over or delivered and transferred to the other party, or its
representative, for application to the payment of the applicable debt remaining
unpaid.
 
Section 2.07    Transfer/Assignment of Senior Debt.  This Agreement, without
further reference, shall pass to and may be relied on and enforced by any
transferee or subsequent holder of any Senior Debt.  In the event of any sale,
assignment, disposition or other transfer of any Subordinated Debt, Current
Lender shall cause the transferee thereof to execute and deliver to the Senior
Lenders an agreement (substantially identical with this Agreement or otherwise
in form and substance satisfactory to Senior Lenders) providing for the
continued subordination of the Subordinated Debt to the Senior Debt as provided
herein and for the continued effectiveness of all of the rights of Senior
Lenders arising under this Agreement.
 
3.                     CONTINUED EFFECTIVENESS OF THIS AGREEMENT.  THE TERMS OF
THIS AGREEMENT, THE SUBORDINATION EFFECTED HEREBY, AND THE RIGHTS OF SENIOR
LENDERS AND THE OBLIGATIONS OF CURRENT LENDER ARISING HEREUNDER, SHALL NOT BE
AFFECTED, MODIFIED OR IMPAIRED IN ANY MANNER OR TO ANY EXTENT BY:
 
(a)
any amendment, modification or termination of or supplement to the Senior Loan
Documents or any other agreement, instrument or document executed or delivered
pursuant thereto;

 
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(b)
the validity or enforceability of any such documents;

 
(c)
the release, sale, exchange or surrender, in whole or in part, of any collateral
security, now or hereafter existing, for any of the Senior Debt or any other
indebtedness, liability or obligation of Borrower to Senior Lenders, now
existing or hereafter arising;

 
(d)
any exercise or failure to exercise any right, power or remedy under or in
respect of the Senior Debt or any of such instruments and documents referred to
in clause (a) above or arising at law; or

 
(e)
any waiver, consent, release, indulgence, extension, renewal, modifications,
delay or other action, inaction or omission in respect of the Senior Debt or any
of the agreements instruments or documents executed and delivered in respect of
any collateral security for the Senior Debt or any other indebtedness, liability
or obligation of Borrower to Senior Lenders, now existing or hereafter arising,
all whether or not Current Lender shall have had notice or knowledge of any of
the foregoing and whether or not it shall have consented thereto.

 
 
4.                     RESTRICTIONS; RIGHTS AND REMEDIES; WAIVER OF CLAIMS.
 
Section 4.01    Restrictions.  Prior to the Termination Date and notwithstanding
anything contained in any Subordinated Debt Documents to the contrary, Current
Lender shall not, without the prior written consent of Senior Lenders, do any of
the following:
 
(a)
amend, modify or supplement or agree to any amendment, modification or
supplement of, or to, the Subordinated Debt or any of the Subordinated Debt
Documents in any manner;

 
(b)
accelerate the maturity of all or any portion of the Subordinated Debt, or take
any action towards collection of all or any portion of the Subordinated Debt or
enforcement of any rights, powers or remedies under the Subordinated Debt
Documents against any of the property, real or personal, of Borrower, or any
interest therein or under other agreements entered into pursuant thereto or
against any of the property, real or personal, of Borrower or any interest
therein upon the occurrence of any event of default under the Subordinated Debt
or as defined in the Subordinated Debt Documents or any event, which with the
passage of time, or giving of notice, or both would constitute such a default
(including, without limitation, the occurrence of an Event of Default under any
of the Senior Loan Documents);

 
(c)
contest, protest or object to any foreclosure proceeding, post petition
financing, use of cash collateral or action brought by a Senior Lender or any
other exercise by a Senior Lender of any rights or remedies under the Senior
Loan Documents or applicable law; or

 
(d)
obtain any additional security interest in or liens upon any of Borrower’s
existing or hereafter acquired real or personal property including, without
limitation, the Collateral without the Senior Lenders’ prior written
consent.  In the event that Current Lender shall, despite the provisions of this
paragraph, obtain any such additional security interest or lien, then without
any further action any such security interest or lien shall be deemed assigned
to Senior Lenders as collateral security for the Senior Debt.

 
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 4.2           Senior Lenders’ Rights and Remedies.  The Senior Lenders shall
have the exclusive right to enforce rights and exercise remedies with respect to
the Collateral and the Senior Lenders shall not be required to marshal any
Collateral.  In exercising rights and remedies with respect to the Collateral,
the Senior Lenders may enforce the provisions of the Senior Loan Documents and
exercise remedies thereunder, all in such order and in such manner as they may
determine in the exercise of their sole business judgment. Such exercise and
enforcement shall include, without limitation, the rights to sell or otherwise
dispose of Collateral, to incur expenses in connection with such sale or
disposition and to exercise all the rights and remedies of a secured lender
under the Uniform Commercial Code of any applicable jurisdiction.
 
 4.3           Right to Release.  The Senior Lenders’ rights with respect to the
Collateral include the right to release any or all of the Collateral from the
security interest and lien of any Senior Loan Documents or Subordinated Debt
Documents in connection with the sale of such Collateral, notwithstanding that
the net proceeds of any such sale may not be used to permanently prepay any
Senior Debt or Subordinated Debt.  If Senior Lenders shall determine, in
connection with any sale of Collateral, that the release of such security
interest and lien of any Subordinated Debt Document on such Collateral in
connection with such sale is necessary or advisable, Current Lender shall
execute such release documents and instruments and shall take such further
actions as Senior Lenders shall request. Current Lender hereby irrevocably
constitutes and appoints the Senior Lenders  and any officer thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Current Lender and in
the name of Current Lender or in Senior Lenders’ own names, from time to time in
Senior Lenders’ discretion, for the purpose of carrying out the terms of this
paragraph, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this paragraph, including, without limitation, any financing
statements, endorsements, assignments or other instruments of transfer or
release.

 4.4           Waiver of Claims.  To the maximum extent permitted by law,
Current Lender waives any claim it might have against Senior Lenders with
respect to, or arising out of, any action or failure to act or any error of
judgment, negligence, or mistake or oversight whatsoever on the part of Senior
Lenders, or their respective directors, officers, employees or agents with
respect to any exercise of rights or remedies under the Senior Loan Documents or
any transaction relating to the Collateral.  No Senior Lender nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of Borrower or Current Lender or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.

 4.5           Senior Lender Restrictions.  Until the Termination Date, no
Senior Lender shall obtain any additional security interests in or liens upon
any of Borrower’s existing or hereafter acquired real or personal property
including, without limitation, the Collateral, without the prior written consent
of Senior Lenders holding at least 70% of the principal amount of the
outstanding Senior Notes.  No Senior Lender shall challenge the enforceability
of another Senior Lender’s claim with respect to Senior Debt or challenge the
enforceability of any lien or security interest granted under the Senior Loan
Documents.

 
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5.                     PROVISIONS APPLICABLE AFTER BANKRUPTCY.  THE PROVISIONS
OF THIS AGREEMENT SHALL CONTINUE IN FULL FORCE AND EFFECT NOTWITHSTANDING THE
OCCURRENCE OF ANY INSOLVENCY EVENT.  TO THE EXTENT THAT CURRENT LENDER HAS OR
ACQUIRES ANY RIGHTS UNDER SECTION 362, 363 OR 364 OF THE BANKRUPTCY CODE WITH
RESPECT TO THE COLLATERAL, CURRENT LENDER HEREBY AGREES NOT TO ASSERT SUCH
RIGHTS WITHOUT THE PRIOR WRITTEN CONSENT OF SENIOR LENDERS; PROVIDED THAT, IF
REQUESTED BY SENIOR LENDERS, CURRENT LENDER SHALL SEEK TO EXERCISE SUCH RIGHTS
IN THE MANNER REQUESTED BY SENIOR LENDERS, INCLUDING THE RIGHTS IN PAYMENTS IN
RESPECT OF SUCH RIGHTS. CURRENT LENDER (BOTH IN ITS CAPACITY AS CURRENT LENDER
AND IN ITS CAPACITY AS A PARTY WHICH MAY BE OBLIGATED TO BORROWER OR ANY OF
BORROWER’S AFFILIATES WITH RESPECT TO CONTRACTS WHICH ARE PART OF SENIOR
LENDERS’ COLLATERAL) AGREES NOT TO INITIATE OR PROSECUTE OR ENCOURAGE ANY OTHER
PERSON TO INITIATE OR PROSECUTE ANY CLAIM, ACTION, OBJECTION OR OTHER PROCEEDING
(I) CHALLENGING THE ENFORCEABILITY OF A SENIOR LENDER'S CLAIM WITH RESPECT TO
SENIOR DEBT, (II) CHALLENGING THE ENFORCEABILITY OF ANY LIENS OR SECURITY
INTERESTS IN ASSETS SECURING THE SENIOR DEBT, (III) ASSERTING ANY CLAIMS WHICH
BORROWER MAY HOLD WITH RESPECT TO A SENIOR LENDER, OR (IV) OBJECTING TO ANY SALE
OR OTHER DISPOSITION OF BORROWER’S ASSETS CONSENTED TO BY SENIOR LENDERS IN ANY
BANKRUPTCY OR OTHER PROCEEDING OR ANY BORROWING OR GRANT OF ANY LIEN BY BORROWER
CONSENTED TO BY SENIOR LENDERS IN ANY SUCH PROCEEDING.

6.                     GENERAL PROVISIONS.

Section 6.01    Successors and Assigns.  This Agreement is entered into for the
benefit of the parties hereto and their successors and permitted assigns.  It
shall be binding upon and shall inure to the benefit of the parties, their
successors and assigns.  Current Lender shall not assign this Agreement, or its
rights and obligations hereunder, without the prior written consent of Senior
Lenders.  Any Senior Lender may only assign this Agreement to any assignee of
its Senior Note from Borrower.

Section 6.02    Subrogation.  No payment or distribution to a Senior Lender
pursuant to the provisions of this Agreement shall entitle Current Lender to
exercise any rights of subrogation in respect thereof prior to the Termination
Date.  After the Termination Date, and provided that no payments are voidable,
Current Lender shall be subrogated to the rights of Senior Lenders to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to Current Lender have been applied to the payment of Senior
Debt.  A distribution made under this Agreement to Senior Lenders, which
otherwise would have been made to Current Lender, is not, as between Current
Lender and Borrower, a payment by Borrower on the Subordinated Debt.

 
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Section 6.03    Reinstatement.  The obligations of Current Lender under this
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Debt is rescinded or must
otherwise be restored or returned by Senior Lenders by reason of any bankruptcy,
reorganization, arrangement, composition or similar proceeding or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, the Borrower or any substantial part of Borrower’s
property, or otherwise, all as though such payment had not been made.
 
Section 6.04    Notice.  Wherever this Agreement provides for notice to any
party (except as expressly provided to the contrary), it shall be given by
messenger, facsimile, certified U.S. mail with return receipt requested, or
nationally recognized overnight courier with receipt requested, effective when
received or receipt rejected by the party to whom addressed, and shall be
addressed as follows, or to such other address as the party affected may
hereafter designate:
 
If to a Senior Lender:
As set on the signature page for such Senior Lender
   
If to any Investor or
 
Additional Investor:
As set on the signature page for such party
   
If to Trident
 
Capital, Inc.:
Trident Capital, Inc.
 
505 Hamilton Avenue, Suite 200
 
Palo Alto, CA 94301
 
Attn:
Howard C. Zeprun, Chief Administrative
Officer and General Counsel
 
Fax:
(650) 289-4444

 
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Section 6.05    Conflicts of Terms.  In the event of any conflict between any
term, covenant or condition of this Agreement and any term, covenant or
condition of the Subordinated Debt, or any document executed in connection
therewith or the indebtedness evidenced thereby, the provisions of this
Agreement shall control and govern.  In the event of any conflict between any
term, covenant or condition of this Agreement and any term, covenant or
condition of the Security Agreements, the provisions of this Agreement shall
control and govern.
 
Section 6.06    Further Assurances. Current Lender and Borrower, at their own
expense and at any time from time to time, upon the written request of Senior
Lenders will promptly and duly execute and deliver such further instruments and
documents and take such further actions as Senior Lenders reasonably may request
for the purposes of obtaining or preserving the full benefits of this Agreement
and of the rights and powers herein granted.  Each Senior Lender agrees, at its
own expense, to execute and deliver such further instruments and documents and
take such further actions as may be reasonably necessary in order to effectuate
the terms of this Agreement.
 
Section 6.07    Expenses.  Borrower will pay or reimburse a Senior Lender, upon
demand, for all its costs and expenses in connection with the enforcement or
preservation of any rights under this Agreement, including, without limitation,
fees and disbursements of counsel to such Senior Lender.  Borrower will pay,
indemnify, and hold each Senior Lender harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions (whether
sounding in contract, tort or on any other ground), judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of, or in any
other way arising out of or relating to this Agreement or any action taken or
omitted to be taken by any Senior Lender with respect to any of the foregoing.
 
Section 6.08    Legend.  Current Lender and Borrower will cause any promissory
note evidencing the Subordinated Debt to bear upon its face a legend referring
to this Agreement and indicating that such promissory note is subordinated as
provided herein.
 
Section 6.09    Entire Agreement; Amendments.  This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof.  This Agreement may not be amended or modified orally but may be amended
or modified in writing if signed by Trident Capital, Inc., holders of at least
sixty percent (60%) of the principal amount of the outstanding Notes under the
Prior Purchase Agreement, and Senior Lenders holding at least 70% of the
principal amount of the outstanding Senior Notes.  This Agreement amends and
restates the Original Subordination Agreement, as assigned by Buff to Peninsula
on the date hereof, but nothing herein shall discharge the obligations of, nor
constitute a novation with respect to, the indebtedness of the Borrower to Buff
pursuant to that certain Promissory Note issued by the Borrower in favor of Buff
dated as of November 21, 2008, which such document was assigned by Buff to
Peninsula on the date hereof. No amendment or waiver of provision of this
Agreement shall in any event be effective unless it is in writing, making
specific reference to this Agreement and signed by the party against whom such
waiver is sought to be enforced.
 
Section 6.10    No Third-Party Beneficiaries.  Notwithstanding anything
contained herein to the contrary, no provision of this Agreement is intended to
benefit any party other than the signatories hereto, nor shall any such
provision be enforceable by any other party.

 
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Section 6.11    Termination.  This Agreement shall terminate upon the
indefeasible payment in full of the Senior Debt and termination of the Senior
Loan Documents (such date being referred to as the “Termination Date”).
 
Section 6.12    Counterparts; Facsimile.  This Agreement may be executed in any
number of counterparts (each of which may be transmitted via facsimile or pdf),
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
 
Section 6.13    Action by Senior Lenders.  Except as otherwise expressly set
forth herein, any action or consent required or permitted hereunder on the part
of the Senior Lenders (including, without limitation, the exercise of any
remedies under the Senior Loan Documents on the part of the Senior Lenders) may
only be taken on behalf of the Senior Lenders by (a) Peninsula, in the event
that such party holds at least 30% of the principal amount of the outstanding
Senior Notes, or (b) by Senior Lenders holding a majority in interest of the
Senior Notes, in the event that Peninsula does not hold at least 30% of the
principal amount of the outstanding Senior Notes; provided, however, that in
either case, if any Senior Lender would be affected by any such action in a
manner materially and adversely different than other Senior Lenders (solely in
respect of each such party’s holdings of Senior Notes), regardless of whether
such action was taken by a majority in interest of the Senior Notes, then the
consent of such adversely affected Senior Lender shall also be required.  No
Senior Lender shall owe any duty to the other Senior Lenders except as expressly
set forth herein; provided, that the foregoing shall not abrograte any duties
that Trident Capital, Inc. may have in its capacity as collateral agent.

7.                     GOVERNING LAW; CONSENT TO JURISDICTION.
 
  (A)           THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN
CALIFORNIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND
PROCEDURE FOR FORECLOSURE OF SENIOR LENDERS’ LIENS UPON SUCH COLLATERAL AND THE
ENFORCEMENT OF SENIOR LENDERS’ OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO
THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF CALIFORNIA.

 
  (B)           EACH PARTY HEREBY CONSENTS AND AGREES THAT ANY FEDERAL OR STATE
COURT LOCATED IN ANY COUNTY IN THE STATE OF CALIFORNIA, SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE PARTIES
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT; PROVIDED, HOWEVER, THAT A SENIOR LENDER MAY, AT ITS OPTION, COMMENCE
ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION TO
OBTAIN POSSESSION OF OR FORECLOSE UPON ANY COLLATERAL, TO OBTAIN EQUITABLE
RELIEF OR TO ENFORCE ANY JUDGMENT OR ORDER OBTAINED BY SUCH SENIOR LENDER
AGAINST CURRENT LENDER OR WITH RESPECT TO ANY COLLATERAL, OR TO ENFORCE ANY
OTHER RIGHT OR REMEDY OR OBTAIN ANY OTHER RELIEF DEEMED APPROPRIATE BY SUCH
LENDER WITH RESPECT TO ANY COLLATERAL.  EACH PARTY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS CONSENT TO JURISDICTION PROVISION WITH ITS LEGAL COUNSEL, AND HAS
MADE THIS WAIVER KNOWINGLY AND VOLUNTARILY.
 
[Signature Pages Follow]
 
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IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day and
year first above written.

Peninsula Packaging, LLC
 
By:
   
Alex Millar, Managing Director
    c/o Stradley Ronon Stevens & Young, LLP 2600 One Commerce Square
Philadelphia, PA 19103 Attn:  Todd C. Vanett, Esquire Fax:  (215) 564-8120    
Trident Capital Fund-VI, L.P.
Trident Capital Fund-VI Principals Fund, L.L.C.
 
Executed by the undersigned as an authorized signatory of the General Partner of
Trident Capital Fund-VI, L.P. and of the Managing Member of Trident Capital
Fund-VI Principals Fund, L.L.C.
   
                 (signature)
   
                 (print name)
     
c/o Trident Capital, Inc.
 
505 Hamilton Avenue, Suite 200
 
Palo Alto, CA 94301
 
Attn:  Howard C. Zeprun, Chief
Administrative Officer and General Counsel
 
Fax:   (650) 289-4444
   
Hutton Living Trust Dated 12/10/1996
 
By:
   
G. Thompson Hutton, Trustee
     
Two Santiago Avenue
 
Atherton, CA 94027
 
Fax: (650) 326-6273

 
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ADDITIONAL SENIOR LENDERS:
 
If an entity:
 
 
(Company name)
 
By:
 
Name:
 
Title:
 

Address:
             
Fax:
 

 
If an individual:
   
(Signature of individual)

Printed Name:
 

Address:
             
Fax:
 

 
 
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TRIDENT CAPITAL, INC., as collateral
agent on behalf of the Investors
 
By:
   
Name:
 
Title:
     
TRIDENT CAPITAL, INC., as collateral
agent on behalf of the December Investors
   
By:
   
Name:
 
Title:
 

 
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INVESTORS:
Trident Capital Fund-VI, L.P.
Trident Capital Fund-VI Principals Fund, L.L.C.
 
Executed by the undersigned as an authorized signatory of the General Partner of
Trident Capital Fund-VI, L.P. and of the Managing Member of Trident Capital
Fund-VI Principals Fund, L.L.C.
       
John H. Moragne
     
c/o Trident Capital, Inc.
 
505 Hamilton Avenue, Suite 200
 
Palo Alto, CA 94301
 
Attn:  Howard C. Zeprun, CAO and GC
 
Fax:  (650) 289-4444
   
Hutton Living Trust Dated 12/10/1996
 
By:
   
G. Thompson Hutton, Trustee
     
Two Santiago Avenue
 
Atherton, CA 94027
 
Fax: (650) 326-6273
   
Buzby-Vasan 1997 Trust
 
By:
   
David S. Buzby, Trustee
 
1373 3rd Avenue
 
San Francisco, CA 94122
   
William and Michele Whittaker Trust UTD 6/25/03
   
By:
       
8070 La Jolla Shores Drive #508
 
La Jolla, CA 92037
 
Attn: William Whittaker

 
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Rodney S. Rougelot
   
By:
       
542 46th Ave.
 
San Francisco, CA  94121
 
Fax: (415) 829-6001
   
Carol S. Rougelot Family Trust
   
By:
   
Rodney S. Rougelot, Trustee
 
542 46th Ave.
 
San Francisco, CA  94121
 
Fax: (415) 829-6001
   
Saratoga Capital Partner, L.L.C.
   
By:
   
David Otto
     
601 Union St Ste 4500
 
Seattle, WA 98101
 
Attn: Peter Cangany
 
Fax:  (866) 288-2746
 
Email:  peter.cangany@ey.com

 
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BORROWER AGREEMENT
 
The undersigned, the Borrower mentioned in the foregoing Amended and Restated
Subordination and Intercreditor Agreement, hereby acknowledges receipt of a copy
thereof, acknowledges that the Subordinated Debt mentioned therein is payable as
stated therein.  Borrower shall make no payment of principal of or interest on
the Subordinated Debt, other than as expressly permitted under Section 2.2 of
the Amended and Restated Subordination and Intercreditor Agreement.

Dated as of December 17, 2008

ECO2 PLASTICS, INC.
   
By:
 
Name:
 
Title:
 

 
 

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